Russia's attack on Ukraine and the ongoing bloody war led to the fact that the Ukrainians needed large-scale assistance from civilized countries. The Netherlands has also actively joined in providing this assistance. However, organizations and individuals have a question: is it possible to claim a VAT refund by transferring goods and services to Ukrainians for free? Let's find out if there is such a right.
Who is entitled to a VAT refund under the law?
Only organizations and entrepreneurs registered as payers of value added tax have the right to receive a VAT refund. Procurement of goods and services should be for business purposes and not for other purposes. The purpose of the purchase is judged by the tax authorities on criteria such as the nature of the good or service, the time elapsed between the acquisition of the good/service and its use for economic activity, the intention to conduct economic activity, etc. For all purchases for the purpose of doing business, entrepreneurs must have supporting documents and submit reports to the tax authorities.
If purchased goods and services are not used for business purposes?
The question of whether it is possible to return the previously paid VAT arises because, with the help of Ukrainians and Ukraine, private entrepreneurs and organizations transfer purchased goods and services to end consumers free of charge. Accordingly, this action deviates from normal business practice.
Finance Minister Sigrid Kaag believes that the use of purchased goods and services for non-business activities should not prevent entrepreneurs from buying them. The mere fact of further transfer of purchased goods and services for purposes not related to business does not exclude the possibility of deducting VAT previously paid for them from the total amount of tax, but does not guarantee such a right.
When determining the possibility of a VAT refund, an organization and an individual can act in two persons - as an entrepreneur and not as an entrepreneur. Some goods and services are formally transferred to purchasers free of charge (packaging, consulting services, etc.). Whether these costs are related to the business is determined by the presence of economic interest. This interest appears when it is impossible to sell a product or service without a formally free transfer of some services and values, or when these additional costs increase sales, and, accordingly, profit. In the case when goods and services transferred free of charge are not of economic interest for entrepreneurial activity, they are transferred to consumers from individuals and legal entities acting as non-entrepreneurs. VAT refund is possible only for entrepreneurs.
It is usually impossible to claim a refund of previously paid VAT by transferring goods and services to Ukrainians for free!
Pleasant exception
Following an appeal from the Netherlands and other EU countries, the European Commission made a number of exceptions to the rule described above. The exemption includes government agencies, charitable organizations and relief agencies such as hospitals. With Ukraine experiencing serious supply problems and 6 million of its citizens having fled to the EU, such a solution would ease the problems of aid organizations. In particular, the Dutch municipalities, on whose shoulders the main burdens of receiving and providing for Ukrainian refugees, will be exempted from paying VAT on goods and services purchased for Ukrainians.
The decision of the European Commission on the exemption of assistance to Ukraine from VAT is retroactive, that is, it can be applied to all purchases for this purpose made since the beginning of Russian aggression (from the end of February 2022). The decision is currently valid until December 31, 2022. Perhaps, depending on the situation in Ukraine, the decision will be extended.
Company Nalog.nl provides accounting, legal and migration services in the Netherlands. Services related to taxation are one of the main directions of our activity. If you have questions or problems contact our specialists for advice!
Publication Date: 17.08.2022
