Weekly VAT News

Topics – Single-purpose and multi-purpose vouchers – prepaid cards or vouchers for the purchase of digital contents

C-68/23 M-GbR

On 18 April 2024 the Court of Justice of the European Union (CJEU) released its decision in this German referral concerning the definition of single-purpose and multi-purpose vouchers – tax treatment of prepaid cards or vouchers for the purchase of digital content. The referral asks whether a single-purpose voucher exists within the meaning of Article 30a(2) of the VAT Directive where the place of supply of the service to which the voucher relates is known, in so far as those services are intended to be supplied to final consumers within the territory of a Member State, but the fiction of the first subparagraph of Article 30b(1) also gives rise to a service in the territory of another Member State?

If the first question is answered in the negative (and hence a multi-purpose voucher exists in the present case), does subparagraph 1 of Article 30b(2), according to which the actual provision of the services in return for a multi-purpose voucher accepted as consideration or part consideration by the supplier is subject to VAT pursuant to Article 2, whereas each preceding transfer of that multi-purpose voucher is not subject to VAT, preclude a differently substantiated tax obligation by reference to C-520/10 Lebara?

In the immediate case, the parties disagree as to whether the transfer of prepaid cards or voucher codes for the purchase of digital content, known as X cards, are subject to VAT.

During 2019, M-GbR sold X cards via its online shop. In the year at issue, Y, which is established in the UK, was the publisher of the X cards. The voucher codes allowed the purchaser to load his or her X user account with a certain nominal value in euros, after which digital content could be purchased by the account holder in Y’s X store at the prices indicated therein.

The X cards were distributed by Y with different country codes through various intermediaries. The code DE was intended for customers with their domicile or habitual residence in Germany and a German X user account.

During the year in question, M-GbR purchased X cards from two suppliers who were not established in the UK or Germany, but in other Member States. They had previously acquired the X cards from Y. In its tax returns, M-GbR did not record either the acquisition of the X cards from suppliers nor their transfer to end customers. It acted on the assumption that X cards were vouchers or multi-purpose vouchers.

In disagreement, the tax office considered that M-GbR’s turnover through X cards was taxable in Germany because the cards with the identifier DE were intended exclusively for final customers resident in Germany with a German user account. Classification of those cards as ‘goods vouchers’ or ‘single-purpose vouchers’ is also supported by the fact that Y had placed the cards as such on the market and that, in the subsequent performance chain, they were treated as such by all the other parties.

A ‘single-purpose voucher’ means 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 at the time of issue of the voucher (Article 30a point 2 of the VAT Directive). A ‘multi-purpose voucher’ means a voucher other than a single-purpose voucher (Article 30a point 3 of the VAT Directive).

Each transfer of a single-purpose voucher made by a taxable person acting in his or her own name is regarded as a supply of the goods or services to which the voucher relates. However, the actual handing over of the goods or the actual provision of services is not regarded as an independent transaction (first subparagraph of Article 30b(1)). Conversely, in the case of a multi-purpose voucher, only the actual handing over of the goods or the actual provision of the services to which it relates are subject to VAT, but not each preceding transfer of that voucher (first subparagraph of Article 30b(2)).

The CJEU recalled that Article 30a(1) defines a voucher as 'an instrument which is subject to an obligation to accept it as total or partial consideration for a supply of goods or services and in respect of which the goods to be supplied or the services to be provided or the identity of their suppliers or potential suppliers are indicated either on the instrument itself, or in the relevant documentation, in particular in the general terms and conditions of use of that instrument'.

Considering the first question referred, the CJEU noted that it is based on the premiss that the X cards issued by Y, in accordance with the conditions of use laid down by Y, and bearing the identifier of the country in which the end consumer can purchase digital content marketed in store X, managed by Y, meet the definition of a voucher. That premiss has not been called into question.

Article 30a(2) and (3) distinguishes and defines two types of vouchers, namely 'single-use' and 'multi-purpose' vouchers.

The classification of a voucher as a 'single-use voucher' is based on the satisfaction of two cumulative conditions existing 'at the time of issue' of the voucher. On the one hand, the place of supply of the goods or services to which the voucher relates and, on the other hand, the VAT due on those goods or services must be known at that time. Where the tax treatment of a voucher cannot be determined at the time when that voucher is issued, it cannot be classified as a 'single-purpose voucher'.

Pursuant to Article 30b(1), each transfer of a single-purpose voucher made by a taxable person acting in his own name is to be regarded as a supply of goods or services to which the voucher relates. The physical delivery of the goods or the actual provision of the services in exchange for a single-use voucher accepted in full or in part by the supplier shall not be considered to be a separate transaction. This to lays down specific taxation rules where a single-purpose voucher is the subject of one or more transfers between taxable persons acting in their own name. The CJEU considered it clear that this provision only applies to instruments which, for the purposes of the VAT Directive, meet the definition of 'single-use vouchers'.

