A bundled bargain, or 21% VAT after all?
Does the plastic carrier bag at the till share the rate of the groceries, or is it a sale in its own right? The Court of Appeal in Amsterdam ruled on the question, and on a supermarket owner arguing for 10.5%.
It is a familiar scene: a customer at the till has forgotten their reusable bag. Does the VAT treatment of the main product also cover the plastic carrier bag, or is that a separate sale? In other words, when you buy vegetables at the supermarket, does the 9% rate apply to the bag as well, or must 21% be charged? Or does an average rate of 10.5% apply, as one supermarket owner argued?
The facts
A supermarket sells plastic carrier bags bearing its logo at the till for € 0.25 each including VAT. It also sells larger reusable bags for € 1.45 each, on which 21% VAT is charged. The question is whether the plastic carrier bags are an ancillary supply subsumed into the main supply, the sale of groceries, or a supply in their own right. The supermarket owner argues that the bags should attract the average rate applying to the groceries, which on his calculation is 10.5%.
Combinations of supplies
A combination of supplies of goods and services can arise where they are connected. That can happen where they are offered as a package for a single price, but also where separate prices are charged. The central question is whether there is one supply or several that must be assessed separately.
The starting point is that such combinations are treated as that many distinct supplies. That does not apply where a supply is ancillary, meaning that for the customer it is not an end in itself but a means of better enjoying the principal supply.
The supermarket's argument
According to the owner, selling the bags is ancillary. Shopping bags are rarely bought on their own, almost always together with groceries. They are of negligible value and typically represent less than 1% of the total purchase price. After use they are usually thrown away.
The chain sells between 11 and 14 million bags a year. That high number, he argues, underlines that the bags serve only to carry groceries and are then waste, which the Dutch packaging waste fund also accepts. The consistently high volume suggests customers buy new bags each time. The bags, costing less than € 0.10 to buy in, are not sold online, never discounted and sometimes available without a price label.
The court's ruling
The Court of Appeal in Amsterdam held that selling plastic carrier bags is an independent supply. For the average consumer who has no bag with them and buys one on the spot to carry their shopping, the bag is an end in itself. Its supply is therefore not ancillary and is subject to 21% VAT. That customers have a choice and must pay separately for the bag supports that conclusion.
The court also observed that it is common knowledge that reuse of plastic bags has increased in recent years, partly because of the ban on providing them free of charge introduced on 1 January 2016. That undercuts the argument that the bags are thrown away after use and therefore have no independent utility.
The court did not need to address whether an average rate of 10.5% is possible, having already decided that 21% applies.
Conclusion
Where a business makes several supplies, one or more of which may be ancillary to a principal supply, it is important to get the VAT right. Supermarket operators and retailers should be alert to the rules: errors can lead to assessments and penalties.