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Value-added tax (VAT) is a tax levied on private consumption expenditures. Where VAT is levied on each transaction within the supply chain, the aim of taxing only private consumption is achieved by allowing businesses a credit to offset the VAT paid on purchases against the VAT collected on sales. This article provides a comparative study of the law and practice in the European Union and Canada regarding subsidies and VAT (in Canada, the goods and services tax). Subsidies are among the financial instruments used by governments, and sometimes private organizations, to support the realization of certain policies. This article is concerned with determining the circumstances in which subsidies may be included in the consideration paid in a transaction and may therefore be subject to VAT, and the extent to which the right to claim input tax credits can be exercised. The authors investigate these questions by discussing the nature of subsidies from the perspective of VAT principles, reviewing the statutory provisions and administrative practices in the European Union and Canada, and analyzing the relevant case law in both jurisdictions.