9.5.2.5 The VAT treatment of issuing and transferring SPVs for no consideration

Even though I consider vouchers that are issued or transferred free of charge not to be ‘vouchers’ within the definition as provided in Article 30a of the EU VAT Directive, as I explained in Section 9.5.1, I will research the VAT treatment of issuing free SPVs as if they were vouchers under that definition because some EU Member States adhere to that view.

Under Article 30b of the EU VAT Directive, issuing or transferring a free SPV by a business acting in his own name shall be regarded as a free supply of the goods or services to which the voucher relates. Under Article 16 of the EU VAT Directive, the application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible. However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.

This means that if the free SPV relates to a good or goods, issuing or transferring the voucher can lead to taxation of the free supply of those goods if they are not samples or gifts of small value, and insofar as the VAT on those goods was deducted. For the VAT treatment of free goods, I refer to Section 6.3.3.3.

When I test this against the purpose of EU VAT, which is taxation of expenditure for private local consumption, as well as the economic and commercial realty of issuing SPVs free of charge, I am of the view that this should never be taxed. There is no expenditure, because the SPVs are given away for free. Taxing the promise of a free supply of a good is not in line with that purpose. The economic and commercial reality of the transaction is that a promise is made for a future free supply, but this supply is not yet made and may never be made. This should not be taxed.

If the free SPV relates to services, in my view, issuing or transferring the SPV should not lead to taxation under the current rules. After all, under Article 26 of the EU VAT Directive, performing services free of charge is only considered taxable if performed for the private use of the taxable person or for that of his staff or, more generally, for purposes other than those of his business. Issuing free SPVs for promotional activities will, in my view, always be done for business purposes.

One of the key effects of using vouchers, including SPVs in many EU Member States before 1 January 2019, was the timing difference between receiving payment and actually performing a taxable transaction (upon redemption. It has proven possible to apply the EU VAT concept of amalgamation, as described in Section 4.2.1.2, to supplies that do not occur simultaneously. The CJEU decided as much in the Levob-case,1 where a business first sold standard software, which qualified as a supply of a good, followed by a service where that business customised the software to the needs of the client. These two consecutive supplies were considered one single, amalgamated, supply. However, the consecutive supplies were part of a single agreement that lead to an agreed result. In its case law on absorption, as described in Section 4.2.1.1, the CJEU has not ruled any cases where the supplies were made consecutively. These cases are also all about combinations of supplies that were agreed upfront and where all elements were part of the agreement.2 I described these situations of consecutive supplies that can be considered one, composite, supply either through absorption or amalgamation in Section 4.4. In the Kuwait Petroleum case,3 the promotional goods were not part of the agreed supply of the petrol and they were supplied separate from the supply of the petrol. Under Article 30b of the EU VAT Directive, however, where SPVs are given away for free with certain supplies of goods or services for consideration, the ‘promotional gifts’ are deemed to be supplied at the same time as the ‘main’ supply, i.e. at the time of issuing the SPV. This raises the question whether the supply of these promotional goods can be absorbed into the supply of the main goods or services, if these promotional goods are not an aim in themselves, but rather means of better enjoying the main supplies. I see no reason not to apply the EU VAT concepts of absorption or amalgamation to situations where an SPV is supplied together with a supply that is (also) performed for consideration. In Section 4.5.2 I describe situations where elements to a composite supply that are advertised as ‘free’ should still be considered to be included in the total, composite supply. Where the EU VAT Directive has the effect that supplies are considered to be made simultaneously, the principle of VAT neutrality, in the sense that similar transaction should be treated the same from a VAT perspective, requires that absorption and amalgamation can also be applied to these transactions.