9.2 Vouchers and promotional activities

Vouchers are often used for sales promotion.1 However, not all vouchers are used for promotional activities. The term ‘voucher’ is a blanket term for many different instruments: gift cards, book tokens, food stamps, phone cards, admission tickets and discount coupons, just to mention a few.2 Under the principle of neutrality,3 the VAT treatment of promotional activities involving vouchers should be based on the same principles that determine the VAT treatment of other (non-promotional) voucher transactions, as I will demonstrate in this chapter.

Vouchers are described as embodying rights.4,5,6 In the dictionary, a voucher is described as “a piece of paper that can be used to pay for particular goods or services or that allows you to pay less than the usual price for them”.7,8 The right embodied in a voucher would, under this specific definition, be the right to use the voucher as means of (partial) payment, instead of payment in cash, or as proof of (pre)payment for certain supplies of goods or services, as well as proof of entitlement to a discount on certain transactions. Vouchers that are issued or sold for consideration create a separation between a payment and a (subsequent) supply, thereby creating the possibility of breakage (payment without a subsequent supply). I will elaborate on this in Section 9.5.2.

Vouchers facilitate transactions but are not always necessary to conclude those transactions. Economic reality dictates that the use of vouchers should not determine the nature of the actual, ‘underlying’ transaction(s).

For some vouchers, the most relevant element is that the business that will accept the vouchers also issues them for consideration, which allows it to receive payment before any supplies of goods or services are made, with the additional benefit that some vouchers are never redeemed. Examples are gift cards, prepaid phone cards and pre-sold admission tickets.

Other vouchers are issued by a business that will indemnify the companies accepting it as payment for their supplies. Examples are luncheon vouchers and book tokens. With regard to issuing these vouchers, it is not the business that accepts the voucher (as consideration for its supply) but the business issuing or selling them that receives money where a chance exists that it will not have to indemnify other businesses (if the vouchers are not redeemed).

Some vouchers are issued for no consideration. These vouchers can often be used to obtain discounts or rebates off the retail price of certain products.

There are also voucher schemes where the issuer, as a form of business promotion, sells vouchers that allow the holder a form of discount at other businesses, where the issuer of the voucher does not indemnify the businesses accepting these vouchers (or vice versa).9 The rationale behind this type of voucher scheme lies in the fact that the business selling the vouchers is considered to promote the businesses that agree to accept the vouchers, because people will have to go to those businesses to redeem the vouchers and often (have to) purchase more than only the free or discounted products or services, and may well become regular customers of those businesses.

Also, some transactions that do not involve an actual voucher closely resemble voucher transactions. Topping up mobile phone credit online is an example of this. From a VAT neutrality perspective, payment for a top-up should not be treated differently from the initial (pre)payment/instalment for the telecommunications services provider for the supply of a (prepaid) phone card, since these transactions are the same from an economic and commercial reality perspective.

Some vouchers have a ‘face value’ and can be used as (proof of) full or partial (pre)payment at specific businesses or for specific goods or services. Other vouchers entitle the holder of the voucher to a ‘relative’ discount (a percentage of the advertised price). It is also possible to allow the holder of a voucher a fixed (‘face value’) discount on specific transactions. Some vouchers are sold (supplied for consideration), other vouchers are distributed for free. Sometimes they can only be used in combination with other transactions.

The nature of all these transactions involving different types of vouchers needs to be determined in order to establish the correct EU VAT treatment of these transactions.

A business that uses vouchers as (part of) a promotional activity, by supplying vouchers (for money or for free) and/or accepting vouchers as (partial) payment for (some of) its supplies, usually does this for various reasons, some of which I have listed below:10

Another possible reason for granting a discount – besides sales promotion – is to stimulate desired behaviour, for example by offering a discount for early payment. This can also be considered a ‘promotional activity’, but this is not the type of promotional activity that is the topic of this research.