2 Value added taxation
| Committee's assessment
| Politically important |
| Committee's decision | Not cleared from scrutiny; for debate in European Committee B
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| Document details | Draft Regulation concerning the VAT rules for vouchers
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| Legal base | Article 113 TFEU; consultation; unanimity
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| Department
Document numbers
| HM Treasury
(33886), 9926/12 + ADDs 1-2, COM(12) 206
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Summary and Committee's conclusions
2.1 The 2006 Principal VAT Directive consolidated the legislation
governing value added taxation in the EU. In order to ensure smooth
operation of the single market and equal treatment for all businesses
trading across the EU, the Directive lays down rules to ensure
a consistent approach to the questions about how much VAT to charge,
when it should be declared and to which tax jurisdiction the tax
should be paid. However, vouchers can present difficulties in
relation to all these questions.
2.2 In May 2012, after a lengthy period of consultations,
the Commission issued this draft Directive to amend the Principal
VAT Directive, in order to clarify and harmonise the rules on
the VAT treatment of vouchers.
2.3 When in September 2012 we considered this proposal
we said that, whilst the proposal concerned a relatively limited
aspect of VAT matters, we recognised its importance in relation
to the efficacy of the EU's VAT system. We continued that we would
wish therefore, in due course, to recommend the draft Directive
for debate. However, we said that we would not make that recommendation
until we had from the Government, at an appropriate moment, an
account of the direction Council working party discussions were
going and a consequent evolving assessment of the Government view
of the consequences of the proposal.
2.4 The Government now tells us that:
· after
several years of intermittent official level discussion, there
is a possibility that the proposal will go to the ECOFIN Council
for agreement in the coming months;
· the
Council working party has examined a variety of alternative ideas
of VAT treatment in this area, all of which the Government has
discussed with UK businesses in order that the impact of any change
could be properly represented;
· the
draft Directive now concentrates on face value vouchers;
· there
are advantages and disadvantages to the revised text;
· there
is considerable support from Member States for an approach proposed
by the Italian Presidency, but not all can agree; and
· although
some further changes to the text suggested by the Government to
make it more acceptable to UK businesses were accepted in principle
by the Italian Presidency, in the event others were reluctant
to commit to significant change without a greater understanding
of the impacts — as a result the Government has to wait
to see what direction the Latvian Presidency will take with this
work in the New Year.
2.5 The Government has given us a helpful summary
of where matters stand on this proposal. However, it is not yet
clear how further Council consideration will pan out. Nevertheless,
given that a revised text of the draft Directive may go the ECOFIN
Council soon we recommend that the debate in European Committee,
which we have foreshadowed previously, should take place now.
This debate will enable Members to explore the details of the
proposed solutions to what is a complex problem and their possible
consequences for UK businesses.
Full details of
the documents: Draft
Council Directive amending Directive 2006/112/EC on the common
system of value added tax, as regards the treatment of vouchers:
(33886), 9926/12 + ADDs 1-2, COM(12) 206.
Background
2.6 Council Directive 2006/112/EC, the Principal
VAT Directive, which entered into force on 1 January 2007, consolidated
the legislation governing value added taxation in the EU. In order
to ensure smooth operation of the single market and equal treatment
for all businesses trading across the EU, the Directive lays down
rules to ensure a consistent approach to the questions about how
much VAT to charge, when it should be declared and to which tax
jurisdiction the tax should be paid.
2.7 However, vouchers can present difficulties in
relation to all these questions:
· even
though a voucher may permit a purchase at a set price, the voucher
itself may be sold at a reduced price (or may be free);
· long
distribution chains can disrupt the information flow, to the extent
that the redeemer of a voucher may have no knowledge of how much
has been paid for the voucher; and
· where
vouchers are issued for consideration, some Member States define
the taxable amount as the total received from the consumer, some
the face value of the voucher and some the amount of the voucher
attributed to a supply made to the consumer, allowing non-taxation
where there is no use.
2.8 Increasing cross-border use of vouchers and cross-border
distribution and the differences in treatment between Member States
is one of the main causes of double or non-taxation. There is
nothing in the existing VAT legislation that addresses this.
Although a number of high profile cases have gone to the Court
of Justice (for instance the Lebara case, (C-520/10)) and
have given clarification in a number of transactions, implementation
has not always been straightforward.
