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Europe: Characterisation of a single complex supply for VAT purposes — what is the correct test?

  • VAT is a tax on transactions and is usually easy to apply when a single price is paid for a single supply.
  • However, when a transaction involves a single price being paid for a package of items, a taxpayer must consider whether there is a single or multiple supply for VAT accounting purposes.
  • The principle of a single complex supply was established by the European Court of Justice, whereby the elements of a package were so closely linked that they formed objectively, from an economic point of view, a whole transaction and no element was ancillary to another.
  • The question then is how should the single complex supply be characterised for VAT purposes?
  • Recent case law has considered alternative tests to the “predominant element” test and whether there should be any hierarchy for these tests based on jurisprudence to date.
  • The UK Court of Appeal recently held that the primary test to apply is one based on the predominant element of the supply.
  • Where there is a “single, indivisible economic supply, which would be artificial to split” per precedent case law, there are two possible tests for ascertaining the correct VAT treatment: the “predominant element” test and the “overarching” test.

Source Baker & McKenzie

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