Taxable transactions

Under the VAT Directive, a taxable transaction is a transaction that is subject to VAT. Not all taxable transactions are taxed - some can be exempt.

EU rules recognise 4 types of transactions on which VAT is chargeable (Article 2(1) VAT Directive):

Supply of goods in an EU country by a business
Supply of services
Intra-Community acquisition of goods
Importation of goods

Except for imports, for a transaction to be liable for VAT, it must involve consideration (e.g. payment). However, to prevent avoidance, evasion or distortion of competition, some transactions that do not involve payment are also treated as taxable.

For full details, see Articles 14-30 VAT Directive.

Why is it important to classify transactions correctly?

Different rules apply for the taxation of the different types of transactions. The differences may arise, for example, upon establishing the place of supply, VAT rate, or chargeable event.

Supply of goods

Main rule: a supply of goods is the transfer of the right to dispose of tangible property as an owner (Article 14(1) VAT Directive)

Other transactions considered as supply of goods are (Article 14(2), VAT Directive):

the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation;
the actual handing over of goods pursuant to a contract for the hire of goods for a certain period, or for the sale of goods on deferred terms, which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment;
the transfer of goods pursuant to a contract under which commission is payable on purchase or sale

In addition, EU countries may regard the handing over of certain works of construction as a supply of goods (Article 14(3) VAT Directive).

What is considered as a tangible property?

Tangible property includes any physical goods. Electricity, gas, heat or cooling energy and the like are considered as tangible property for VAT purposes (Article 15(1) VAT Directive).

In addition, EU countries may consider as tangible property the following (Article 15(2) VAT Directive):

certain interests in immovable property
rights in rem giving the holder thereof a right of use over immovable property
shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof

Transactions treated as supplies of goods

In certain cases, use of goods may be considered as a supply of goods or services.

Supply of goods	Explanation
Intra-EU transfer of goods (Article 17 VAT Directive)	A business (taxable person) shall treat the transfer of its business assets to another EU country as a supply of goods when: the business dispatches or transports its movable tangible property to another EU country; this is done for the purposes of its business; none of the exceptions listed in Article 17(2) VAT Directive apply or they cease to apply. Exceptions include: the distance sale of goods taxed in the EU country of destination; the transfer of goods for installation/assembly in another EU country by the supplier or on his behalf; the supply of goods on board a passenger ship, aircraft or train; the supply of gas, electricity, heat or cooling energy through a distribution system or network; certain exempt supplies of goods; the transfer of goods for valuations or work on, if returned afterwards; the transfer of goods for temporary use in relation to the supply of services. the transfer of goods for temporary use (not more than 2 years) under conditions similar to the temporary importation with full exemption from customs duties.
Self-supply of goods for non-business use (Article 16 VAT Directive)	A business (taxable person) shall treat the final use of its business assets as a supply of goods when: VAT on goods or their component parts was fully or partly deductible; the business uses those goods for non-business use such as private use or private use of its staff, or disposes them free of charge; the goods are not used as samples of gifts (use as samples or gifts of small value is not considered as a supply of goods).
Self-supply of goods for business use (Article 18(a) VAT Directive)	EU countries may require businesses (taxable persons) to treat the final use of their business assets as a supply of goods when: the business produced, extracted, processed, purchased or imported goods for its business use; the business uses those goods for its business; VAT on such goods if they were purchased from another taxable person would not be fully deductible.
Self-supply of goods for non-taxable use (Article 18(b), VAT Directive)	EU countries may require businesses (taxable persons) to treat the final use of their business assets as a supply of goods when: the business produced, extracted, processed, purchased or imported goods for its business use; VAT on such goods was fully or partly deductible (either upon their acquisition or upon a supply for business use); the business uses those goods for a non-taxable area of its business.
Self-supply of retained goods when stopping trading (Article 18(c) VAT Directive)	EU countries may require businesses (taxable persons) to treat as a supply of goods the use of their business assets when: the business ceases its economic activities; the business or its successors retain the goods; this is not considered as a non-taxable transfer of business assets; VAT on such goods was fully or partly deductible (either upon their acquisition or upon their application for business use).
Exception for transfer of business assets (Article 19 VAT Directive)	EU countries may consider that no supply of goods has taken place and that the recipient is the successor to the transferor when: a business fully or partially transfers its business assets; such a transfer is done for consideration, or without it, or as a contribution to a company. If the recipient is not wholly liable to tax, EU countries may introduce special rules/measures to avoid distortion of competition or to prevent tax evasion or avoidance.

