Classic: the Card Protection Plan judgment

When do several supplies together form a single composite supply with one rate? In 1999 the Court of Justice gave the tools in CPP that practitioners still use today.

A composite supply consists of several supplies that would in principle be taxed at different rates. For VAT purposes they are nevertheless treated together as one supply and taxed at a single rate.

The facts

CPP offered credit card holders a plan, for a fee, protecting them against financial loss and inconvenience following the loss or theft of their cards and of certain other items such as car keys, a passport or insurance documents.

In substance two services were supplied: an exempt insurance service and a taxable card registration service. Those can be taxed separately, or together where there is a composite supply.

The ruling

The Court states that in assessing whether one or several supplies are made, all the circumstances of the case must be taken into account, and that no single answer fits every case. Charging a single price is not decisive.

Every supply must normally be regarded as distinct and independent. Where, however, economically speaking a single supply is made, it must not be artificially split. To establish whether there is one supply or two, the supply must be viewed from the perspective of the average consumer. Such an indivisible supply is sometimes called a supply sui generis.

In addition: where an ancillary element is not an end in itself for customers but merely a means of better enjoying the principal supply, there is a composite supply. The ancillary element then follows the tax treatment of the principal supply. The Court draws that reasoning from its earlier judgment in Madgett and Baldwin of 1998.

An example from practice

A simple example is delivering goods. A delivery service is usually subject to 21% VAT. Where goods falling under the reduced rate are delivered, the delivery is ancillary and not an end in itself. It then follows the tax treatment of the principal supply.

The principles from CPP have been incorporated into the Dutch decree explaining the reduced-rate table, which works out the doctrine of composite supplies.

Where a business supplies several elements that would in principle attract different rates for a single price, it is important to get the VAT right.