New VAT provisions as regards vouchers

Currently, the EU VAT Directive lacks provisions as regards how vouchers (for example gift coupons, gift cards and other value certificates, in both physical and electronic form) should be treated in terms of VAT. Currently there is no harmonisation of the framework, and the provisions in the national legislation in each member state are far from uniform. Due to the European Commission’s proposal to introduce common provisions regarding vouchers in the VAT Directive, the Swedish Ministry of Finance has proposed, in a memorandum released in autumn last year, an implementation of the new provisions in the Swedish VAT Act.

Currently there are no specific provisions regarding the VAT treatment of vouchers in the Swedish VAT Act. Instead, an interpretation and application of general Swedish provisions must be undertaken. Tax liability for Swedish VAT occurs when the the delivery of goods or provision of services has taken place. In cases of advance payments, the tax liability for Swedish VAT occurs when the payment has been received. The taxable base consists of the consideration (excluding VAT) which the seller receives for the supplied goods or services.

The Swedish Tax Agency’s current view of vouchers

The issuer of a voucher is liable to report and pay VAT for the actual value of the goods or services to which the voucher refers. Therefore, the taxable base comprises of the actual value. If the voucher is issued by a distributor, any consideration paid by the issuer to the distributor should not be reduced from the taxable base on which the issuer is to report VAT.

There are two different types of vouchers. According to the Swedish Tax Agency, a so-called “single-purpose voucher” is a voucher where all details relevant for the VAT liability in question are known at the point in time when making the payment, for example, the specific goods or services referred to, the name of the supplier and the country of supply. VAT liability for single-purposes vouchers occurs when payment for the actual voucher is made. A voucher which is not a single-purpose voucher is, instead, a so-called “multiple-purpose voucher”. VAT liablity for multiple-purpose vouchers occurs when the delivery of the goods or provision of the services, to which the voucher refers, takes place.

The new provisions according to the proposal – a brief overview (not all-inclusive)

The new provisions in the Swedish VAT Act will have definitions of ”voucher”, ”single-purpose voucher” and ”multiple-purpose voucher”, as well as including provisions as to when the use of the vouchers triggers VAT liability, the taxable base, which taxable person will become liable to VAT and at which point in time the VAT liability will occur.

A voucher is defined as ”an instrument where there is an obligation 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”.

If the country of supply and VAT amount to be paid are details which are known at the point in time when the voucher is issued, then it is a single-purpose voucher according to the new provisions. A multiple-purchase voucher is, also according to the new provisions, a voucher which is not a single-purpose voucher. The definitions aim to clarify the categorization of vouchers and how they should be distincted from payment instruments.

According to the new provisions, the actual transfer of a single-purpose voucher will trigger VAT liability, and the consideration paid comprises the taxable base. For multiple-purpose vouchers, on the other hand, the actual delivery of the goods or provision of services will trigger VAT liability. However, a previous transfer of a multiple-purpose voucher does not trigger any VAT liability. The taxable base for multiple-purpose vouchers is the consideration paid for the vouchers. If such information is lacking, the monetary value stated on the voucher (or in the associated documentation) is deemed as the taxable base.

The introduction of the new provisions in the VAT Directive aims at harmonising the framework and clarifying VAT treatment in this regard. The implementation of the new provisions in the Swedish VAT Act is proposed to come into effect on 1 January 2019 and, in such case, will only apply to vouchers issued after 31 December 2018.

Comments

Many companies operating in the retail business will be impacted by the new definitions of vouchers. Other companies who in their supplies issue vouchers, for example, telephone companies issuing cash cards, should also, be aware of the new provisions. In spite of the fact that the material differences between the Tax Agency’s current view of the VAT treatment of vouchers and the new provisions, should not be major, a number of changes will likely occur. For example, according to the new definitions, more vouchers will be deemed to be single-purpose vouchers and, as a result, taxation will be made earlier than what some companies today are used to. An earlier taxation can also imply a strain on liquidity for these companies. Consequently, our recommendation is that companies who, today, issue vouchers as multiple-purpose vouchers but where the tax rate and the country of taxation is known at the point of issuing, should follow-up on their VAT treatment in this regard.

The member states’ various national provisions today as regards vouchers can, in many cases, imply double taxation but can also lead to non-taxation, which has a distortioning effect on competition on the market. For companies using vouchers in cross-border transactions, the new provisions will hopefully reduce uncertainty on how VAT on vouchers should be treated.