Fianza not subject to VAT; application to machinery is

A machinery manufacturer asks whether a 50% deposit as security is subject to VAT. The DGT states that the security deposit is not a taxable supply as no consideration is given, but if the money is applied to the payment of machinery, it becomes a consideration subject to VAT.

The application of a deposit to machinery constitutes a taxable supply under VAT, while the deposit itself is exempt.