What Makes Taxes Perfect for You

What Makes Taxes Perfect for You


All problems of competitive neutrality could be easily solved if all private providers of publicly supervised social and health services had the same right to a refund of VAT on purchases as municipalities currently have. However, such a procedure would be contrary to EU VAT directives. Therefore, other alternatives need to be found.

Hidden VAT on school meals

Problems with hidden VAT also affect municipal school and student meals.According to the tax provisions, statutory and, by law, public education is not subject to VAT. Meals provided to students at an educational institution are also not taxed when the meal service takes place in connection with education and is related to regular education.

  • Yes, municipalities can treat VAT on purchases included in their statutory education as refundable taxes. In the food supply of educational institutions, these include VAT included in raw materials, other costs of materials, supplies and goods, and fixed assets (Table 2). However, municipalities cannot deduct hidden VAT related to catering services sold by an outside company.

According to expert opinions, VAT on provincial acquisitions could already be taken into account in the cost bases of state contributions to them. Admittedly, this model does not directly tell how the competitive neutrality of provincial businesses and private companies is guaranteed, especially if provincial service providers do not have to incorporate their production.

The Other Options

Another operating model that emerged among the experts is based on the VAT refund system included in the provincial purchases. This would be in line with the current municipal VAT refund system, which also takes into account the hidden tax inherent in VAT-free private tax services.

Latent VAT therefore fully increases the prices of private catering services provided in connection with education. Thus, the competitive situation is worse than in tax services, where municipalities receive a deferred 5 per cent refund of the hidden VAT on private catering services for the catering of service establishments. There you need the business calculator for the best result.

According to studies commissioned by EK, the latent VAT on school meals was estimated at 8.8 per cent of the turnover of catering companies in 2015. The distortion of competition in the municipal catering market is large in the catering sector.

In municipalities, VAT gimmicks

The municipality can direct the food supply of educational institutions to the limited company it owns and also reduce costs by charging the company only for the preparation and serving of meals necessary for the production of catering services. Instead, the limited company orders the raw materials and transports for the municipality’s account, as the municipality has the right to a refund of the VAT included in these purchases from the state.


In order to ensure competitive neutrality, the hidden VAT on private purchases of school pupil meals should therefore be included in the refund system in municipalities. The procedure would be the same as for private social and health care purchasing services, where municipalities receive a deferred 5% refund from the state of hidden VAT on purchasing services.

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