The supply of services and goods can lead to a wide variety of VAT consequences. Several questions have to be answered. For example, where a service of a supply is considered to take place, whether an exemption is applicable, or what VAT rate must be applied. These questions can be difficult, especially when there is a combination of services and/or goods.
Particularly in the situation that the applicable VAT rates differ or when one or more of the items is VAT exempt it is important to determine the VAT consequences. Incorrect application of the VAT rate can for example lead to additional assessments or denial of the right to deduct input VAT for the buyer.
In case of a combination of supplies it must be determined whether such combination is considered to be a single supply for VAT purposes or not. According to case law of the European Court of Justice, in principle, each activity must be assessed individually, although a combination of services must not be separated artificially. The leading argument is that the perception of the average consumer determines whether there are several supplies with their own VAT aspects or that the combination leads to a single activity for VAT.
If the conclusion is that there is one single supply, it must be determined which element is leading and thus what VAT rate is applicable. In a recent decision the Court’s-Hertogenbosch had to decide on the VAT consequences of the supply of books that included CD-ROMs. Books are VAT taxable at the reduced rate, while on CD-ROMs the standard rate is applicable. The value of the CD-ROM was 15 percent of the total value. According to the tax inspector there were two separate supplies: the book and the CD-ROM. The Court, however, decided that in this case there was only a single supply of a book. The supply of the CD-ROM was not an individual supply as it had no separate meaning.
Another example is the supply of magazines with a novelty included. The novelty is included to make the magazine more attractive and has its own meaning. In such cases, it must be determined what amount of VAT is included in the consumer price. The price must then be split in two, based on the cost price of the individual items.
The conclusion is that when a combination of goods and/or services is supplied it must be carefully determined what the VAT consequences are. Sometimes there will be a single supply for VAT purposes with one applicable VAT rate while in other situations there will be separate supplies with their own VAT aspects.