2.9 In 2006 the Commission undertook a public consultation
into Modernising the value added tax treatment of vouchers
and related issues. For the purposes of the consultation the
Commission described vouchers thus:
· a
free voucher issued without charge, normally with the intention
of promoting a product or service — discount vouchers and
business gifts are a subcategory of free vouchers;
· a Single
Purpose voucher (SPV) would in principle carry a right to receive
goods or services identified at the outset and with the same VAT
rate, or to obtain a discount when acquiring those goods or services
or to receive a refund at the time of the redemption by an individual
redeemer (with exceptions), inside the same Member State of issue;
and
· a Multi-Purpose
voucher (MPV) would be any medium, other than legal tender, which
carries a right to receive goods or services, or to obtain a discount,
when acquiring those goods or services or to receive a refund,
at the time of the redemption.[8]
2.10 As a result of subsequent discussions with Member
States, it was decided that an impact assessment was needed before
a proposal for legislative changes was made. After extensive research,
the assessment was completed in 2011 and in May 2012 the
Commission issued this draft Directive to amend the Principal
VAT Directive, in order to clarify and harmonise the rules on
the VAT treatment of vouchers.
2.11 For the purpose of the draft Directive a voucher
is an instrument (which may be in physical or electronic format)
which gives entitlement to the holder and imposes corresponding
obligations on the issuer. The holder's entitlements are typically
for goods or services or to receive a discount or a rebate in
relation to a sale or a supply. The issuer assumes an obligation
to supply goods or services, to give the discount or to pay the
rebate. In defining a voucher in this way the draft Directive
identifies it as an object in itself, which can itself be supplied.
This means that the extensive distribution services in place for
vouchers would be subject to VAT. But at the same time a system
for vouchers needs to recognise that while VAT on any distribution
service is captured there is only one payment for the underlying
goods or services for which the voucher acts as evidence of the
right to receive. Thus the draft Directive would have supplying
of the right to receive as a supply and that subsequent supply
viewed as a single transaction.
2.12 When in September 2012 we considered this draft
Directive we said that, whilst the proposal concerned a relatively
limited aspect of VAT matters, we recognised its importance in
relation to the efficacy of the EU's VAT system. We continued
that we would wish therefore, in due course, to recommend the
draft Directive for debate. However, we said that we would not
make that recommendation until the Government was able to give
us an account of the direction Council working group discussions
were going and a consequent evolving assessment of the Government
view of the consequences of the proposal. So we looked forward
to hearing further from the Government at an appropriate moment
with this information. Meanwhile the document remained under scrutiny.
The Minister's letter of 18 December 2014
2.13 The Financial Secretary to the Treasury (Mr
David Gauke) writes now to update us on draft Directive, saying
that:
· after
several years of intermittent official level discussion, there
is a possibility that the proposal will go to the ECOFIN Council
for agreement in the coming months;
· this
would be the first time the issue has come before Ministers; and
· as the
Italian Presidency ends, it seems an appropriate time to update
us on this file.
2.14 The Minister first elaborates on why the Principal
VAT Directive needs to be amended, saying that:
· it
fails to provide clear rules for vouchers and this has become
more important as case law has clarified the VAT rules and the
use of vouchers, particularly with the rise in technology, has
increased;
· an example
of this failure would be where VAT law would expect any prepayment
to be subject to VAT;
· while
a simple voucher (say a CD token) might be able to comply with
this rule, a gift voucher for a shop would not because at the
time of issue, the VAT rate of the goods and services to be provided
in return for the voucher are not yet identified;
· vouchers
also produce difficulties in identifying the correct tax base
so the current law has had the unforeseen effect of distorting
one of the key principles of VAT, that it is a tax on consumption;
· it identifies
the payment that is subject to VAT as being all that the seller
receives and assumes that this is the same as what the customer
pays;
· however,
where an issuer of a voucher is not the redeemer, this will not
necessarily be the case because the issuer will make money by
charging more for the voucher than he pays the redeemer;
· the
matter is made worse when the voucher is distributed through a
long chain of intermediaries, making the difference between what
the redeemer receives and what the buyer pays even greater; and
· there
is a further complication in that the buyer of a voucher receives
two things (the voucher and the underlying goods and services)
for each payment, whereas the VAT system more generally is intended
to be based on "a supply for a consideration" concept.
2.15 The Minister continues that:
· the
VAT treatment of vouchers has been brought more into focus as
a result of the need to standardise rules for telecoms top-ups
and vouchers for electronically supplied services because the
VAT place of supply rules for these services is changed with effect
from 1 January;
· this
change, with the introduction of the Mini One Stop Shop system
for cross border VAT declaration, requires identical treatment
of the related vouchers to be truly effective;
· it has
been clear for some time, however, that a change for the voucher
treatment would not be made in time for this introduction; and
· the
Government has held discussions with the businesses concerned
as to how any temporary difficulties can be mitigated.
