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HMRC internal manual

VAT Supply and Consideration

Consideration: Payments that are not Consideration: Grants: Mohr

In Mohr (C-21/94) a dairy farmer received ‘compensation’ from the EU in return for undertaking to discontinue milk production. The German tax authority treated this payment as consideration for a taxable supply since there was an obligation by Mr Mohr to discontinue production in return for the payment.

The ECJ agreed with Mr Mohr’s appeal that the agreement to discontinue milk production was not a supply under Article 6(1) of the Sixth Directive (now Articles 24(1) and 25 of the Principal VAT Directive (2006/112/EC), enacted by section 5(2) of VAT ACT 1994). They reasoned that by paying grants the EU or a member-state did not acquire or consume goods or services for its own use. Rather, they acted in the common interest of promoting the proper functioning of the EU’s agricultural policy. Therefore the payment did not provide any direct benefit which would enable the EU to be seen as the consumer of a service.