Intra-EU transfer of goods (Article 17 VAT Directive)

A business (taxable person) shall treat the transfer of its business assets to another EU country as a supply of goods when:

the business dispatches or transports its movable tangible property to another EU country;
this is done for the purposes of its business;
none of the exceptions listed in Article 17(2) VAT Directive apply or they cease to apply.

Exceptions include:

the distance sale of goods taxed in the EU country of destination;
the transfer of goods for installation/assembly in another EU country by the supplier or on his behalf;
the supply of goods on board a passenger ship, aircraft or train;
the supply of gas, electricity, heat or cooling energy through a distribution system or network;
certain exempt supplies of goods;
the transfer of goods for valuations or work on, if returned afterwards;
the transfer of goods for temporary use in relation to the supply of services.
the transfer of goods for temporary use (not more than 2 years) under conditions similar to the temporary importation with full exemption from customs duties.

Self-supply of goods for non-business use
(Article 16 VAT Directive)

A business (taxable person) shall treat the final use of its business assets as a supply of goods when:

VAT on goods or their component parts was fully or partly deductible;
the business uses those goods for non-business use such as private use or private use of its staff, or disposes them free of charge;
the goods are not used as samples of gifts (use as samples or gifts of small value is not considered as a supply of goods).

Self-supply of goods for business use
(Article 18(a) VAT Directive)

EU countries may require businesses (taxable persons) to treat the final use of their business assets as a supply of goods when:

the business produced, extracted, processed, purchased or imported goods for its business use;
the business uses those goods for its business;
VAT on such goods if they were purchased from another taxable person would not be fully deductible.

Self-supply of goods for non-taxable use
(Article 18(b), VAT Directive)

EU countries may require businesses (taxable persons) to treat the final use of their business assets as a supply of goods when:

the business produced, extracted, processed, purchased or imported goods for its business use;
VAT on such goods was fully or partly deductible (either upon their acquisition or upon a supply for business use);
the business uses those goods for a non-taxable area of its business.

Self-supply of retained goods when stopping trading (Article 18(c) VAT Directive)

EU countries may require businesses (taxable persons) to treat as a supply of goods the use of their business assets when:

the business ceases its economic activities;
the business or its successors retain the goods;
this is not considered as a non-taxable transfer of business assets;
VAT on such goods was fully or partly deductible (either upon their acquisition or upon their application for business use).

Exception for transfer of business assets
(Article 19 VAT Directive)

EU countries may consider that no supply of goods has taken place and that the recipient is the successor to the transferor when:

a business fully or partially transfers its business assets;
such a transfer is done for consideration, or without it, or as a contribution to a company.

If the recipient is not wholly liable to tax, EU countries may introduce special rules/measures to avoid distortion of competition or to prevent tax evasion or avoidance.

Supply of services

Main rule: a supply of services is any transaction which does not constitute a supply of goods (Article 24 VAT Directive)

Examples of transactions considered as supply of services (Article 25, VAT Directive):

The assignment of intangible property, whether this is a document establishing title or not
The obligation to refrain from an act, or to tolerate an act or situation
Services performed under (i) the law or (ii) an order made by or on behalf of a public authority

