Special rules for the VAT treatment of vouchers since 1 January 2019
Since 1 January 2019 new rules have been in force regarding the VAT treatment of the sale of vouchers (Section 3 para. 13 to para. 15 of the German VAT Act, UStG). I reported on this in my blog post entitled “Single-purpose voucher? Or multi-purpose? Changes regarding the VAT treatment of vouchers”.
Pursuant to the new rules regarding the VAT treatment of vouchers, a distinction has to be made between single-purpose and multi-purpose vouchers. A single-purpose voucher (SPV) refers to a voucher where the place of the supply or service that the voucher refers to as well as the value added tax which is due on the turnover related to this, can already be determined at the time the voucher is issued (Section 3 para. 14 sentence 1 UStG). Put more simply, there is a deemed chain of supply or service with respect to the sale of an SPV. The VAT liability arises already at the time the voucher is transferred.
The VAT treatment is completely different if a voucher does not fulfil the requirements of an SPV, in which case it is classified as a multi-purpose voucher (MPV) (Section 3 para. 15 sentence 1 UStG). With respect to the sale of MPVs, the VAT liability only arises at the time of the relevant supply or service.
Does the amendment of the VAT rates from 1 July until 31 December 2020 lead to the assumption that there are only multi-purpose vouchers?
If the location of the supply or service as well as the value added tax liability can already be determined at the time the voucher is issued, the voucher is classified as an SPV. This begs the question whether as a result of the decreased VAT rates that apply between 1 July and 31 December 2020 (which will increase again subsequently), the requirements for an SPV are not fulfilled anymore?
In accordance with the wording of the law (Section 3 para. 14 sentence 1 UStG), the “tax due on this turnover” has to be known at the time the voucher is issued. “This turnover” refers to the supply or services the voucher can be redeemed for. However, if the voucher can be redeemed before 1 July, after 30 June and after 31 December 2020, then it is not possible to determine the VAT due at the time of issuance, which means that as a result of the changes in the VAT rates, vouchers issued until 31 December 2020 cannot be classified as SPVs.
For voucher issuers and their distributors this would mean that they would have to change their operations within a short period of time and treat their SPVs as MPVs. This would be very difficult, from a technical perspective to say the least, and in any case it would not possible in the timeframe available.
One possibility would be to limit the time period during which the voucher can be redeemed to the period between 1 July until 31 December 2020 in order for the voucher to still fulfil the criteria for an SPV. However, from a legal perspective such a restriction would only be possible for a very limited number of exceptions. This is therefore also not a viable solution to ensure the classification of a voucher as an SPV.
BMF provides clarity and legal certainty
The German Federal Ministry of Finance (BMF) has provided a solution in its Note published on 30 June 2020 (Tz. 30; download the PDF here) to ensure that, despite the amendments of the VAT rates, SPVs are not temporarily reclassified as MPVs. For the BMF, the decisive point in time for the classification of a voucher as an SPV or an MPV is the issuance of the voucher. According to the BMF, the value added tax rate for the deemed supply or service of an SPV is determined at this point in time and any subsequent change in circumstances is irrelevant to the classification. Therefore, for VAT purposes, the circumstances at the subsequent redemption of the voucher, including any change in VAT rates in the meantime, does not affect the initial classification as an SPV at the time the voucher was issued. Unlike the express wording of the law, the BMF therefore does not refer to the actual supply or services connected with the voucher for the purposes of classifying the voucher. The result reached by the BMF is very welcome as it provides clarity and legal certainty for voucher issuers and their distributors during these already challenging economic times. However, it would have sufficed to provide a choice to tax payers for the time period between 1 July until 31 December as a result of the VAT changes to either continue taxing the vouchers as SPVs or transform them into MPVs.
The inconsistency between the wording of the law and the reasoning provided by the BMF also becomes apparent in the example provided in the BMF’s Note regarding additional payments when redeeming the vouchers. According to the BMF, any difference paid should be value added taxed at the rate applicable at the time the voucher is redeemed. This means that an SPV issued before 1 July 2020 would be taxed at 19% but the goods obtained with this voucher would partially be subject to value added tax of 16%.
Using a voucher that was value added taxed at 19% is not a disadvantage for the end consumer as they can use it to obtain goods or services that are subject to a 16% VAT rate. To the extent companies pass on the reduced VAT rates to their customers, payments with SPVs issued before 1 July 2020 are not at the expense of end consumers but of those enterprises where the SPVs can be redeemed.
Cover picture: Copyright © Adobe Stock / Jenny Sturm