To put this in context, the Commission estimates the minimum value of the EU voucher market (for 2008) at EUR52 billion, of which pre-paid telecoms cards represent EUR36 billion. The balance comprises a mixture of gift vouchers, loyalty cards and discount vouchers.
The proposal aims to provide certainty on how VAT should be treated when dealing in vouchers. It also seeks to eliminate double or non-taxation. This could arise in a cross-border context, for instance, where the voucher is issued in a country which taxes its sale, but the voucher is redeemed in a country which taxes its redemption.
Why is this proposal needed?
The recast EU VAT Directive (and the Sixth Directive before that) does not contain a definition of a voucher nor rules dealing with transactions in vouchers. The absence of legislation in this area has led Member States to adopt their own rules, an approach described by the Commission as being "inevitably uncoordinated". The differences between these rules
typically center on three key issues:
- Identifying what the voucher is – is it a payment instrument, a right or an advance payment?
- The timing of when tax is due – is it taxed on sale or redemption?
- The amount on which VAT is due – face value or amount actually paid?
Further complexity can arise in the treatment of unredeemed vouchers. Should VAT be charged where no supply has taken place, but consideration has been received? There are also complications around the impact of national antiavoidance measures on vouchers that can be sold or used cross-border.
Collectively, these issues have harmed the growth of the voucher market. In some instances, they have caused tax leakage where, particularly in a cross-border context, transactions fell outside the VAT net.
In tandem with the practical difficulties experienced by taxpayers and Member States, the Court of Justice of the EU has had to step in on a number of occasions to clarify how vouchers should be treated.2 However, the decisions in these cases are narrow as they deal solely with the specific questions and the particular circumstances of the case in question. Moreover, Member States have not uniformly applied the resulting decisions.
What is the impact of this proposal?
The proposal follows a public consultation launched in 2006 which invited views on
the practical difficulties faced by operators in the voucher industry. The Commission is to be commended for producing proposals which seek to balance the preferences of all stakeholders (both public and private) who participated in the consultation, in what can be a complex field.
The proposal includes draft amendments to the Recast EU VAT Directive, with the aim that Member States will implement these measures with effect from 1 January 2015. Specifically, the proposal defines vouchers as falling into three distinct categories:
- single purpose vouchers
- multi-purpose vouchers
- discount vouchers.
Single purpose voucher
The proposal defines a single purpose voucher (SPV) as a voucher carrying the right to receive a supply of goods or services where the supplier's identity, the place of supply and the applicable VAT rate for those goods and services is known at
the time the voucher is issued.
The proposal confirms that SPVs are subject to VAT when sold. This is a departure from many countries where vouchers are not subject to VAT on sale, only on redemption. Under the Commission's proposals, the sale of an SPV is subject to VAT based on the underlying goods or services against which the voucher can be redeemed. In addition, the taxable amount is the consideration paid for the voucher. The proposal further confirms that redemption of an SPV does not trigger a VAT event (as otherwise double taxation could occur).
A multi-purpose voucher (MPV) is any voucher, other than a discount voucher, which is not a SPV. Unlike SPVs, the sale of an MPV is not subject to VAT. Rather, VAT is due on redemption of the voucher, based on the underlying goods or services supplied.
The Commission's proposal stipulates that the taxable amount on redemption of an MPV is "the nominal value of that voucher". This is a new concept, referring to the consideration which the issuer of the voucher can earn, and is the amount upon which the issuer must account for VAT when the voucher is ultimately redeemed.
The Commission further proposes that, as MPVs are often sold through an intermediary, it is necessary to tax the margin obtained by the intermediary on the purchase and sale of the MPV. As a result, the Commission proposes that the standard rate of VAT shall apply to a
deemed distribution service provided by a party who acquires a voucher for the purposes of onward sale.
A discount voucher is a voucher carrying a right to receive a price discount or rebate on a supply of goods or services.
The Commission proposes that where a money-off coupon is presented by a customer to a business supplying goods or services, the money-off coupon will no longer be considered third-party consideration in the hands of the supplier.
Rather, the reimbursement of the supplier is viewed as the supply of a redemption service by the retailer to the person that issued the discount voucher. As the supplier is now viewed as supplying a redemption service to the party that issued the discount voucher, the retailer is
obliged to charge standard rate VAT on the value of the redemption service.
These proposals give greater certainty to retailers, telecoms operators and other parties who issue or accept vouchers, but some issues remain. For instance, a clear distinction between what is a MPV and a means of payment. Certainly, the proposal confirms that many types of payment services fall outside the scope of the voucher proposals. It can be difficult, however, to fully reconcile the difference between having purchased a right to acquire unidentified goods and services, and having the means of paying for them. This is an important distinction. Numerous VAT and regulatory issues arise where, for example, a card loaded with value is considered a means of payment rather than an MPV.
Furthermore, there are instances where the VAT cost in dealing with vouchers will increase as a result of these proposals. For instance, it is widely accepted that where a voucher is sold but never redeemed, no VAT arises on the consideration retained by the card issuer. However, with the proposed rules for SPVs, it appears that no facility exists for the vendor of an SPV to reverse VAT accounted for on its sale, if the voucher is never redeemed.
In addition, as a result of the additional cash flow cost arising from having to account for VAT upfront on the sale of an SPV, it is anticipated that many will seek to ensure that the vouchers they sell are classed as MPVs and not SPVs.
It is also interesting to note that one of the initial proposals the Commission suggested in 2007 has not been adopted in this latest proposal. Namely, the introduction of a common threshold for the supply of gifts. Originally, the Commission proposed that a EUR50 limit would be applied to the giving of gifts free of charge by a business. Such a proposal would have been of real benefit in a number of countries, such as Ireland, where the gift threshold is EUR20. It would have been unwelcome in other countries, however, such as the Netherlands, where the gift threshold is EUR227. Overall, the proposals are welcome but it is clear that some issues remain. It is hoped these issues can be clarified in time for the successful introduction of the new rules in 2015.