VAT treatment of customised software: one composite service, with place of supply governed by the specific professional-services rule.

Standard software supplied together with decisive customisation for the purchaser's needs must be assessed by its economic reality as one indivisible VAT supply, not as separate goods and services. Because the customisation was the predominant and functional element, the composite transaction was treated as a supply of services. That service also fell within the specific place-of-supply rule for consultancy, engineering and similar activities in Article 9(2)(e), third indent, so the general rule in Article 9(1) did not apply.

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Issues: (i) Whether the supply of standard software and its subsequent customisation for the purchaser's requirements constituted a single supply for VAT purposes and, if so, whether that supply was a supply of services; (ii) Whether the place of supply of that single service fell under the general rule or the specific rule for certain services in Article 9 of the Sixth Directive.

Issue (i): Whether the supply of standard software and its subsequent customisation for the purchaser's requirements constituted a single supply for VAT purposes and, if so, whether that supply was a supply of services.

Analysis: A transaction must be examined in its economic reality and not artificially split where its elements are so closely linked that they form one indivisible whole. The separate pricing of the basic software and the customisation was not decisive. The core of the transaction was the provision of software made functional for the purchaser's specific needs, and the customisation was not minor or ancillary but of decisive importance in enabling use of the software.

Conclusion: The supply of standard software and its subsequent customisation constituted a single supply for VAT purposes, and that single supply was a supply of services because the customisation predominated.

Issue (ii): Whether the place of supply of that single service fell under the general rule or the specific rule for certain services in Article 9 of the Sixth Directive.

Analysis: The specific rule in Article 9(2) prevails where the service falls within one of its categories. The software customisation service was akin to engineering or similar services and was covered by the provision dealing with services of consultants, engineers and similar activities, including data processing and the supplying of information.

Conclusion: The service fell within Article 9(2)(e), third indent, so the place of supply was governed by that specific rule and not by the general rule in Article 9(1).

Final Conclusion: The reference was answered by holding that the software supply and customisation formed one taxable service and that its place of supply was determined by the specific place-of-supply rule for similar professional services.

Ratio Decidendi: For VAT purposes, closely linked elements of a transaction must be treated as a single supply according to their economic reality, and the predominant element determines whether the composite supply is to be classified as goods or services and which place-of-supply rule applies.

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