One of the most difficult areas of VAT law concerns composite supplies. The VAT liability can be substantial: either the reduced rate (6%) applies to the entire supply, or the standard rate (21%) applies to part of it.
Combined performance
This is evident in the case of the “obstacle run”. This is a sporting event in which participants, for a fee, combine running with overcoming a number of obstacles. Payment of the entry fee also entitles participants to a printed T-shirt, access to water stations along the route and one drink at the finish line.
What could be better (or more enjoyable) than having a lovely cold beer after a good workout? But VAT at 6% or 21% must be paid on that beer. The reduced VAT rate may not be applied to the supply of beer. However, if the running, the T-shirt, the water and the beer constitute a composite supply for VAT purposes, and that supply involves the provision of an opportunity to take part in sporting activities, then that composite supply is subject to the reduced VAT rate.
The Gelderland District Court ruled that this did not constitute a composite service. Arnhem-Leeuwarden Court of Appeal The Court of Appeal did not agree with this. According to the Court, the participants are there for the sporting event. The drink and the other extras are merely additions intended to make the event more appealing.
Hospitality
We believe that the Court is correct in this case. There are further legal proceedings pending on the question of whether the supply of beer (and wine) is subject to the reduced VAT rate. In that case, the composite supply would have to be the provision of a meal in a restaurant, of which the supply of beer and/or wine forms part. These cases concern so-called ‘all-in’ packages, which are popular, for example, in wok restaurants.
This case could also be looked at from the opposite perspective. If the main part of the supply consists of beer and/or wine, and bitterballen or a cheese platter are also supplied, this composite supply could well be subject to VAT at the standard rate (21%) in full.