Transactions treated as supply of services

Self-supply of goods for non-business use, treated as supply of services

Suplpy of services	Explanation
Self-supply of services for non-business use, treated as supply of services (Article 26(1)(a) VAT Directive)	A business (taxable person) shall treat the temporary use of its business assets as a supply of services when: VAT on goods was fully or partly deductible; the business uses those goods for non-business use such as private use or private use of its staff. The difference with the self-supply of goods for non-business use is that in this case, the goods are only temporarily used for those purposes as opposed to the final use of goods. EU countries may decide to treat this as a non-taxable transaction if it does not lead to distortion of competition.
Self-supply of services for non-business use (Article 26(1)(b) VAT Directive)	A business (taxable person) shall treat transactions as a supply of services when: the business supplies services free of charge; those services are used for non-business use such as private use or private use of its staff. EU countries may decide to treat this as a non-taxable transaction if it does not lead to distortion of competition.
Self-supply of services for business use (Article 27 VAT Directive)	EU countries may require businesses (taxable persons) to treat self-supply as a supply of services when: the business supplies services to itself (i.e. uses those services); VAT on such services would be not fully deductible if they were purchased from a taxable person; the business uses those services for its business.
Supply of services by intermediaries (Article 28 VAT Directive)	It shall be considered that a business (taxable person) has received and supplied services when: it acts as an intermediary in the supply of services on behalf of another person; those services are supplied in its own name.

Self-supply of services for non-business use, treated as supply of services (Article 26(1)(a) VAT Directive)

A business (taxable person) shall treat the temporary use of its business assets as a supply of services when:

VAT on goods was fully or partly deductible;
the business uses those goods for non-business use such as private use or private use of its staff.

The difference with the self-supply of goods for non-business use is that in this case, the goods are only temporarily used for those purposes as opposed to the final use of goods.

EU countries may decide to treat this as a non-taxable transaction if it does not lead to distortion of competition.

Self-supply of services for non-business use (Article 26(1)(b) VAT Directive)

A business (taxable person) shall treat transactions as a supply of services when:

the business supplies services free of charge;
those services are used for non-business use such as private use or private use of its staff.

EU countries may decide to treat this as a non-taxable transaction if it does not lead to distortion of competition.

Self-supply of services for business use
(Article 27 VAT Directive)

EU countries may require businesses (taxable persons) to treat self-supply as a supply of services when:

the business supplies services to itself (i.e. uses those services);
VAT on such services would be not fully deductible if they were purchased from a taxable person;
the business uses those services for its business.

Supply of services by intermediaries
(Article 28 VAT Directive)

It shall be considered that a business (taxable person) has received and supplied services when:

it acts as an intermediary in the supply of services on behalf of another person;
those services are supplied in its own name.

Intra-Community acquisition of goods

An intra-Community acquisition of goods is the acquisition of the right to dispose as owner of movable tangible property dispatched or transported to the person acquiring the goods, by or on behalf of the vendor or the person acquiring the goods, in a EU country other than that in which dispatch or transport of the goods began (Article 20, VAT Directive).

On an intra-Community acquisition of goods, the acquirer is liable to pay the VAT under the reverse-charge mechanism.

Example

A French company orders an aircraft part from a German manufacturer. The manufacturer arranges for the part to be air-freighted to the French company’s factory in Toulouse.

The French company has made an intra-Community acquisition of goods. The manufacturer, on the other hand, has made an exempt supply of goods.

When is an intra-Community acquisition subject to VAT? (Article 2.1(b) VAT Directive)

The following intra-Community acquisitions of goods for consideration are subject to VAT:

intra-Community acquisition of goods by a taxable person, or a non-taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises and who is not covered by Articles 33 or 36
intra-Community acquisition of new means of transport by any person
intra-Community acquisition of products subject to excise duty, by a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT

When is an intra-Community acquisition of goods not subject to VAT? (Article 3 VAT Directive)

An intra-Community acquisition of goods is not subject to VAT where the following conditions are met:

the goods acquired are not those referred to in Article 4, new means of transport or products subject to excise duty;
the goods are acquired by a taxable person for the purposes of his agricultural, forestry or fisheries business subject to the common flat-rate scheme for farmers;
or by a taxable person who carries out only supplies of goods or services in respect of which VAT is not deductible,
or by a non-taxable legal person;

In addition to meeting these conditions, for the intra-Community acquisition of goods not to be subject to VAT, it is necessary that:

during the current calendar year, the total value of intra-Community acquisitions of goods does not exceed a threshold determined by that EU country and
during the previous calendar year, the total value of intra-Community acquisitions of goods did not exceed that threshold;
unless that taxable person or non-taxable legal person opts for taxation (the choice to tax applies at least for two years).

