VAT treatment of vouchers

The German Federal Ministry of Finance has now issued further application instructions regarding the new regulation of vouchers under VAT law, which came into force at the beginning of 2019.

Vouchers play an important role in both the retail and service sectors. However, the correct application of the tax regulations on vouchers is not always easy. This is all the more true as the EU adopted new VAT regulations for vouchers in 2016, which were transposed into German law on January 1, 2019.

However, the tax authorities took their time with the detailed regulations on the EU's voucher requirements, which no longer differentiate between goods and value vouchers as before, but between single-purpose and multi-purpose vouchers. It was not until the end of 2020, almost two years after the new legislation came into force and only shortly before the temporary reduction in VAT rates expired, which also led to many voucher transactions, that the Federal Ministry of Finance published a comprehensive administrative instruction on vouchers.

In this amendment to the VAT application decree, the ministry not only answers many questions of doubt regarding the new legal situation and provides numerous examples; it also indirectly acknowledges that the detailed regulations have been a long time coming with a non-objection rule regarding the new detailed regulations for vouchers issued from January 1, 2019 and before February 2, 2021.

• Value added tax vouchers: Vouchers in the VAT sense are instruments that can be used in whole or in part instead of a monetary payment as consideration for goods or other services. It does not matter whether the voucher is physical (paper, plastic card) or electronic.

• Other vouchers: A voucher is not a voucher for VAT purposes if the voucher only entitles the holder to a price reduction or a price refund. Vouchers for product samples or specimens generally do not trigger payment and are therefore also not vouchers for VAT purposes. Stamps, tickets, admission tickets and similar instruments are not covered by the regulations on vouchers, as they are primarily proof of payment.

• Credit cards: If the instrument can be exchanged at any time for the amount originally paid or the remaining amount, this is not a voucher, but a credit card that is merely a means of payment.

• Single-purpose vouchers: A single-purpose voucher is characterized by the fact that the place of supply or service to which the voucher entitles the recipient and the VAT due are determined when the voucher is issued or transferred for the first time. For the acceptance of a single-purpose voucher, the identity of the supplier must be stated and the supply covered by the voucher must be specified in such a way that the EU state entitled to tax and the tax rate applicable to the supply and thus the applicable tax amount can be determined with certainty. In addition, in order to determine the location of the other service, it must be clear whether the recipient of the service is an entrepreneur and receives it for their business. The object of the service must be specified on the voucher, at least with regard to the type of the respective service, so that the applicable tax rate can be clearly determined from this. It may also be a single-purpose voucher if the voucher entitles the holder to purchase several precisely specified individual services. In these cases, the total amount must be divided in proportion to the individual services. The VAT for the service owed by the single-purpose voucher is incurred at the time the voucher is issued. If a voucher is transferred to another entrepreneur before it is issued, VAT is incurred at the time of transfer. The subsequent redemption of the voucher, i.e. the actual delivery or provision of the service, is no longer relevant for the VAT assessment. If an additional payment is made by the voucher holder upon redemption, only the difference is taxable.

• Multi-purpose vouchers: A multi-purpose voucher exists if, when the voucher is transferred or issued, the place of supply, the supplier or the subject of the supply have not yet been definitively determined and therefore the VAT due cannot be determined. In the case of a multi-purpose voucher, the delivery of the goods or the provision of the other service is only deemed to have taken place at the time of the actual provision of the service. The issue of a multi-purpose voucher and all transfers made up to that point are irrelevant for tax purposes.

• Classification: The voucher should be visibly marked by the issuer as a single-purpose or multi-purpose voucher. The legal classification is carried out by the entrepreneur providing the service. The issuer and other entrepreneurs in the supply chain may rely on this and on the labeling. This does not apply if they were aware, or should have been aware with the due care of a prudent businessman, that the legal classification or labeling was incorrect.

• Assessment basis: If a single-purpose voucher is transferred to another trader against payment or issued to a customer, the VAT is determined by the price paid for it. If a multi-purpose voucher that has been transferred via distribution chains is redeemed by the voucher holder and the supplier has no information on the amount of the consideration paid by the customer, the tax is based on the value of the voucher.

• Non-redemption: If a voucher is not redeemed by the holder within the period of validity and therefore expires, this alone does not result in any further VAT consequences for either single-purpose or multi-purpose vouchers, as the original service was already deemed to have been provided when the voucher was issued in the case of single-purpose vouchers and, in the case of multi-purpose vouchers, there was never an exchange of services for VAT purposes. A change in the assessment basis for a single-purpose voucher that has expired can only be considered if the payment is repaid as an exception. However, the non-redemption of a voucher has an effect on the taxable amount of an intermediary service if the portion of the remuneration attributable to the supplier remains with the intermediary in the event of non-redemption, thereby increasing the remuneration for the intermediary service.

• Voucher return: If a single-purpose voucher is returned and the customer is paid the value of the voucher, the original transaction is reversed. The VAT must therefore be corrected accordingly for the voucher issuer and the supplier. In contrast, there are no VAT implications when the purchase price of a multi-purpose voucher is returned and refunded.

• Further cases: When vouchers are sold to other traders who sell them on (distribution chains), in intra-Community trade and when vouchers are issued free of charge, many constellations are conceivable for which there are also detailed regulations. Simply contact us if you have any questions!