European Commission issues evaluation of voucher VAT rules
The European Commission (EC) has issued its review of the application of VAT rules on the use of vouchers across the 27 member states. This follows the introduction of harmonisation VAT voucher rules in January 2019.
The 2019 rules aimed to harmonise and make more efficient the rules on single vs multiple use vouchers, and their use across the distribution chain. This new evaluation concludes that no new legislative changes are required, and that the member states may rely on guidance from the VAT Committee.
Issues tackled in the 2019 rules included (see below for details):
- Definition of vouchers: vouchers are used as consideration in exchange for goods or services;
- Single-purpose voucher for supplies known as the time of issue vs multi-purpose vouchers where not known or defined.
- Distribution chain and VAT treatment
- Non-redeemed vouchers where MPV if not fully redeemed
As regards the implementation of the rules by Member States in the first 4 years, no major problems were detected by EC from the compliance checks in terms of formal transposition and no infringement procedures have been launched. The CJEU has so far only issued two judgments on the new rules introduced by the Voucher Directive (concerning city cards and the cross-border distribution of a voucher). Member States have not had enough time to collect evidence, carry out audits, and formulate a final judgment on the general performance of the VAT rules on vouchers.
As regards the assessment on specific rules, the provisions on the general definition of a voucher, on the definition of SPVs and their distinction from MPVs and on the transfer of SPVs and MPVs are mostly seen as clear and easy to apply for national administrations, allowing them to provide clear guidance and to enforce the applicable rules, and as clear for taxable persons in order for them to comply with their obligations.
Only a minority of Member States highlighted issues with the application of the VAT rules on vouchers in their replies to the survey’s open questions.
2019 EU Voucher reforms
The European Union introduced significant changes to the VAT treatment of vouchers with the adoption of the EU Voucher Directive (Directive 2016/1065), which came into effect on January 1, 2019. This directive aims to harmonize and clarify the VAT rules across EU member states for vouchers, distinguishing between single-purpose vouchers (SPVs) and multi-purpose vouchers (MPVs). Here’s a detailed explanation of these rules:
Single-Purpose Vouchers (SPVs)
A single-purpose voucher (SPV) is defined as a voucher where the place of supply of the goods or services and the VAT due on those goods or services are known at the time of issuance.
Key Characteristics:
- VAT Treatment on Issuance: VAT is charged at the point of issuance or subsequent transfer of the voucher, not when the voucher is redeemed. This is because all necessary information (i.e., the tax rate and the place of supply) is known upfront.
- Supply Chain: Each transfer of an SPV before redemption is considered a taxable supply of the goods or services to which the voucher relates. This means VAT is due at each stage of transfer, not just at the final point of redemption.
- Example: A voucher for a specific product like a cinema ticket or a voucher for a meal at a restaurant in a particular country, where the VAT rate and the place of service are predetermined.
Multi-Purpose Vouchers (MPVs)
A multi-purpose voucher (MPV) is a voucher where, at the time of issuance, the VAT treatment of the goods or services to which the voucher relates is not known.
Key Characteristics:
- VAT Treatment on Redemption: VAT is not due when the MPV is issued or transferred. Instead, VAT is charged only when the voucher is redeemed for goods or services. This is because the applicable tax rate and the place of supply can only be determined at the time of redemption.
- Intermediary Transactions: Transfers of an MPV before redemption are not considered taxable supplies. VAT is only accounted for by the supplier providing the goods or services at the time the voucher is redeemed.
- Example: A voucher that can be used for a variety of goods or services, such as a gift card for a department store that sells products with different VAT rates or a voucher that can be redeemed in various countries with different VAT jurisdictions.
Practical Implications and Compliance
Issuers and Distributors:
- Issuers: Companies that issue SPVs must charge and account for VAT at the time of issuance. For MPVs, issuers do not account for VAT when the voucher is sold but must keep records for VAT to be accounted for at redemption.
- Distributors and Retailers: Businesses involved in the distribution of SPVs must treat each transfer as a taxable event. For MPVs, these transfers do not trigger VAT until the final redemption.
Record-Keeping:
- Proper documentation is crucial for both SPVs and MPVs to ensure correct VAT treatment. Records should include details on the nature of the voucher, the transfer, and redemption information.
Consumer Impact:
- Consumers purchasing SPVs pay VAT at the time of purchase. For MPVs, consumers effectively pay the VAT at the time they redeem the voucher for specific goods or services.
The 2019 EU VAT rules on vouchers provide a clearer framework for the treatment of single-purpose and multi-purpose vouchers, reducing ambiguity and aiming for consistency across member states. Businesses must understand whether their vouchers qualify as SPVs or MPVs to ensure proper VAT compliance. This involves knowing the exact tax implications at the point of issuance and during subsequent transfers for SPVs, and deferring VAT accounting until redemption for MPVs. By adhering to these guidelines, businesses can avoid penalties and ensure smooth operation within the EU VAT system.
