A taxable dealer established in an EU member state buys a used item from a private individual who was unable to deduct any input VAT on their own original purchase of it, then resells the item to another private consumer. Under Articles 313 and 315 of the EU VAT Directive (the margin scheme for second-hand goods), how is the dealer's VAT liability on the resale calculated?
- VAT is charged on the full selling price to the final consumer, exactly as with any new good, because the margin scheme only changes the dealer's record-keeping requirements and not the taxable amount
- VAT is charged on the difference between the dealer's selling price and the price the item would fetch if it were sold new, rather than on the price the dealer actually paid to acquire it
- VAT is charged only on the dealer's profit margin, the difference between the dealer's selling price and the price paid to the private individual, with the VAT itself treated as included within that margin rather than added on top of the full selling price
- No VAT is due at all on the resale, because goods that already bore VAT once during an earlier sale can never be taxed again under EU VAT rules
Why C? And why not the others?
Correct answer: C. VAT is charged only on the dealer's profit margin, the difference between the dealer's selling price and the price paid to the private individual, with the VAT itself treated as included within that margin rather than added on top of the full selling price
Under Articles 313 and 315, the margin scheme taxes only the dealer's profit margin, defined as the selling price charged by the dealer less the purchase price paid, with VAT treated as already included in that margin rather than charged on top of the full selling price; this exists because the goods were bought from a private individual who could not have charged or recovered VAT, so taxing the full resale price again would tax the same value more than once. The option charging VAT on the full selling price ignores that the margin scheme changes the taxable amount itself, not merely how records are kept; that is the entire point of the special scheme. The option comparing the selling price to a hypothetical new-goods price uses the wrong reference figure: Article 315 defines the margin by reference to the price actually paid by the dealer to acquire the item, not to any notional replacement-as-new value. The option claiming no VAT is due at all invents a blanket cascading-relief rule that does not exist; the margin scheme still imposes VAT, just calculated on the margin rather than exempting the transaction entirely.
Source: EU VAT Directive (2006/112/EC), Articles 313 and 315 (margin scheme for second-hand goods)