2.16 The Minister comments that:
· the
VAT treatment of vouchers will always be complex;
· although
the Government welcomes the broad intention of the Commission
proposal to solve this problem, it has failed to provide a credible
solution;
· during
consultation it became particularly evident that UK businesses
had concerns that the draft Directive would require them to divulge
commercially sensitive details in order for VAT to be collected
on distribution;
· the
Government subsequently engaged with a series of Presidencies
to consider possible alternatives;
· the
Council working party has in turn examined a variety of alternative
ideas of VAT treatment in this area, all of which the Government
has discussed with UK businesses in order that the impact of any
change could be properly represented;
· following
this engagement, the draft Directive now concentrates on face
value vouchers — it does not now cover any voucher that
offers merely a discount;
· it also
now clearly excludes any instrument that is more generally a means
of payment; and
· the
new rules identify two groups of face value vouchers — SPVs
and MPVs.
2.17 The Minister explains that the definition of
SPVs would cover vouchers where all the information to charge
the correct amount of tax is available at the time of issue of
the voucher. He says that these new rules are very straightforward,
the supply of the voucher at each stage of distribution is seen
as a supply of the underlying goods or services, and that this
approach is broadly consistent with current UK law. As for MPVs
the Minister explains that:
· this
definition would cover vouchers for unspecified goods or services,
so that tax could not be charged at issue;
· several
options therein were examined at official level, and two primary
options were brought forward;
· the
first would have seen all MPVs taxed along the distribution chain
from issue to redemption;
· the
second option, which is the version in the current text, foresees
taxation at the redemption stage only;
· both
of these options have positive and negative aspects;
· taxation
throughout the chain would ensure that tax is collected on the
base of what the consumer pays, but the appropriate VAT rate would
be difficult to achieve;
· this
approach would inevitably require some form of adjustment, requiring
VAT rate information to pass from the redeemer to the final seller
of the voucher;
· margin
schemes and schemes based on a redeemer's effective VAT rate were
also considered, which would have reduced the need for adjustment,
but these were deemed to be excessively burdensome and difficult
to operate in cross-border situations;
· the
second option would also require some transfer of information
(about the final price paid for the voucher) but in easier circumstances,
both in terms of the information to be passed and the timing;
· businesses
would gain certainty that would aid cross-border trade (the UK
is a leader in this field) and the harmonised approach would lead
to less double and non-taxation; and
· this
system would be easier to administer.
2.18 The Minister continues that:
· the
Italian Presidency pressed for agreement based on the second option
for MPVs, having concluded that the most effective and least burdensome
approach would be to rule that all distribution is outside the
scope of VAT, with tax to be accounted for by the redeemer based
on the face value of the voucher, or if known, the amount that
the customer actually pays;
· there
is considerable support from Member States for this approach,
but not all can agree;
· despite
the broad support, it has, however, so far proved impossible to
develop an approach to MPVs that will please everyone;
· a particular
concern of some is that an agreement to treat all the distribution
as outside the scope of VAT would mean voucher issuers and some
distributors would not only no longer have to charge VAT, but
would also no longer be able to deduct the VAT incurred on their
costs — their business would no longer be VAT neutral and
their costs would increase;
· an additional
concern the Government has is that, if distribution were taken
out of the scope of VAT, there is one small group of redeemers
(where MPVs are distributed through a network of intermediaries
acting in their own name) who could theoretically end up having
to pay more VAT than they currently do because it is most unlikely
that they would be able to identify what the buyer of the voucher
has paid the intermediary;
· where
now such redeemers account for VAT on what they receive from the
issuer, in future they would have to account for VAT on the face
value of the voucher;
· to get
round this problem contracts would have to be amended to ensure
the VAT to be accounted for is reflected in the distribution payments;
· the
Government understands that for this group (which includes several
High Street names) a change in distribution model is the more
likely impact;
· although
some further changes to the text suggested by the Government to
make this more acceptable to UK businesses were accepted in principle
by the Italian Presidency, in the event others were reluctant
to commit to such a significant change without a greater understanding
of the impacts — as a result the Government has to wait
to see what direction the Latvian Presidency will take with this
work in the New Year;
· though
there is a grandfathering rule in the current text, Member States
have already noted that it will take at least a year to implement
new rules, with businesses having to reset contracts and systems;
and
· the
firm dates of the Directive coming into force are therefore still
to be agreed.
Previous Committee Reports
Eleventh Report HC 86-xi (2012-13), chapter 14 (5
September 2012).
8 Summary report of the consultation. Back
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