1.2 Focus of the research (conceptual framework): the EU VAT treatment of vouchers, in the context of promotional activities

EU VAT aims to tax (final) consumption.1 In that regard, certain transactions for which no (real) consideration is received by the taxable person, are treated as supplies of goods or services effected for consideration subject to VAT. The purpose of those provisions is to ensure equal treatment as between a taxable person who applies goods or services for his own private use or for that of his staff and a final consumer who acquires goods or services of the same type against payment. The taxation of these transactions is designed to prevent situations in which final consumption is untaxed.2

The CJEU has repeatedly held that the right of VAT deduction is an integral part of the VAT scheme and in principle may not be limited.3 That right must be exercised immediately in respect of all the taxes charged on input transactions. Any limitation on the right to deduct VAT affects the level of the tax burden and must be applied in a similar manner in all the Member States. Consequently, derogations are permitted only in the cases expressly provided for in the EU VAT Directive.4

Within this playing field of VAT deduction and taxation, it is also possible that transactions are performed for no consideration and for private individuals, but for purposes which are not other than those of the business. In such cases, the personal benefit derived by individuals from such transactions is of only secondary importance compared to the needs of the business.5 These transactions should not be taxed under the provisions mentioned above. The EU VAT Directive also explicitly excludes the application of goods for business use as samples or as gifts of small value from being taxed.6

The EU VAT rules don’t allow businesses to deduct the VAT on costs that are directly linked to specific VAT exempt transactions, such as lotteries and other games of chance.7 One of the questions I will examine in this research concerns the deductibility of VAT where a business organises a free lottery or sweepstake in order to promote its business, where that business would have the right to fully deduct VAT on any costs directly related to his usual/normal business activities.

The VAT treatment of granting discounts or rebates, as included in the EU VAT Directive and as developed by the CJEU, is in my view not always clear nor compatible with the relevant principles underlying the EU VAT system. This is even more the case where vouchers are involved. It has taken the EU a long time to introduce specific rules regarding the VAT treatment of transactions involving vouchers, and these rules only apply to specific species of vouchers, leaving the VAT treatment of other types of vouchers to be dealt with by the EU Member States The new rules also raise some fundamental questions of their own.

The types of sales promotions I will examine in this research are discounts, supplies free of charge as part of a combination of supplies as well as separate from any other supply, including samples and reward goods, barter transactions, free prize contests and vouchers (including coupons, gift cards, loyalty points etc.). The chapter about the VAT treatment of vouchers (Chapter 9) is largely based on the VAT treatment of the type of promotional activities for which they are used, as described in the chapters before I go into the VAT treatment of transactions involving vouchers.

I have identified and chosen these specific promotional activities because in my view, all relevant VAT related questions that I will research are represented in these promotional activities. I am sure that businesses will apply and introduce countless other promotional activities, now and in the future, but in my view, the relevant basic VAT questions that I will examine and answer in this research will remain the same.8

I have chosen the VAT treatment of transactions involving vouchers as the focal point of this research, because it has become clear that legislators, courts and businesses struggle with this specific topic. Even though the EU legislator has tried to solve some of the issues in this respect, I will explain that these new rules may still require improvement. Also, the transactions involving vouchers that are not covered by these new rules pose challenges by themselves, and I will address these challenges in this research. My aim is to find the most optimal way of treating transactions involving vouchers, from a VAT perspective, based on the principles underlying the EU VAT system and the economic reality of these transactions, as I will explain in Sections 2.4 and 2.5.