VAT Changes Proposed by European Commission

On the back of the recent case of Lebara Ltd (Case C-520/10) which highlighted the inconsistent tax treatment of vouchers across EU member states, the European Commission has proposed to update EU VAT rules to ensure the uniform tax treatment of all types of vouchers across all member states.

Under the proposed new rules, the different categories of vouchers would be clearly defined, along with their VAT treatment. This would enable uniform treatment of transactions involving vouchers across Europe. The proposal includes provisions on defining vouchers for VAT purposes and identifying when VAT is due on vouchers (i.e. at point of sale or redemption). It also includes rules for vouchers passing through distribution chains and general means of payment.

Vouchers represent a market of more than € 52bn per year in the European Union. Prepaid telecommunications account for almost 70% of the voucher market, followed by gift vouchers and discount vouchers.

The Commission is of the view that differences in national VAT rules on vouchers lead to serious market inefficiencies. Instead of being able to really benefit from the single market, companies face problems of double taxation and difficulties in expanding their business across borders. The new rules seek to redress this situation.

The new rules will enter into force on 1 January 2015.

Algirdas Šemeta, commissioner for taxation, customs, anti-fraud and audit, said: ‘Vouchers are a booming business in Europe, with millions bought and sold every week. There is no justification for this ever-expanding market to be held back because of uncertainty and complications in the tax rules. With the new VAT rules proposed today, we can move to a genuine single market for vouchers, to the benefit of businesses, citizens and tax administrations.’