When loan interest is taxable

Les Howard
VAT Consultant
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A Hungarian case reached the ECJ in late 2016, which may affect certain providers of credit. The details mean it will not affect most commercial providers of credit.

The case concerned a provider of ‘integrated cooperation services.’ The company was established to support farmers, by financing their purchase of seeds, and (presumably) to guarantee the price at which the subsequent harvest was sold.

The company Stock 94, grant a loan to the farmer, charging interest. The farmer uses the loan to buy seeds from Stock 94. Finally, the farmer sells the resulting harvest back to Stock 94. This ‘integrated’ package is quite different from most ordinary loan arrangements. The Court commented that the loan interest was an expenses incidental to the whole arrangement. In fact, Stock 94 was not an authorised provider of credit, and only provided credit to farmers under this scheme. The Court concluded that the local was not a separate supply, and that the VAT liability must follow that of the whole supply. The Court followed the previous decision in Everything Everywhere (C-276/09).

The Stock 94 decision is here: http://curia.europa.eu/juris/document/document.jsf?text=&docid=186064&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1342771

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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25th Oct 2017 12:58

I remember seeing something similar re a farming client back in the late 80s, I think Dalgety operated a similar arrangement, hard to remember but pretty sure interest was charged.

No expert on farm vat, but the sales would likely be zero rated would the seed purchases be standard? If so what rate applies to the interest, presumably standard as it is linked with the inward supply of seed rather than the outward supply of the crop.

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