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31-10-2024

Reduced VAT rate applicable to free servicing?

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Reduced VAT rate applicable to free servicing?

A manufacturer of e-bikes offers a free first maintenance service when selling a bike. The manufacturer argues that part of the sales price should be regarded as an advance payment for this service, which would qualify for the reduced VAT rate. Using this reasoning, the manufacturer seeks to lower and reclaim the VAT on the sale of the e-bike. How does the court rule on this matter?

Facts

The manufacturer primarily sells its bicycles to private individuals. Upon purchasing an e-bike, customers were offered a free first maintenance service, provided it was performed within three months of delivery and after less than 500 kilometers had been ridden. On the sales invoices, an amount of €67.50 for this maintenance service was listed but immediately deducted. As a result, the customer pays nothing for the service. The reduced VAT rate was applied to the €67.50.

Parties’ positions

The manufacturer argues that the reduced VAT rate applies to the maintenance service, even though it is offered as free. The service price is included in the total sales price of the e-bike. The manufacturer draws a comparison to discounts offered by supermarkets, such as “buy one, get one free.” Despite the discount, there is effectively a charge for the service, which should qualify for the reduced VAT rate.

The Dutch Tax Authority argues that the first maintenance service is an ancillary service to the delivery of the bicycle, for which no payment is required. Since no consideration is given or received, the reduced VAT rate cannot apply, according to the inspector.

Court’s ruling

The court concluded that the manufacturer offers the maintenance service for free. This is evident from the sales invoices, where an amount for the maintenance service is listed but immediately deducted. Ultimately, no fee is charged for the maintenance service. VAT is only applicable when consideration is received for a service provided. Since no payment is required for the maintenance service, the reduced VAT rate does not apply. The tax reassessment is therefore justified, and the manufacturer’s appeal is dismissed.

Conclusions

For entrepreneurs offering additional services when selling products or providing services, it is crucial to determine whether a fee is charged for those services. Without a clear consideration, VAT does not apply to the service. If consideration is required, a different VAT rate may apply to the additional service. It is then essential to establish whether the additional service is an ancillary service absorbed into the main service or a distinct extra service. Ambiguity in this regard can result in reassessments. Do you have questions about the tax treatment of services you offer? Feel free to contact us for tailored advice.

Source: District Court Gelderland | Case Law | ECLI:NL:RBGEL:20244521, ARN 22/1598 | July 15, 2024