Interest on loan provided by supplier to purchase certain goods VAT taxable
In the Stock ’94 case the Court of Justice of the European Union (hereinafter: CJEU) released a judgment that is of interest to all suppliers providing credit to its customers. It may put the older case law of the CJEU on this issue in another light.
29 december 2016
The Stock ’94 case
Stock ’94 is a Hungarian entrepreneur that provides a loan to a farmer. The farmer can only use the loan to purchase goods from Stock ’94, such as seeds. Stock ’94 treated the loan as a VAT exempt granting of credit. The Hungarian tax authorities were however of the opinion that Stock ’94s supply of goods and the granting of credit are one supply that is VAT taxable.
The CJEU ruled that the position of the Hungarian tax authorities was correct. The granting of credit and the supply of goods by Stock ’94 are one supply. In this one supply the granting of credit is an ancillary supply. Therefore the interest paid on the loan must be included in the taxable amount for the supply of the goods.
Earlier case law – Muy’s en De Winter
Already in the early nineties the CJEU had to rule on the question whether the interest that was paid due to a postponement of payment was part of the taxable amount in the Muy’s en De Winter’s Bouw- en Aannemingsbedrijf case. The CJEU ruled that interest due because of the postponement of payment until the supply takes place has to be included in the taxable amount of the underlying supply. Postponement of payment after the supply takes place is a separate VAT exempt supply of services.
A new course for the CJEU?
The Stock ’94 case seems to deviate from the previous case law, because it does not distinguish between the period before and after the underlying supply. The interest on the loan provided by Stock ’94 needs to be included in the taxable amount of the underlying supply regardless whether the postponement of payment covers the period before or after the supply takes place.
Scope of the Stock ’94 case
Even though the CJEU refers to the specific circumstances of the case in Stock ’94 we believe that the case has a wider scope. The CJEU refers to the fact that the customers of Stock ’94 don’t have an independent interest for a loan, because they cannot use the credit freely. The CJEU also states that the supply of the goods and the granting of credit have one and the same economic objective. The fact that Stock ‘94 may opt to provide additional services to the farmers and purchase their agricultural production does not alter the CJEU’s decision.
Looking at other situations where the credit is granted to purchase certain goods or services from a certain supplier the purpose of the customer will most likely be to obtain those goods or services. He will not have an independent interest for the loan. The economic objective of the loan and the supply of goods or services will also be the same, the possibility for the customer to obtain those goods or services. The CJEU further looks at the issue on a stand alone basis. Other relationships between Stock ’94 and the farmer are of no importance.
Although it is yet uncertain how the Stock ’94 case may affect suppliers that grant credit to their customer it is important for suppliers to take note of this case and determine their position. We are happy to help you with that.
Suppliers that provide postponement of payment only after the supply of goods or services take place can in our opinion still rely on a policy guidance from the Dutch State Secretary of Finance from 30 June 1997. Under this policy guidance such granting of credit after the supply takes place is considered VAT exempt. The Stock ’94 case in our opinion does not clearly show a new course as regards the VAT treatment of such supplier credit. Therefore suppliers can in our opinion still rely on this policy guidance.