To encourage customers to purchase a particular good or service, such as a subscription, businesses sometimes provide products free of charge. The question is whether this has VAT implications, particularly in relation to the VAT rate or the right to deduct.
Applicable case law
Courts have ruled in several cases that offering promotional products follows the VAT treatment of the main supply and therefore is not a separate supply subject to VAT. This can mean that either no VAT is due in respect of the value of the free product or that the free product is subject to the same VAT rate as the main supply. Courts have also decided that the provision of free products does not affect an entrepreneur’s VAT position. In two situations, it has been decided that offering promotional products is not a separate supply for VAT purposes. However, the facts are always decisive.
CJEU ruling
In October 2023, the Court of Justice of the European Union (CJEU) issued a decision in a case involving a Portuguese company that offers magazine subscriptions, along with a promotional gift. When a consumer subscribes to a magazine, they also receive a welcome gift valued up to EUR 50. The magazine subscription is subject to the reduced VAT rate, and the company accounted for VAT for the subscription fee but no VAT was paid on the value of the welcome gift. The Portuguese tax authorities took the position that the promotional product should be regarded as a deemed taxable supply subject to the standard VAT rate. The CJEU concluded, however, that the introductory gift is ancillary to the main supply (the subscription); it is not a separate supply to be considered for VAT purposes but is absorbed by the subscription. This implies that the company accurately paid VAT only on the subscription fee.
Dutch court
The Dutch Court of Appeal ruled in 2023 on the VAT consequences of promotional products in two similar cases involving entrepreneurs that operated a theater. Tickets sold to consumers were subject to the reduced VAT rate but an (alcoholic) drink (provided during the intermission) was included in the ticket price. The question before the court was whether the reduced VAT rate or the standard rate should apply to the free drink (because an alcoholic beverage is subject to the standard rate in the Netherlands). The Court of Appeal concluded that offering free beverages makes the theater visit more attractive, resulting in one supply or an additional supply for VAT purposes. The 9% Dutch reduced VAT rate applies to this service.
Providing free products in the Netherlands
Under Dutch law, the provision of low value free goods (samples) (i.e., a cost price of up to EUR 15) is not considered a taxable supply. This may offer an alternative for some entrepreneurs.
More information?
If you have any questions about the VAT treatment of promotional campaigns, please
contact one of our VAT specialists.