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HMRC internal manual

VAT Supply and Consideration

HM Revenue & Customs
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Consideration: Payments that are not Consideration: Grants: Landboden-Agrardienste

In Landboden-Agrardienste Gmbh & Co KG (C-384/95) a potato farmer refrained from marketing 20% of his crop in return for a payment of a subsidy. The German tax authorities maintained it was a supply under Article 6(1) of the Sixth VAT Directive (77/388/EEC) (now Articles 24(1) and 25 of the Principal VAT Directive (2006/112/EC) since the wording of the law was that a supply of services was ‘any transaction which does not constitute a supply of goods within the meaning of Article 5. Such transactions may include, inter alia, obligations to refrain from an act or to tolerate an act or situation’.

The ECJ based its decision on the Mohr case (see VATSC52600). It held that the farmer in this case did not provide services to an identifiable customer or provide any benefit capable of being regarded as a cost component of the activity of an Landboden-Agrardienste Gmbh & Co KG other person in the commercial chain.

The judgement also said that the German authority’s argument circumvented the rule that only subsidies linked to price form part of the basis of the assessment. To have accepted the German argument would have taxed not only the subsidy but al Landboden-Agrardienste Gmbh & Co KG so the increased price of potatoes as a result of the reduction in supply, an increase that might well be greater than the amount of the subsidy. Therefore the payment was not seen as consideration for a supply.