The application of the provisions of the first subparagraph of Article 30b(1) cannot call into question the conditions set out in Article 30a(2) thereof which lead to an instrument being classified as a 'single-use voucher' at the time of its issue.

As regards the first condition, as set out in Article 30a(2), that the place of supply of the goods or services to which the voucher relates must be known at the time of issue of the voucher, taking into account the conditions of use of X cards, in particular the identifier of the Member State in which those cards are to be used, In the light of Article 58(1)(c) of the VAT Directive, it appears that, at the time of the issue of such vouchers, the place where the digital content is supplied to the final consumer in return for the X cards sold by M-GbR is in Germany.

The CJEU considered that it is not possible to take into account the fact that final consumers, residing outside German territory, use X cards, purchased from it with the identifier 'country' DE, in breach of the conditions of use of those cards. The proper classification of a transaction for VAT purposes cannot depend on any abusive practices.

In conclusion, the CJEU considered that whilst it if for the referring court to verify, the first condition laid down in Article 30a(2) is satisfied.

As regards the second condition laid down in Article 30a(2), the CJEU noted that the information provided does not make it possible to determine whether the VAT payable on the various digital content which may be obtained in exchange for the X cards is known at the time when those cards are issued. It will be for the referring Court to ascertain whether that second condition is satisfied. However, In the event that the supply of services in exchange for an X-Card is subject to the same basis of assessment and the same rate of VAT in Germany, irrespective of the digital content obtained, the referring court will be able to find that such an instrument satisfies the second condition laid down in Article 30a(2). In such a situation, in view of the fact that the same instrument satisfies the first condition laid down in that provision, it would be classified as a 'single-use voucher'.

Considering the second question referred, the CJEU noted that this would be relevant in the event that vouchers such as those at issue in the main proceedings are classified as 'multi-purpose vouchers' within the meaning of Article 30a(3). The referring Court asks whether Article 30b(2) must be interpreted as meaning that, although a transfer of 'multi-purpose vouchers' does not have to be subject to VAT, in accordance with the first subparagraph of that provision, payment of VAT could nevertheless be required on another basis, pursuant to the second subparagraph of that provision.

The CJEU recalled that in so far as the nature of the goods or services to which a 'multi-purpose voucher' relates and which will be chosen by the final consumer is not known at the time of issue of a voucher of that type, the VAT payable on those goods or services cannot be determined with certainty at that time. It is therefore only at the time of the exchange of such a voucher for those goods or services that VAT is known and can be duly applied. However, where a multi-purpose voucher is the subject of one or more transfers, in the context of a distribution chain extending over the territory of several Member States, before it is exchanged by the final consumer, the question arises as to whether the consideration received on each transfer of that voucher between taxable persons must be subject to VAT as consideration for a service distinct from the exchange of that voucher for goods or services.

The CJEU noted that pursuant to the second subparagraph of Article 30b(2), where the multiple-purpose voucher is transferred by a taxable person other than the person who makes the physical delivery of the goods or actually provides the services to the final consumer, any supply of services which can be identified, such as distribution or promotional services, is subject to VAT.

Furthermore, pursuant to Article 73a 'the taxable amount ... of the supply of services in connection with a multi-purpose voucher shall be equal to the consideration paid in exchange for the voucher or, in the absence of information on that consideration, to the monetary value indicated on the multi-purpose voucher or in the relevant documentation, less the amount of VAT relating to ... the services provided'. This provision seeks, inter alia, to avoid the non-taxation of distribution or promotional services, in accordance with the objectives of the VAT Directive, by ensuring that VAT is levied on any profit margin.

The CJEU considered that as regards X cards, provided that those instruments are classified as 'multi-purpose vouchers' within the meaning of Article 30a(3), it cannot be ruled out that, when those vouchers are resold, M-GbR may provide a separate service, such as a supply of distribution or promotional services for the benefit of the taxable person who, in return for vouchers, effectively provides digital content to the end consumer. It is for the referring court to ascertain whether, having regard to all the circumstances of the case at issue in the main proceedings, M-GbR's transactions must be classified as such for VAT purposes.

