Contributions to Partnerships from a European VAT Law Perspective

Abstract

Since the KapHag case, it is clear that contributions in cash to partnerships take place outside the scope of Value Added Tax (VAT). However, it is still unclear whether a contribution in kind (goods, use of goods, intangibles, labour) by a partner who is a taxable person is a taxable supply, a remuneration for a taxable supply, or an activity that is not subject to VAT at all. The consequences of this lack of clarity are legal uncertainty and unequal treatment of similar transactions. The different VAT treatment of contributions in kind in the European Union (EU) Member States shows that these negative consequences are not purely hypothetical. Since cooperation through partnerships is not necessarily restricted to partners located in one Member State, the problems may even transcend the borders of the Member States. In this article, the author first investigates whether, under EU VAT law as it stands, contributions to partnerships are subject to VAT. Second, the author investigates what the preferred VAT treatment of contributions to partnerships is under European VAT law, when testing it against the fundamental principles of EU VAT law.