Beware of VAT rules when offering vouchers to customers

31 May 2024

A recent European court decision has highlighted the complexity of VAT rules for vouchers introduced five years ago to simplify the previous regime. The decision, concerning a UK gaming company’s vouchers, ultimately intended to be sold to EU-based consumers, leaves many unanswered questions for those issuing vouchers that can be distributed internationally. 

What is VAT rules for vouchers about?

A UK gaming company issued vouchers for online store credits intended for consumers. Some of these vouchers were coded for use in Germany, although it was expected that some consumers outside Germany may look to use the German vouchers as they represented better value for money than those for other locations. The German vouchers were issued by the UK company to EU-based intermediaries that, in turn, sold them to German retailers. The German tax authority expected German VAT to be accounted for on the sales by the UK issuer, the intermediary and the final retailer. The gaming company expected to account for German VAT on the vouchers only when they were redeemed in its store. 

Why is it complicated?

For VAT purposes, there are two types of vouchers: a single-purpose voucher or multi-purpose voucher. If the VAT position of the final transaction is known when a voucher is issued (ie it is a single-purpose voucher), VAT must be accounted for on the issue and any subsequent sale of the voucher by reference to the treatment of the ultimate sale to the consumer. By contrast, when a multi-purpose voucher is issued, the VAT position is unknown (for example, because the voucher could be redeemed against a purchase that is subject to French VAT or German VAT). VAT on multi-purpose vouchers only needs to be accounted for when they are redeemed, creating significant cashflow and compliance advantages for those in the supply chain.

What did the court find?

The court was asked two questions: were the vouchers in question single or multi-purpose (bearing in mind the intermediate transactions and occasional illegitimate use outside of Germany); and, could the voucher intermediaries account for a VATable supply if they were multi-purpose vouchers? 

On the first question, the court stated that if the vouchers should be used in Germany, then they remain single-purpose vouchers subject to German VAT. The fact that some consumers might circumvent the coding and use the vouchers outside Germany should not affect the VAT analysis. Further, the fact that the sale could be routed through businesses in several countries should not affect the analysis, even though this would create VAT accounting obligations for businesses outside of Germany. 

On the second question, the court found that voucher intermediaries in the sale of multi-purpose vouchers can provide separate sales of services within the scope of VAT, but only if they are billed to the issuer of the voucher.

What does this mean for customers vouchers?

If businesses are considering offering their customers vouchers, it is critical to consider the VAT treatment as this will have a significant impact on the operation of the scheme. This will, in turn, determine how accounting systems must be configured and how voucher distributors should account for VAT.