Overview of key EU VAT rules governing vouchers
The Vouchers Directive came into force with effect from 1 January 2019 to ameliorate problems of non-taxation and double taxation associated with the application of the Principal VAT Directive to vouchers. The Principal VAT Directive did not contain any specific provisions on the VAT treatment of vouchers, leading to inconsistent or non-existent rules across EU member states and resulting in uncertainty and inconsistent VAT treatment. The Vouchers Directive was intended to bring about greater certainty and uniformity in the approach of tax authorities and to ensure that any tax on consumption is proportional to the actual price of the rendered goods or services. The main changes implemented under the Vouchers Directive involved introducing new definitions for different forms of 'voucher' and confirming the supply analysis for the issue and redemption of such instruments.
VAT is charged on each distinct supply of goods or services. Before the Vouchers Directive, a customer could be deemed to have received two separate supplies: the first when the voucher itself was issued, and the second when the underlying goods or services were actually supplied in return for redemption of the voucher, (although the tax authorities' approach across the EU was inconsistent). The Vouchers Directive simplified the VAT analysis such that there is no longer a separate supply of the voucher itself — the only supply is of the goods or services to which the voucher relates, and the question is at what point that supply should be regarded as taking place.
Definition of vouchers
The Vouchers Directive differentiates between Single-Purpose Vouchers (SPVs) and Multi-Purpose Vouchers (MPVs). SPVs are defined as vouchers where (a) the place of supply and (b) the amount of VAT payable are known at the time of issue. The goods or services supplied do not need to be precisely identified to calculate (b), but the range of goods and services available would have to be within a single VAT rate, i.e., standard, reduced or zero-rated.
MPVs are defined by exclusion, i.e., any voucher that is not an SPV is an MPV. An MPV would be a voucher that could be redeemed for many different goods or services and to which different VAT rates would apply. For example, a gift card for a major online retailer would be considered an MPV, whereas an SPV is typically only redeemable for a narrower range of goods and services (whether or not precisely identified). The Vouchers Directive also introduced a new rule for calculating the taxable amount on a supply under an MPV. The relevant amount is the consideration paid for the voucher, or in the absence of that information, the monetary value of the MPV itself (less applicable VAT).
SPVs are taxed when issued and on each subsequent transfer, and there is no additional supply of goods upon redemption. Taking a simple example, where A issues a bus voucher to B that is then redeemed by B for a bus trip provided by A, there is a single supply of services to which VAT is charged to A at the time the voucher is issued. No VAT is charged on the subsequent redemption of the voucher by B.
MPVs are taxed when they are actually redeemed, and so no VAT is payable upon their issue or subsequent transfer. This is logical, as the VAT due has yet to be determined. To build on our prior example, where A issues an MPV (e.g., a voucher that can be redeemed for a bus journey, museum tour or a meal subject to a reduced rate of VAT) to B, which is then redeemed by B for A's bus trip, no VAT is due on the issue of the voucher, and there is a single supply of services on which VAT is charged to A at the time the bus service is rendered. If B redeems the voucher for a meal at C's restaurant, VAT is payable by C on the supply of the meal at the point of redemption.
Where an intermediary buys and resells an SPV, it is treated as buying and reselling the underlying supply of goods and services, and no separate service to the issuer is recognized. Any commission earned by an intermediary for the transfer of an MPV will be separately recognized and invoiced for VAT purposes.
CJEU decision in DSAB
The decision of the CJEU in DSAB, which was discussed in our previous alert, confirms that the Vouchers Directive is intended to apply broadly and should result in a clearer and more harmonized approach to the taxation of vouchers. However, there remains some uncertainty as to how more nuanced and less traditional offerings should properly be treated, and it seems clear that there will be further litigation arising from tax authority challenges, particularly given that an MPV results in deferred taxation. In the next section, we will discuss the approaches taken by the Swedish and Swiss tax authorities.
