New VAT treatment of vouchers

VAT treatment of vouchers

New VAT treatment of vouchers

As some of Malta’s top leading tax advisors, GCS Malta provides a comprehensive range of tax advisory and tax compliance services as well as a variety of specialist corporate services to its extensive array of international clients. Part of this service is to update our esteemed clientele of new regulations and news within the industry.

The EU Council has deemed the provisions in the current EU VAT Directive (Directive 2006/112/EC) as applicable to vouchers are not clear or anywhere near substantial enough to ensure consistent VAT treatment between Member States.

Distortions in the market between Member States as well as potential instances of double taxation or tax avoidance, could take place. These shortcomings, along with recent developments, prompted the Council to consider introducing provisions for the common treatment of vouchers across the EU. Consequently, the Council adopted a Directive (Directive 2016/1065) – the EU Vouchers Directive – which came into force on 1st January 2019 and thus applicable to vouchers issued after 31st December 2018.

There should be no difference in ultimate VAT charged on given transaction – regardless if one pays for that good or service using cash, credit cards or vouchers. It must be noted that the EU Vouchers Directive excludes any form of payment instruments as well as discounts without right to claim a good or service, admission or transport tickets, payment instructions nor postage stamps.

In terms of the EU Vouchers Directive, a voucher, be it of a physical form or an electronic form, represents an obligation on the part of the vendor “to accept it as consideration or part consideration for a supply of goods or services and where the goods or services to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument”.

Vouchers refer to gift cards that include book tokens, gift vouchers and electronic vouchers purchased from specialist businesses.

Single Purpose Voucher (“SPV”)

An SPV is characterised by a certainty regarding its value and subsequent VAT change as well as place of supply of the underlying transaction. The VAT treatment for this type of voucher is determined by referring to the said place and nature of the supply. Hence, the issuing of an SPV is a taxable transaction.

Should the voucher be issued by a taxable person acting on behalf of another taxable person, the first taxable person is not considered as acting in the underlying supply. The consideration received by a person not acting is his own name on the transfer of the voucher is not subject to VAT. The only VAT obligation attributable to this intermediary is that of intermediary, distribution and/or marketing services.  

Multi Purpose voucher (“MPV”)

An MPV entitles the holder to receive goods or services where these goods or services are not sufficiently identified. As a result, VAT cannot be determined with certainty at the time the voucher is issued. VAT can only be accounted for when vouchers are redeemed and, therefore, when the goods or services to which the voucher relates are supplied. At this point, VAT is charged on the taxable amount that is taken to be either;

a. if the redeemer knows how much was paid for the voucher, that amount (net of any amount of VAT due on the supply); or

b. if the redeemer does not know how much was paid for the voucher, the face value (net of any amount of VAT due on the supply), and proportionally the same where the voucher is partly redeemed for goods or services.

In the case of only partial use of an MPV, the value considered as taxable is that of the consideration or the monetary value, less the amount of VAT relating to the goods or services supplied.

As with SPVs, the Directive contemplates the issue relating to the distribution of the vouchers through a chain of distributors before arriving in the hands of the final consumer. Although the underlying transaction is not to be taxed until the eventual supply of goods or services takes place, the Directive once again anticipates that the commercial distribution of an MPV is a supply of a taxable service which is independent of the underlying supply.

Therefore, when an MPV changes hands in a distribution chain, VAT will be due only on any separate supply, for consideration, of intermediary / distribution / promotion services incurred by the third part distributor/s.

The Directive does not deal with non-redemption of MPVs, where the issuer retains the consideration paid for the MPV.

Applicability of vouchers to “utility tokens”

Tokens issued during token generating events (including ICOs) grant holders the right to redeem tokens against goods/services at a future date. In some instances, when tokens are granted, it may not be possible to determine the following:

  • The type of goods/service to be utilised in exchange for the tokens (specifically when the token entitles the holder to redeem against various goods/services);
  • The nature of the person to eventually utilise the service (i.e. whether a taxable person or otherwise);
  • The jurisdiction where the person utilising the token will be established for VAT purposes.

On this basis, it is anticipated that most utility tokens should probably be considered as MPVs for VAT purposes.

Implementation

Member States have until 31 December 2018 to transpose the directive into national legislation, with the revised rules coming into effect for vouchers issued after that date. Malta has transposed the implementation of the directive into national legislation by way of legal notice 348 of 2017. Furthermore, by 31 December 2022, the EU Commission is to prepare an assessment report on the implementation of the Vouchers Directive.

As tax advisors we can provide you with high quality, tailored advice that helps relieve the pressures associated with making complex tax decisions ensuring that you adhere both to best practice and to tax law. Our tax advisors’ team will also make sure that your business is using the most efficient VAT structure and that all refunds are applied for appropriately. Get in touch now on [email protected].

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