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Supplies below open market value

HMRC is empowered to direct¹ a person to account for output tax by reference to open market value where²:

1. Ìý

   •ÌýÌýÌýÌý a supply (whether taxable or exempt) is made for a money consideration below open market value

2. Ìý

   •ÌýÌýÌýÌý the person and the customer are connected persons³, and

3. Ìý

   •ÌýÌýÌýÌý if the supply is a taxable supply, the customer is not entitled to input tax credit for all the tax on the supply

Valuation under this provision was originally by derogation from Directive 77/388/EEC, art 11A(1)(a)⁴.

However, from 13 August 2006, Directive 77/388/EEC, art 11A(6) (subsequently Archived Directive 2006/112/EC, art 80) allowed member states to direct open market value without the need for a specific derogation. This was subject to certain conditions, primarily that the purpose of the direction is to prevent tax evasion or avoidance, and that one of the parties to the transaction is not entitled to full input tax recovery. The UK has since