UPDATE 23/11/2018: On 23 November 2018, the German Federal Council voted in favour of the “Act on the Avoidance of Value Added Tax Losses in relation to the Trade in Goods on the Internet and on the Amendment of Further Tax Provisions”. The planned amendments I had described in my article have been incorporated into the Value Added Tax Act unchanged. This means that the most important steps in the amendment of the Value Added Tax Act have now been completed. Therefore, for the time being, the questions regarding the changes in the value added tax treatment of vouchers remain open.
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On 21 June 2018, the German Federal Ministry of Finance (BMF) published a draft law (draft of the Annual Tax Act JStG 2018). The draft law partially provides new rules on the VAT treatment of the distribution of (value) vouchers (this does not apply to discount vouchers). The planned amendment to the German VAT Act (UStG) is based on the amended VAT Directive, which the German legislator has to implement by 31 December 2018. From 2019 onwards, there will be two types of vouchers: single-purpose vouchers (SPV) and multi-purpose vouchers (MPV). In this article I will explain what this entails.
What are the changes? Differentiation between single-purpose vouchers and multi-purpose vouchers
If a business person is involved in the distribution of vouchers and distributes its vouchers in its own name, as of 1 January 2019 there will be an obligation to check whether these vouchers constitute single-purpose vouchers or multi-purpose vouchers.
The relevant voucher constitutes a single-purpose voucher if at the time of its issuance it is clear where and how the supply of goods or services to be purchased with the voucher are subject to VAT. It is therefore not only important that the applicable value added tax rate is determined, but also the country in which the goods or services to be purchased with the voucher will be taxed. It should be noted that, depending on the supply of goods or service rendered as well as the recipient of the relevant service, there are different rules for determining the place where the supply or service is subject to VAT.
Single-purpose vouchers: distribution in its own name (Section 3 a para. 14 UStG amended version)
In the case of a single-purpose voucher, a supply or service chain is assumed between the companies involved in the distribution of the single-purpose voucher and the end customer (fiction). This means that companies selling single-purpose vouchers to end customer have to change their systems at the till. The supply of goods or service actually purchased with the single-purpose voucher is not subject to VAT.
Multi-purpose vouchers (Section 3 a para. 15 UStG amended version)
If the requirements for a single-purpose voucher are not met, the relevant voucher is a multi-purpose voucher. The delivery or service purchased with the multi-purpose voucher is subject to VAT. According to the wording of the draft law, any transfer of the multi-purpose voucher prior to the delivery or service is not subject to VAT.
When do the amendments apply?
The changes apply to vouchers issued after 31 December 2018 (Section 27 para. 23 UStG amended version). There is therefore not much time left to adapt to the new rules.
Just as in the VAT system directive, some open questions of turnover taxation still remain even with the amendments of the VAT Act. For example, does it still need to be clarified when VAT will be levied on a single-purpose voucher? How and to what extent is the supply of goods or service subject to VAT if only a part of it is processed with a single-purpose voucher? How will the expiry of single-purpose vouchers – and multi-purpose vouchers – be treated for VAT purposes?
It remains to be seen whether the law will still be amended during the legislative process or whether the German Federal Ministry of Finance will publish a decree clarifying the open points, at least from the point of view of the tax authorities. I will report on this!
What remains unchanged?
Analysis of the distribution agreement and public appearance
The taxation of voucher distribution continues to depend largely on the legal form of the contractual relationships as well as the public appearance towards the end customer (see e.g. Rapp, in: FS Crezelius, ed. Fischer/Geck/Haarmann, 2018, p. 693 ff.). As before, it must first be checked in whose name and on whose account the vouchers are distributed.
If the voucher is transferred in the name and for the account of another business person (open representation, agency), this constitutes a brokerage service for the business person who issues the voucher in its own name, as was also the case before. The broker’s commission is subject to VAT at the point of the broker. The service used with the voucher or the delivery received is subject to value added tax at the point of the service provider at the time of the service.
Difficulties with discrepancies between the contractual relationships and the public appearance
There are still difficulties in determining in whose name and on whose account a voucher is distributed in cases where the public appearance of the companies involved does not reflect the contractual agreements. The VAT classification not only depends on the contractual relationships but also on the perspective of the end consumer (cf. e.g. German Federal Finance Court BFH). In light of this, it is recommended to agree on clear contractual rules and to implement these to the extent possible in the external relationship with the end customer.
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