Treatment of vouchers in key jurisdictions
Swiss VAT law
Switzerland's VAT system is largely compatible with the EU's VAT Directive and thus also the Vouchers Directive covering voucher treatment. Nonetheless, the EU's VAT Directive is not applicable in Switzerland and so it is not astonishing that important differences exist, as further discussed below.
Swiss VAT is due in the case of service or goods supplied on Swiss VAT territory against consideration. There must be an internal economic connection between the relevant supply and the consideration. Without a supply of services or goods, there cannot be a consideration. A consideration means an asset which the recipient or a third party expends in return for the receipt of a supply.
In case of vouchers, the question arises as to whether such vouchers qualify as consideration, as prepayments or as barters.
From a Swiss VAT perspective and as a rule, vouchers are treated purely as a means of payment, e.g., a shop sells prepaid cards or gift cards that can be used as a means of payment.
No services are deemed (yet) provided with the mere purchase of a voucher. Therefore, in principle, the vouchers do not qualify as consideration and are thus not subject to VAT. For this reason, vouchers cannot be invoiced with VAT. VAT, if any, would only have to be charged if the voucher is redeemed for goods or services.
However, the above principles should only apply if the vouchers are issued by the ultimate suppliers, but not if the issuer is not identical with the supplier.
According to the Swiss VAT Guidelines, in the case of hotel vouchers issued by third parties, (i.e., hotel vouchers sold by a third-party service provider) which allow the consumer to choose between several hotels, the vouchers are subject to VAT upon payment for the vouchers. This is because the accommodation provided by the hotel to the customer is deemed to be provided to the third-party provider and not to the hotel guest. However, standard vouchers sold by the hotel itself are subject to the standard rules described above.
Vouchers (issued by the ultimate supplier) must be distinguished from advanced payments. For example, season tickets (e.g., general season tickets, half-fare season tickets, route tickets and multi-trip cards) for transport services to be provided at a later date are considered advance payments and are subject to VAT upon payment. However, it is not a prepayment if the transport company sells vouchers or prepaid cards for future purchase of tickets. In such case, a service against consideration triggering Swiss VAT will only come into effect at the time the voucher is redeemed.
Swedish VAT law
The Vouchers Directive was implemented into Swedish VAT law with effect from 1 January 2019, applicable to vouchers issued after 31 December 2018. Since the Swedish VAT law governing vouchers is based on the Vouchers Directive, the overview of key EU VAT rules governing vouchers as described above can be said to generally apply in Sweden.
Prior to the implementation of the Vouchers Directive, there were no specific provisions regarding the VAT treatment of vouchers in the Swedish VAT Act, resulting in uncertainty and inconsistent VAT treatment. Instead, the VAT treatment was based on the general Swedish VAT provisions. As such, the introduction of the Vouchers Directive meant significant changes for the Swedish VAT landscape. However, given that the rules were introduced fairly recently and that the CJEU decision in DSAB is the first decision made in respect of the interpretation of the Vouchers Directive, a certain degree of uncertainty and inconsistent VAT treatment of vouchers across EU member states has remained.
On 14 October 2022, following the decision of the CJEU in DSAB, the Swedish Supreme Administrative Court of Appeal (SAC) made a decision, in line with the DSAB decision, concluding that the City Card should be classified as an MPV for Swedish VAT purposes, thus changing the previous ruling made by the Board for Advance Ruling under which the card was not classified as a voucher at all.
The Swedish Tax Agency (STA) had argued before the CJEU that the City Card was not a voucher because it had a high value limit with a short validity period and resembled a discount voucher. Through the CJEU and a recent SAC decision, it should now be clear under Swedish VAT law that no conditions, other than those listed in Article 30a of the Vouchers Directive, should be relevant considerations when classifying a voucher for VAT purposes under Swedish VAT law.
With that said, the STA has not yet updated its guidelines and opinions in respect of the treatment of vouchers. The STA also made various arguments before the CJEU and the Board for Advance Rulings in Sweden that neither the CJEU nor the SAC addressed.
Consequently, there remains some uncertainty as to the Swedish tax treatment of vouchers, and further litigation arising from STA challenges in respect of interpretation of VAT rules for vouchers is expected.