© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
F2. Non-business use: goods
The deemed supply
- EU law
"The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.
However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration." (Article 16)
"Member States may treat each of the following transactions as a supply of goods for consideration:
(a) the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the VAT on such goods, had they been acquired from another taxable person, would not be wholly deductible;
(b) the application of goods by a taxable person for the purposes of a non-taxable area of activity, where the VAT on such goods became wholly or partly deductible upon their acquisition or upon their application in accordance with point (a);" (Article 18)
Purpose
- Equal treatment between final consumers and taxable persons applying goods for private use
"[23] It should be recalled, first of all, that under Article 16 of the VAT Directive certain transactions for which no real consideration is received by the taxable person are treated as supplies of goods effected for consideration subject to VAT. According to well-established case-law, the purpose of that provision is to ensure equal treatment as between a taxable person who applies goods for his own private use or for that of his staff, on the one hand, and a final consumer who acquires goods of the same type, on the other (see, to that effect, judgment in EMI Group, C‑581/08, EU:C:2010:559, paragraph 17 and the case-law cited)." (BCR Leasing C-438/13)
"[33] Second, in order to prevent a taxable person who has been able to deduct VAT on the purchase of goods used for his business from escaping payment of VAT when he takes those goods away from his business for private purposes and from thereby enjoying undue advantages over an ordinary consumer who buys the goods and pays VAT on them, Article 6(2) of the Sixth Directive provides that "the use of goods forming part of the assets of a business for the private use of the taxable person or of his staff or more generally for purposes other than those of his business where the value added tax on such goods is wholly or partly deductible" is to be treated as a supply of services for consideration (see Case C-20/91 De Jong v Staatssecretaris van Financiën [1992] ECR I-2847, paragraph 15, concerning Article 5(6) of the Sixth Directive, which is based on the same principle)." (Enkler C-239/94)
Free of charge
- Does not apply where there is consideration but it is below cost
"[24] It is apparent from the order for reference that, in future, the members of Scandic’s staff will continue to pay an actual consideration for the meals supplied by the company. Since the transaction in question is effected for consideration within the meaning of Article 2 of the Sixth Directive, there is no reason to apply Articles 5(6) and 6(2)(b). Those provisions relate only to transactions effected free of charge which are treated as supplies effected for consideration for VAT purposes." (Hotel Scandic C-412/03)
- Query the position where consideration is symbolic
"[26] The order for reference nowhere indicates that the amount to be paid in future by the members of Scandic’s staff for the provision of a meal in the company’s canteen will be symbolic. In any event, the risk referred to by the Swedish Government may be dealt with only by a request by the Member State concerned for authorisation under Article 27 of the Sixth Directive to introduce measures derogating from that directive in order to prevent certain types of tax evasion or avoidance." (Hotel Scandic C-412/03)
Private use
- Impossibility of leasing company recovering leased goods not non-business use
"[25] It is clear that the impossibility of actually recovering the goods under the financial leasing contract in circumstances such as those of the case in the main proceedings, does not fall within any of those situations.
[26] First, the goods in question cannot be regarded as being intended for the private use of the taxable person or of his staff, since they are not in their possession. Secondly, the fact that the lessee remains in possession of those goods without providing any form of consideration is the result of the lessee’s allegedly wrongful conduct and not of the disposal free of charge of those goods by the lessor in favour of the lessee. Thirdly, the goods cannot be considered as being applied for purposes other than those of the business of the taxable person, since their hiring out and thus being made available for the use of the lessee constitute the very essence of the economic activity of the lessor. The fact that the lessor does not actually recover those goods after the termination of the financial leasing contract in no way means that he has applied them for purposes other than those of his business." (BCR Leasing C-438/13 - but note the reference to the adjustment mechanism at §32)
- Transfer of property by property developer in discharge of tax debt is non-business use
"[34] A tax is a compulsory charge imposed by the sovereign power of the public authorities on the resources of persons coming under their fiscal jurisdiction. That charge is intended to be used, through public budgets, for services in the public interest. Such a charge, whether it relates to a sum of money or, as in the present case, to tangible property, does not result in any performance on the part of the public authority or, therefore, in any corresponding performance on the [35] Consequently, there is no legal relationship entailing reciprocal performance, within the meaning of the Court’s case-law cited in paragraph 31 of this judgment.
[36] As such, a transaction providing property in lieu of payment, the purpose of which is to discharge a tax debt, cannot be considered to be a transaction effected for consideration within the meaning of Article 2(1)(a) of the VAT Directive, and cannot be subject to VAT.
...
[41] In order to attain that objective, Article 16 of the VAT Directive treats as a supply of goods for consideration the application, by a taxable person, of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, where the VAT on those goods or the component parts thereof was wholly or partly deductible (judgment of 17 July 2014, BCR LeasingIFN, C‑438/13, EU:C:2014:2093, paragraph 24)." (Posnania Investment C-36/16)
Employees and private use
- Use of goods to travel to/from work not generally business use
"[51] The Court has previously held that the fact that an employee must travel between his home and his workplace in order to be present at work and, consequently, to perform his duties, is not conclusive evidence that transport provided for an employee from his home to his workplace is not to be considered as being for the employee’s private use within the meaning of Article 26(1) of the VAT Directive. Indeed, it would be contrary to the purpose of that provision if such an indirect link were sufficient, in itself, to prevent such travel being treated as a supply for consideration (see, to that effect, Case C-258/95 Fillibeck [1997] ECR I-5577, paragraph 27)." (EON Asset Management C-118/11)
- Special circumstances may make it necessary for employer to transport workers to/from home
"[52] On the other hand, in special circumstances, the requirements of the business may make it necessary for the employer to take responsibility for the provision of transport for employees between their homes and the workplace, with the result that the transport is organised by the employer for purposes which are not other than those of the business (see, to that effect, Fillibeck, paragraphs 29 and 30)." (EON Asset Management C-118/11)
VALUE OF DEEMED SUPPLY
Full cost of providing the service
"In respect of the supply of services, as referred to in Article 26, where goods forming part of the assets of a business are used for private purposes or services are carried out free of charge, the taxable amount shall be the full cost to the taxable person of providing the services." (PVD Article 75)
- Includes cost of expenses/services relating to goods on which input tax was deductible
"[34] In Case C-193/91 Mohsche [1993] ECR I-2615, paragraphs 13 and 14, the Court held that private use of goods is taxable only exceptionally and that, consequently, the words "use of goods" in Article 6(2)(a) are to be interpreted strictly, as meaning only the use of the goods themselves. Accordingly, services supplied by third parties for the purpose of maintaining or using goods where the taxable person is unable to deduct the input tax paid are not covered by that provision." (Enkler C-239/94)
- Expenses for period when available for both private and business use apportioned based on actual use
"[38] Consequently, the answer to the fourth question must be that Article 11A(1)(c) of the Sixth Directive is to be interpreted as meaning that the taxable amount for turnover tax on transactions treated as supplies of services under Article 6(2)(a) of the directive must include expenses which are incurred during a period in which the goods are at the taxable person' s disposal in a way that he can actually use them at any time for non-business purposes and which relate to the goods themselves or which the taxable person is entitled to deduct for VAT purposes. The portion of the expenses to be included must be proportionate to the ratio between the total duration of actual use of the goods and the duration of actual use for non-business purposes." (Enkler C-239/94)