Question about packs and VAT

[datakick]

Hi everyone,

I would like to ask your opinions / experiences with VAT on pack of products. 

Currently, pack of product is treated as a separate product with single tax rate. I believe this is not correct, especially when pack contains products with different tax rates. 

What is your take on this? How should system work?

[30knees]

I think it depends on the nature of the pack, unfortunately. 

If it's just a special offer pack, I believe it's correct that there should be two products, each with their own VAT rate, because the products are not intimately connected, there is no "primary" component and "secondary" component.

However, if the pack is a "true" pack, then the "primary" / "principal" part of the pack detemines the VAT rate of that pack as a whole. The pack as a whole is a distinct product from each separate component.

This understanding comes from this Court of Justice of the European Union case: https://curia.europa.eu/juris/document/document.jsf;jsessionid=651CFF8D09C8073D9D6742F60B327FD1?text=&docid=198525&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=384011

Paragraph 21 on the nature of the pack:  As a preliminary point, it should be noted that, according to the Court’s case-law, where a transaction comprises a bundle of elements and acts, regard must be had to all the circumstances in which the transaction in question takes place in order to determine whether that operation gives rise, for the purposes of VAT, to two or more distinct supplies or to one single supply (see, to that effect, judgments of 10 March 2011, Bog and Others, C‑497/09, C‑499/09, C‑501/09 and C‑502/09, EU:C:2011:135, paragraph 52 and the case-law cited, and of 21 February 2013, Žamberk, C‑18/12, EU:C:2013:95, paragraph 27 and the case-law cited).

The Court's ruling on one VAT rate where the above analysis leads to the conclusion that there is "one" supply/product: The Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2001/4/EC of 19 January 2001, must be interpreted as meaning that a single supply, such as that at issue in the main proceedings, comprised of two distinct elements, one principal, the other ancillary, which, if they were supplied separately, would be subject to different rates of value added tax, must be taxed solely at the rate of value added tax applicable to that single supply, that rate being determined according to the principal element, even if the price of each element forming the full price paid by a consumer in order to be able to receive that supply can be identified.

 

Edited October 13, 2023 by 30knees

[datakick]

Thank you so much, that's interesting.

Unfortunately it also makes it much more complicated to implement, as usual 🙂

[30knees]

Yes, if someone truly has a single supply case it's not easy! One would have to be able to manually specify whether it's a single supply or individual supplies and for the former what the tax rate should be. At least in my shop I can't come up with a single supply case, any bundle would be two separate ones. I would assume that's the case for most goods. A combination of services or good and services is more likely to lead to a single supply, in my opinion.

Here one more quote to help figure out question of single supply vs two or more individual supplies:

There is a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (Levob Verzekeringen and OV Bank, paragraph 22; Case C‑425/06 Part Service [2008] ECR I‑897, paragraph 53; and Bog and Others, paragraph 53). There is also a single supply where one or more elements are to be regarded as constituting the principal supply, while other elements are to be regarded, by contrast, as one or more ancillary supplies which share the tax treatment of the principal supply (see, in particular, CPP, paragraph 30; Levob Verzekeringen and OV Bank, paragraph 21; and Bog and Others, paragraph 54 and case-law cited).

Para 28 in https://curia.europa.eu/juris/document/document.jsf?text=&docid=134105&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=434078

[the.rampage.rado]

3 hours ago, trendyuser said:

Does the site calculate the VAT automatically or I have to do it by myself?

Do you mean VAT per sale or the monthly VAT?