In addition, intra-Community acquisition of goods, the supply of which would be exempt in that EU country pursuant to Articles 148 and 151, shall also be not subject to VAT (Article 3 VAT Directive).

Transactions treated as intra-Community acquisitions of goods

Intra-Community acquisitions of goods	Explanation
Intra-Community acquisition of goods imported by non-taxable legal persons (Article 20(2), VAT Directive)	The following shall be considered as intra-Community acquisition of goods: non-taxable legal person acquires goods outside the EU; he/she imports those goods in one EU country and transports or dispatches to the final destination in another EU country. The non-taxable legal person must: pay import VAT in the EU country of importation (unless another person is designated as liable for it); account for intra-Community acquisition in the EU country of destination of goods; that import VAT is refunded by EU country of importation when the person can prove that VAT on intra-Community acquisition was accounted for.
Article 21 transactions (VAT Directive)	A business (taxable person) shall treat a transaction as an intra-Community acquisition of goods where: the business produced, extracted, processed, purchased, imported or acquired the goods for its business use in one EU country; it dispatches or transports those goods into another EU country; it uses those goods for its business purposes in that EU country.
Article 22 transactions (VAT Directive)	The final use of goods by NATO forces shall be treated as an intra-Community acquisition of goods for consideration where: NATO forces use the goods for its needs or for their accompanying civilian staff; those goods were not purchased under the local VAT rules of the EU country in which they are stationed; the importation of those goods would not have been eligible for exemption in the normal way for such transactions under Article 143(1)(h) VAT Directive.
Article 23 transactions (VAT Directive)	Conditions EU countries shall treat as an intra-Community acquisition of goods for consideration the transactions where: that transaction would have been treated as a supply of goods if carried out by a taxable person in that EU country.

Intra-Community acquisition of goods imported by non-taxable legal persons (Article 20(2), VAT Directive)

The following shall be considered as intra-Community acquisition of goods:

non-taxable legal person acquires goods outside the EU;
he/she imports those goods in one EU country and transports or dispatches to the final destination in another EU country.

The non-taxable legal person must:

pay import VAT in the EU country of importation (unless another person is designated as liable for it);
account for intra-Community acquisition in the EU country of destination of goods;
that import VAT is refunded by EU country of importation when the person can prove that VAT on intra-Community acquisition was accounted for.

Article 21 transactions (VAT Directive)

A business (taxable person) shall treat a transaction as an intra-Community acquisition of goods where:

the business produced, extracted, processed, purchased, imported or acquired the goods for its business use in one EU country;
it dispatches or transports those goods into another EU country;
it uses those goods for its business purposes in that EU country.

Article 22 transactions (VAT Directive)

The final use of goods by NATO forces shall be treated as an intra-Community acquisition of goods for consideration where:

NATO forces use the goods for its needs or for their accompanying civilian staff;
those goods were not purchased under the local VAT rules of the EU country in which they are stationed;
the importation of those goods would not have been eligible for exemption in the normal way for such transactions under Article 143(1)(h) VAT Directive.

Article 23 transactions (VAT Directive)

Conditions

EU countries shall treat as an intra-Community acquisition of goods for consideration the transactions where:

that transaction would have been treated as a supply of goods if carried out by a taxable person in that EU country.

Importation of goods

The importation of goods is a taxable transaction. Anyone who imports goods into the EU (business, non-taxable legal entity - such as a public body, private person, etc.) is liable for VAT on the transaction.

Under EU VAT rules, import means the entry into an EU country of:

Goods which are not in free circulation
Goods which are in free circulation from an EU customs territory not covered by EU VAT rules

(Article 30, VAT Directive)

Free circulation means:

the goods have complied with all import formalities
the country of importation has levied any customs duties or equivalent charges due (with no total or partial drawbacks)

(Article 29 Treaty on the Functioning of the European Union)

Legal texts

Treaty on the Functioning of the EU

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax