On December 31 2001 the Tax Court in Amsterdam ruled that because an implementation project was sold together with standard software, the entire sale was one of tailor-made software and thus a service for value added tax (VAT) purposes. The fact that separate invoices were issued did not matter.

In the case, title to the standardized software was not clearly supplied before the implementation. Neither was an import declaration filed by the customer to show passage of title before implementation. Acceptance of the software took place pursuant to a test of the system carried out after implementation.

The court decided that from the customer's perspective it had purchased tailor-made software. The customer's point of view was decisive to the case. The fact that the purchased software was now considered a service for VAT purposes resulted in a reverse charge of VAT pursuant to Article 9(2)(e) of the 6th EU VAT Directive.

If a simple standardized software package had been sold, no import VAT would have been due (except for the value of the CD-ROM), provided that certain conditions were met. Proper structuring of a sale of software from outside the European Union to a customer in EU member state could have prevented this adverse VAT consequencefrom arising.

For further information on this topic please contact Jan Snel at Baker & McKenzie, Amsterdam by telephone (+31 20 5517555) or by fax (+31 20 626 79 49) or by email ([email protected]).