Application of the market value of transactions for VAT purposes

For the purposes of the supply of goods and services between related parties within the meaning of the Taxes and Duties Act, the VAT taxable value is the market value (sometimes referred to as – “open market” value) of the supply of goods and the provision of services if the transaction value:

(1) is less than the market value and the recipient of the goods or services is not entitled to deduct input VAT in full. For example, if a related company provides management services to a related credit institution for consideration below market value.

(2) is less than the market value and the supplier of goods or services has no right to deduct input VAT in full and the supply of goods or provision of services is exempt in accordance with Article 52 of the VAT Act. For example, if a related credit institution issues a loan to its subsidiary for interest below market value or interest-free loan.

(3) is higher than the market value and the supplier of goods or services does not have the right to deduct input tax in full. This case concerns a situation in which a person with a limited deduction of input tax seeks to improve its input  VAT proportion by artificially increasing the value of the service. An example would be a credit institution providing VAT taxable services to an affiliated company or a holding company providing services to subsidiaries for a consideration above the market value.