The CJEU considered that this conclusion does not conflict with the judgment in C-520/10 Lebara which concerned the tax treatment of prepaid cards for telecommunications services, the solution of which is not relevant for the purposes of the answer to be given to the present question. The scope of that judgment is limited to the situation at issue in that case, which, moreover, predates the provisions of the VAT Directive inserted by Directive 2016/1065, which concerned services and VAT already identified at the time of issue of those prepaid cards. Accordingly, the same judgment concerns instruments which should henceforth, under the aegis of the current provisions of the VAT Directive, be classified as 'single-use vouchers'.

In conclusion, Article 30b(2) of the VAT Directive must be interpreted as meaning that the resale by a taxable person of 'multi-purpose vouchers', within the meaning of Article 30a(3) of that directive, may be subject to VAT, provided that it is classified as a supply of services for the benefit of the taxable person who, in return for those vouchers, physically delivers the goods or actually supplies the services to the final consumer.

Summary:

• Article 30a and Article 30b(1) must be interpreted as meaning that the classification of a voucher as a 'single-use voucher' within the meaning of Article 30a(2) of Directive 2006/112, as amended, depends solely on the conditions laid down in that provision, which include the condition that the place of supply of services to final consumers, to which that voucher relates, must be known at the time of issue of that voucher, irrespective of the fact that the latter is the subject of transfers between taxable persons, acting in their own name and established in the territory of Member States other than that in which those final consumers are situated.
• Article 30b(2) must be interpreted as meaning that the resale by a taxable person of 'multi-purpose vouchers' within the meaning of Article 30a(3), as amended, may be subject to VAT, provided that it is classified as a supply of services to the taxable person who, in return for those vouchers, physically delivers the goods or actually provides the services to the final consumer.

Comments: The Court's decision is as we would have anticipated and is clear that if the terms and conditions of the voucher prohibit use outside the territory it is intended for (and only one VAT rate could apply), then this points to the voucher being an SPV. In many cases, whilst a voucher may be marketed only for use in one jurisdiction, issuers may want to consider whether extra care is required around potential extra-territorial use of vouchers. Further, the dividing line between a voucher and a credit voucher is not entirely clear in the judgment so those issuing credit vouchers which can be topped up on a card may also want to consider whether there are any further implications as a result of the judgment.

For further information please contact Andy Jones.

This Brief clarifies HMRC’s technical position on the inclusion of business to business (B2B) wholesale supplies within the Tour Operators’ Margin Scheme (TOMS).

With immediate effect:

• Revenue and Customs Brief 5 (2014): Tour Operators Margin Scheme is withdrawn — following European Court of Justice (ECJ) infraction decisions
• Tour Operators Margin Scheme (VAT Notice 709/5) is amended

TOMS is a mandatory VAT accounting scheme for businesses which buy in and sell certain travel services, such as:

• Passenger transport
• Hotel accommodation
• Car hire

Under TOMS, tour operators cannot recover any VAT on the services they buy in, but only account for VAT on their profit margin. HMRC’s policy provides tour operators with a choice of whether to apply TOMS to B2B wholesale supplies. This policy remains unchanged.

HMRC’s guidance states that TOMS is only mandatory for supplies to final consumers or to businesses for their own consumption (for example, business travel for employees).

Services supplied to another business for onward sale (‘wholesale’ supplies) are subject to normal VAT rules, although by concession these supplies can be included in TOMS.

Following a recent First-tier Tribunal case HMRC has reviewed its approach and guidance on the correct treatment of B2B wholesale supplies, in particular, that contained in Revenue and Customs Brief 5 (2014): Tour Operators Margin Scheme.

HMRC has concluded that B2B wholesale supplies are within the scope of TOMS and by concession tour operators may opt B2B wholesale supplies out of TOMS.

Tour Operators Margin Scheme (VAT Notice 709/5) has been updated to reflect this technical change.

Comments: This is a welcome update which clarifies HMRC’s position on wholesale supplies post-Brexit which in effect has not changed.

For further information please contact Ethan Ding.

European Commission

New conditions for how the EU Member States' customs authorities must make decisions relating to binding tariff information (BTI) and binding origin information (BOI) have been published. New rules were also included related to decisions on binding valuation information (BVI). The new conditions and rules are included in the Commission Delegated Regulation 2024/1072 and Commission Implementing Regulation 2024/1071, which will enter into force on 5 May 2024 and apply from 1 December 2027.

The Regulations aim to ensure consistency for different types of binding information and, as far as possible, to align the provisions on BVI decisions with the provisions on BTI and BOI decisions under the Union Customs Code (2013/952), the Union Customs Code Delegated Act (2015/2446) and Union Customs Code Implementing Act (2015/2447). It requires that measures relating to BVI decisions should be introduced into customs legislation to increase transparency, legal certainty, compliance and uniformity in customs valuation to the benefit of economic operators, customs authorities and the financial interests of the EU.