Exam (elaborations)
VAT - PAST EXAM
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Exam of 10 pages for the course European Value Added Tax at UM (VAT - PAST EXAM)
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Below you can find the answer keys to the questions of the EVAT exam 2012/2013. We note that thebelow should only be used for didactic purposes (i.e. for learning purposes). No rights can be
derived from the below.
Question 1
Oskar plays with the idea of developing an iPhone app that enables you to identify any shell you can find on
any beach in the whole world. On a Monday night, while eating in a Thai restaurant, he decides to pursue his
dream of making the app, selling it through Apple’s App Store and become filthy rich. The next day, he
purchases an iBook Air, iPhone, the book ‘How to build an app’ and the book ‘Shells around the word’.
a. Can Oskar deduct all input VAT on his purchases? (max 30 out of 100 points)
• Is Oskar is a taxable person?
Any person, independently, economic activity. Last element is particularly
relevant in this question.
Note: student should not forget the criterion 'any person'
Only mentioning 'economic activity' is not sufficient.
• Start of economic activities
Rompelman:
“the economic activities (…) may consist in several consecutive
transactions , as is indeed suggested by the wording of article 4 (2)
which refers to ‘all activities of producers , traders and persons
supplying services ‘. The preparatory acts, such as the acquisition of
assets and therefore the purchase of immovable property , which form part
of those transactions must themselves be treated as constituting economic
activity”.
--> Oskar is a taxable person when he purchases an iBook Air, iPhone, the
book ‘How to build an app’ and the book ‘Shells around the word’
Students should mention that the Tax Authorities may require objective
evidence to support the declared intention to start an economic activity.
• Can Oskar deduct input VAT?
Oskar’s economic activity will consist of the supply of software on-line.
Supplying software on-line is the supply of a service (art. 24 VD), which
is not exempt under either 132 or 135 VD. Therefore, in principle (see
below) a right of deduction exists on the basis op art. 168(a) VD.
Note: it is not sufficient to only mention art. 168(a).
• The place of the supply of the service consisting of supplying apps is
most likely a B2C supply, given the nature of the application (shell
collecting). Art. 58 VD does not apply, as the supplier (Oskar) is
established in the EU. Place of supply is the Netherlands, if one assumes
that Apple only operates in the name and for the account of Oskar.
• Given the nature of the business and the subjects of the books, it can be
argued that the books are solely used for business purposes (no mixed
use). Therefore a full right of deduction exists.
Note: If one argues that the book on shells may also be used for private
purposes, asset labelling must be discussed (see below).
• In particular the iBook Air and the iPhone are movable investment goods
that are likely not to be used only for business purposes, but will
probably also be used for private purposes. Students must discuss art.
168a(2) VD, the asset labelling theory of the ECJ and the possibility of
fictitious supplies (art. 26 VD) to occur.
1
, • Art. 168a(2) VD implemented? --> no deduction insofar private use.
Adjustment of input VAT during 5 years.
• 168a(2) VD not implemented? --> asset labelling
Assuming that Oskar labels the investment goods as business assets only. -
-> full deduction of input VAT, followed periodically by service Art.
26(1)(a) VD during 5 years (Wollny).
• Service by Thai restaurant. Faaborg Gelting Linien. Place of supply = NL
(art. 45 VD).
After one month, the first version of the app is ready, but it is too buggy to be accepted in Apple’s App Store.
Oskar decides to work a little further on the app. After yet another two months, Oskar discovers that
developing an app is more difficult than he thought. He cannot get rid of all the bugs in the app. He decides
to quit developing the app.
b. Does Oskar’s decision to quit development of the app have any EU VAT consequences? If so,
describe these consequences. (max 20 out of 100 points)
• Relevant question: does it matter that the economic activity was not
carried out? --> INZO
• Right of deduction is not affected.
• Application of goods for private use: Art. 18(c) VD: fictitious self-
supply.
• Art. 74 VD: Taxable amount: purchase price determined at the time when
application for private use takes place.
• Fini H. --> business is terminated. A person who has ceased an economic
activity, remains a taxable person and is entitled to deduct the VAT,
provided that there is a direct and immediate link between the payments
made and the commercial activity and that the absence of any fraudulent or
abusive intent has been established.
Half a year later, again when eating in a Thai restaurant, he meets Julie. Julie is a skilled software engineer.
Oskar and Julie appear to be compatible in many ways, but to make a long story short, they decide to pick
up on Oskar’s plan for developing the ‘Shell app’. Oskar will do the required research on shells worldwide
and Julie will focus on making the app technically viable. For the purpose of developing their app, they
decide to establish a flex-BV (a Dutch legal person). The BV is incorporated two weeks later. Both Oskar and
Julie are shareholders (each holds 50% of the shares) and carry out their work on the app on the basis of a
contract of employment with the BV. They both receive monthly salary payments from the BV. The BV is
largely funded with an interest bearing loan from Julie, who is a rich girl. Oskar sells his iBook Air, iPhone,
the book ‘How to build an app’ and the book ‘Shells around the word’ to the BV. The BV pays him € 6,000 in
return.
c. Describe the relevant EU VAT consequences of the aforementioned events. (max 20 out of
100 points)
• VAT Status BV
o Incorporation of the BV itself --> no VAT consequences
o Is the BV a taxable person?
BV = any person
BV = independent (Art. 10 VD only sees to relations employer –
employee)
BV = economic activity --> Rompelman (see above)
--> BV is a taxable person
• Oskar and Julie taxable persons?
o Both Oskar and Julie are 'Any person' separately
o They carry out an economic activity
o Main question is: do they carry out the economic activity
independently?
2
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