Commentary

V3.104 Link between supply and consideration

Part V3 Supplies, acquisitions and imports

V3.104 Link between supply and consideration

V3.104 Link between supply and consideration

The fact that a person receives a sum of money does not necessarily mean that it amounts to the consideration for a supply of goods or services. In a ruling by the ECJ, it was found that an agreement, entered into by a dairy farmer under the provisions of an EU Regulation which assisted farmers coming out of milk production, did not amount to a supply of services. It was held that the undertaking given by the farmer did not entail any benefit to either the EU or the member state which would enable them to be considered recipients of a service. Therefore, the payment made to the farmer was compensation and thus outside the scope of VAT1. The relevant question is: was anything done for a consideration2?

For the supply to be taxable within the meaning of Directive 2006/112/EC3, there must be a link between the supply of goods or services supplied by one person and the consideration provided by another person4. In EC v Finland5, the state provided legal aid for applicants who could not afford to pay for legal representation. However, an applicant was required to make a contribution to the legal costs if his disposable income exceeded certain limits, and the Commission took the view that this contribution was the consideration for a taxable supply. The ECJ held, however, that since the contribution was based on the ability of the applicant to pay, rather than the value of the service supplied,

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