The final VAT return for the financial year (for most businesses the Q4 2020 or December 2020 return) must include adjustments under the VAT Deduction Exclusion Decree (‘DED’) and for the private use of company cars. Our memorandum provides an up-to-date explanation of how the adjustment affects the recovery of VAT on staff benefits, promotional gifts and other gifts. The memorandum incorporates the latest developments in this area. We have also included a flowchart which sets out the steps for preparing the DED calculation. We also explain the effect of the VAT adjustment for the private use of company cars.
The memorandum is intended as a supplement to the enclosed flowchart and explains the eight steps in more detail. The VAT Deduction Exclusion Decree (Besluit uitsluiting aftrek omzetbelasting) (‘DED’) precludes the recovery of VAT (also referred to as input VAT) on promotional gifts and staff benefits if they are provided free of charge or below cost by the employer. That employers often have a business-motivated reason for providing gifts and staff benefits (for example, client relationship management, staff commitment, etc.) is irrelevant. The rationale for not allowing input VAT to be recovered is based on the fact that these costs, while business-related, are consumption-oriented, and VAT is a tax specifically designed to tax consumption. A threshold of EUR 227 per recipient applies. If the total purchase or productions costs (the cost price) of the provisions are less than EUR 227 (excluding VAT) per recipient per financial year, then the employer does not have to make a DED adjustment. If the threshold is exceeded, then the employer must make a DED adjustment in the last VAT return of the financial year. This is a final threshold: if the threshold is exceeded, the input VAT on the provisions within the threshold amount is also non-recoverable.