VAT entrepreneurs who pass on costs do not always provide a service that is charged with VAT. In general, the VAT levy on passing on costs is considered a difficult subject by VAT entrepreneurs. For a long time, it was thought that passing on costs to a third party always resulted in a VAT-charged performance. But there are exceptions. Cm: explains how it is.
In its decision of September 29, 2017, the Supreme Court has broken through the idea that charging costs is always a VAT-taxed performance. The mere passing on of costs is not necessarily an achievement for VAT, the Supreme Court ruled. It follows from the judgment of the Supreme Court that charging costs is only a taxable performance for VAT if the VAT entrepreneur who charges the costs has to do or omit something in relation to the party to whom the costs are charged.
If a holding company only charges costs, for example the expenses paid for the director-major shareholder, without any further agreements having been made, this is not a VAT-taxed performance. As a result, the holding company will not be entitled to a VAT deduction, unless the holding company carries out other activities that are subject to VAT.
Only if the holding company charges expenses to a company for which it performs administrative activities, and these expenses have been incurred in connection with the agreed administrative activities, then the costs are charged on with VAT.
The Supreme Court’s reasoning relates to the question of whether a performance by the VAT entrepreneur is provided to the third party. Doing the administration of an operating company, as an additional obligation for the holding company, is regarded as a performance that the holding company provides to the operating company.
In principle, only passing on costs is not taxed with VAT, but if agreements are made from which obligations arise, the performance is taxed according to the Supreme Court.
When a VAT-taxed performance is desired, calculate a fee or a surcharge when passing on costs, because the payment of a fee on storage implies that the VAT entrepreneur who charges the costs not only charges the costs, but also additional work. or provide service.
Why is a VAT-taxed service desirable?
A VAT entrepreneur is entitled to a VAT deduction on his purchases insofar as the VAT entrepreneur performs VAT-taxed services. The VAT that the VAT entrepreneur pays when purchasing resources that serve the company can be reclaimed by the VAT entrepreneur from the tax authorities.
The passing on of costs without there being an obligation to do or not to do so is not subject to VAT and therefore does not lead to VAT deduction. This can be a disadvantage for the VAT entrepreneur who charges the costs, because this VAT entrepreneur cannot deduct the VAT on purchases. This may actually be an advantage for the VAT entrepreneur who is charged on the costs, namely in the situation where the VAT entrepreneur to whom the costs are charged on is not entitled to a VAT deduction.
VAT and recurring items
The charging of costs must be distinguished from recurring items. If costs are incurred in the name and on behalf of another person, and these costs are passed on to him, this is a continuous item. An example are fees for an environmental permit that a contractor pays for his client.
View your agreements
A VAT entrepreneur who charges his costs on to a third party must pay attention to whether charging the costs is involved with an extra obligation. If obligations arise through agreements with the VAT entrepreneur to whom the costs are passed on, then the charging of costs is a performance taxed with VAT. It is generally desirable for the VAT entrepreneur who charges the costs to deliver a taxed performance, because this allows him to reclaim the VAT involved in the costs.
A VAT entrepreneur who wants to be assured of a right to a refund of VAT when charging costs must see to what extent an agreement meets the requirements set by the Supreme Court. Many VAT entrepreneurs have since amended their agreements in response to this Supreme Court judgment.
Author: Mr. Carola van Vilsteren
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This article is published in cm: 2020, Ep. 6