10.3.8 How should transactions involving vouchers, in the context of promotional activities, be treated from an EU VAT perspective?

The central question of this research is how voucher transactions that are performed in the context of promotional activities, should be treated from an EU VAT perspective. Promotional activities performed for business by third parties, where the business is basically the recipient of these promotional activities, are outside the scope of this research because these activities are not performed using vouchers issued by the business itself. Also, the focus of this research is centred around the dissonance between business having to tax output that leads to consumption, under the purpose of EU VAT which is to tax expenditure for local consumption, and the fact that promotional activities have a clear business purpose. They are performed to promote the, usually taxed, activities of businesses and are intrinsically liked to these business activities, and therefore they should not lead to additional VAT costs.

The steps that I took in this research to get to the answer of the central or main question, were all parts of the puzzle that is the VAT treatment of voucher transactions. There are many different types of vouchers, and using these different vouchers can have, and often has, different VAT consequences. Also, vouchers can be used for a plethora of promotional activities. As I demonstrated in this research, in many cases, the VAT treatment of vouchers depends on the VAT treatment of the actual underlying transactions to which the vouchers relate, which means that in those cases it can be argued that there is no ‘VAT treatment of the voucher transaction’ but only the VAT treatment of an underlying transaction that happens to involve the use of vouchers.

Answering the preliminary questions I described above, helped me to better understand what the EU VAT treatment of vouchers should be under appropriate law.

In Section 3 I research how to determine whether a supply is made free of charge. It is not always easy to establish whether vouchers, or the goods or services or the preferential treatment that the vouchers can be used for, are provided free of charge or for consideration. Under the current VAT rules, it can be argued that issuing free SPVs could lead to taxation at the time of issuing or transferring the SPVs, even though I am of the opinion that this should not be the case. It is also relevant to establish whether a voucher transaction was indeed performed for free, because the facts of a voucher transaction could, for example, lead to the conclusion that, actually, a consideration in kind was paid for the vouchers. The VAT treatment of vouchers that are supplied free of charge depends on different factors, as does the VAT treatment of the supply of goods or services in return for free vouchers. Using vouchers should not affect this ‘direct link’ between a payment and a (subsequent) supply.

In Section 4 I discussed how to determine whether a supply that is part of a composite supply (or: an element in a composite supply) that – as a whole – is made for consideration, is made free of charge. Some vouchers are ‘given away for free’ together with a supply of goods or services that is made for consideration. It can be argued that the EU VAT rules regarding composite supplies should also apply to transactions involving vouchers. If a free SPV is provided together with a good, it could be argued that the SPV, embodying the supply of the goods or services to which that SPV relates and which are deemed to be supplied at the time of transferring the SPV, is not an aim in itself for the customer, but a means of better enjoying the main supply. If that is the case, the SPV is ‘absorbed’ by that main supply and, as a general rule, (part of) the consideration for that main supply should also be allocated to the supply of the SPV. The VAT treatment of free vouchers is different from vouchers that were issued or transferred for consideration.

Vouchers are often used for granting discounts or rebates. The VAT treatment of discounts and rebates is discussed in Section 5. The VAT treatment of discounts or rebates should not be affected by the use of vouchers for obtaining these discounts or rebates. Specific types or discounts and rebates, leapfrogging over one or more parties in a transaction chain, require specific attention and were researched in-depth in that Section. These ‘cash backs’ and ‘money off’ schemes usually require the use of vouchers, issued by the party in the chain granting the ‘cash back’ or ‘money off’ to a customer at the end of the production and distribution chain. Effectively, these ‘discounts’ should be treated as third-party payments with a right to deduct the VAT included in that payment. Change in legislation is required to achieve that.

Once it is established that a certain supply, involving a voucher, is performed free of charge, it has to be determined whether that transaction needs to be taxed, at what point in time it should be taxed and how to determine the taxable amount for these transactions. Also, if certain transactions involving vouchers that are performed for no consideration should not be taxed, such as the issue and transfer of MPVs, it should be determined what the proper VAT treatment of these transactions should be. The basis for answering these questions was laid in Section 6.

Vouchers can be the object of barter transactions. For example, a consumer can enter a competition to come up with the next promotional slogan for a product and win vouchers for obtaining goods or services of the brand owner or manufacturer responsible for the relevant product. The EU VAT treatment of barter transactions was discussed in Section 7, where the foundation was laid to answer this and other questions regarding the VAT treatment of barter transactions involving vouchers.

One of the most famous stories about a promotional activity involving a voucher is Roald Dahl’s ‘Charlie and the Chocolate Factory’. The people that would find a voucher, called the ‘Golden Ticket’, inside the wrapping of a product manufactured by the Wonka chocolate factory, would win a prize: a tour of the factory for two people. This is a story about a voucher as a prize. The EU VAT treatment of prizes that are given away for free are discussed in Section 8. As explained in that Section, from an EU VAT perspective, Mr. Wonka made a tax-friendly decision by giving away a service as a prize instead of supplying goods.

The EU VAT treatment of costs relating to voucher transactions in the context of promotional activities is based in the findings in Sections 6 and 8, which all contain research on the relevant EU VAT rules for deduction regarding the specific types of transactions discussed in those Sections.

The answers to all the above questions should lead to the answer to the main question of this research: How should transactions involving vouchers be treated from an EU VAT perspective? (Section 9).

In Section 9, I find that under the current EU VAT rules, a distinction exists between ‘vouchers’ as defined in Article 30a(1) of the EU VAT Directive and transactions involving other instruments that, in practice, can also be referred to as ‘vouchers’ but are not covered by the EU VAT definition. The EU VAT rules distinguish two types of ‘vouchers’: single-purpose vouchers (SPVs), where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the time of issue of the voucher, and multi-purpose vouchers (MPVs), meaning a voucher other than an SPV.

Each transfer of an SPV made by a taxable person acting in his own name shall be regarded as a supply of the goods or services to which the SPV relates. The actual handing over of the goods or the actual provision of the services in return for an SPV accepted as consideration or part consideration by the supplier shall not be regarded as an independent transaction.

The actual handing over of the goods or the actual provision of the services in return for an MPV accepted as consideration or part consideration by the supplier shall be subject to VAT, whereas each preceding transfer of that MPV shall not be subject to VAT.

These rules, that came into force on 1 January 2019, were intended to harmonise the way voucher transactions are taxed within the EU. However, as I demonstrated in this Chapter, these new rules did not solve all existing issues surrounding the VAT treatment of voucher transactions, but they created some new issues as well. In this Chapter, I have described tax technical issues as well as practical issues that are the result of the application of the EU VAT treatment under the current rules.

The VAT treatment of vouchers that are not covered by the EU VAT definition of ‘voucher’ are determined by the other relevant (general) provisions in the EU VAT Directive as well as CJEU case law.

Because in economic and commercial reality, vouchers are not the object or aim of a transaction, under desired and appropriate law, the supply and the issuing of vouchers should not subject to VAT (contrary to current EU VAT rules and regulations). However, these transactions should be considered economic activities entitling the supplier or issuer of the vouchers to deduct VAT on the costs relating to the supply or issuing of the vouchers, provided that the relevant requirements for deduction are met.

Vouchers embody proof that the holder of the voucher is entitled to something: a supply of goods, services or a discount to a transaction, usually because the voucher also proves that payment was already received for those future transactions. The taxable amount for the underlying transaction should be the amount actually received by the supplier of the goods or services for which the voucher is redeemed. It can be difficult to establish what this amount is if other considerations, for example for the distribution of vouchers or for being allowed to be part of a specific voucher scheme, are settled with the consideration for the supply of goods or services for which the voucher is used.