In June 2016, the Council of the European Union adopted Council Directive (EU) 2016/1065 (“the Voucher Directive”) to simplify and harmonise the VAT rules applying to vouchers across the EU. The Directive aims to eliminate mismatches in national tax rules, which may lead to double taxation or non-taxation.
The Voucher Directive was transposed into Irish VAT legislation with effect from 1 January 2019. This had the effect of implementing changes to the VAT treatment of certain gift vouchers issued on or after 1 January 2019.
Under the new rules vouchers are divided into two categories, “Single-Purpose” Vouchers and “Multi-Purpose” Vouchers.
- Single-Purpose Voucher (SPV)
A “single-purpose voucher” is a voucher 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 when the voucher is issued.
A voucher is treated for VAT purposes as an SPV when the underlying supplies, are liable to a single rate of VAT. Where different VAT rates apply to the underlying supplies, then the voucher is treated as a multi-purpose voucher (MPV), which is discussed further below.
For example, a voucher for a haircut would be viewed as an SPV on the basis that the voucher relates to the supply of a specific service against which the voucher can only be redeemed. Further, both the place of supply and the VAT due is known at the time of issue.
Any SPV issued since 1 January 2019 is subject to VAT at the rate applying to the underlying goods / services at the point of issue. The subsequent redemption of the voucher is effectively disregarded for VAT purposes. As such, the supply of the goods / services is not treated as an independent transaction and the trader is not accountable for VAT on the supply of the goods / services because the VAT was already paid on the supply of the SPV itself.
Where an SPV is not redeemed or is only partially redeemed, no adjustment is made for the non-redemption. Where an SPV is redeemed and additional consideration is also paid to purchase goods / services, then the additional consideration is chargeable to VAT at the appropriate rate at the time of payment or the supply.
Where the SPV is sold at a discount then the amount on which the VAT is chargeable is the sum actually received on the sale of the voucher regardless of face value.
- Multi-Purpose Voucher (MPV)
A “multi-purpose voucher” (“MPV”) is a voucher other than a Single-Purpose Voucher. As such an MPV is any voucher where the goods / services that may be purchased with that voucher, have different VAT rates, and / or may be purchased from different suppliers.
For example, a voucher for a shopping centre would be regarded as a MPV because the voucher may be redeemed in a number of stores against many different goods / services. As such, the VAT rates applying to the underlying goods / services are not known at the time the voucher is issued.
Under the new rules, VAT will not be chargeable on the issue of an MPV. Instead VAT arises when an MPV is redeemed.
The taxable amount is based on the consideration actually paid for the MPV. However, if the amount of consideration is unknown then the taxable amount for the MPV should be calculated having regard to the monetary value indicated on the voucher itself (or in related documentation).
Where an MPV is partially redeemed to pay for goods / services, the taxable amount is the corresponding part of the consideration actually paid for the MPV. Where the actual consideration paid for the MPV is unknown, the taxable amount is the monetary value.
Practitioners should be aware that the Directive does not deal with the cross border supply of SPVs or MPVs nor is this matter addressed in Revenue’s Guidance published in December 2018, setting out its interpretation of the new rules. Therefore, we must wait for further guidance to issue on the matter to see if this matter will be specifically addressed.
The Directive also do not specifically deal with the treatment of unredeemed vouchers. However, Revenue guidance as published in December 2018 clarifies that if an MPV is not redeemed by the customer, then no VAT arises. As regards SPVs, the VAT is paid on the issuance of the voucher and the subsequent redemption is effectively ignored for VAT purposes. As such, from a VAT perspective there is no impact if the SPV is not redeemed.
Do the new rules apply to all types of vouchers?
The simple answer to this question is no. The Voucher Directive only applies to vouchers which may be used for redemption against goods or services. Instruments entitling the holder to a discount are not impacted by the new rules.
The Directive also states that its provisions will not affect the VAT treatment of transport tickets, admission tickets to cinemas and museums, postage stamps etc.
Do the new rules apply to Free Gift Coupons?
The new rules do not apply to the VAT treatment of “free gift coupons”. Take the following example:
Say a coffee shop operates a scheme whereby customers get a coupon with each purchase over €10 and the customer can get a free mug once he/ she accumulates 10 coupons. As no payment passes between the customer and the coffee shop for the mug (the consideration was paid for the food / drink etc) this is effectively a gift by the coffee shop which means that it must account for VAT on the cost of the mug.
However, practitioners should be aware that there is a body of EU cases involving loyalty schemes, free gifts etc and developments in this area should be closely monitored by practitioners, particularly with regard to exceptions that can arise in relation to the general rule.
VAT treatment of vouchers, exclusing SPV and MPVs
In March 2019 the Irish Revenue issued guidance clarifying the VAT treatment of vouchers that do not fall with the new rules implementing the Voucher Directive. This guidance covers:
- Vouchers (that are not a single-purpose or multi-purpose voucher)
- Stamps (not postage stamps)
- Telephone cards
- Book tokens
The VAT treatment of these “other vouchers” depends on who is buying them and the amount of consideration paid.
Other vouchers sold to private customers
- No VAT is due on vouchers sold for their face value to private customers;
- Where the consideration is greater than the face value of the voucher, the difference between the amount that the supplier receives and the face value of the voucher is liable to VAT at the standard rate (currently 23%);
- When a private customer redeems the voucher, VAT is charged for the goods / services supplied to him or her at the time of redemption. The trader who accepts the voucher for the supply of the goods or services is liable for the VAT when it is redeemed. The VAT is the same as the VAT rate applying to the underlying goods or services.
Other vouchers sold to business customers
- Where the vouchers are sold to an accountable person for VAT purposes, with a view to resale to private consumers and are to be used in exchange for goods then these vouchers become liable for the VAT at the standard rate on the consideration received at the time of their sale to the accountable person. This treatment only applies where:
- The accountable person acquired it with a view to resale, and
- The issuer of the voucher agreed to redeem the voucher at face value.
In such cases, the full amount of the consideration for the voucher is liable to VAT.
The resale of these vouchers by the trader, or subsequent accountable person, is also liable to VAT. The redeemable value of the voucher is disregarded when they are ultimately used for the purchase of goods or services. No VAT is due on this redemption of the voucher.
- Where a voucher is sold to a business outside of Ireland for resale, no VAT arises on the sale. Rather the VAT arises at the point of redemption of the voucher i.e. VAT is accounted for when redemption of the voucher takes place.
The VAT treatment of vouchers and similar instruments is quite complex. Different VAT rules apply to different types of instruments. The 2019 changes will impact many types of businesses, particularly retailers, online businesses and software companies. Careful consideration must be given to how the new rules are implemented by VAT accountable persons as well as the wider commercial impact, including potential amendments to contracts and pricing schedules.
Caselaw continues to evolve in this area and no doubt new practices will emerge as the new regime evolves.
This article was published by Taxworld.ie in June 2019