COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of vouchers
Date: 2012-05-10
Institutions: European Commission
Subjects: VAT, double taxation, financial instrument, goods and services, tax evasion

EUROPEAN COMMISSION 

Brussels, 10.5.2012  
SWD(2012) 127 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a 
COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax, as regards 
the treatment of vouchers 

{COM(2012) 206 final} 
{SWD(2012) 126 final} 

EN 

  EN 

 
 
 
 
  
 
TABLE OF CONTENTS 

1. 

Procedural issues and consultations of interested parties ............................................ 3 

1.1. 

Dialogue with national tax administrations of Member States .................................... 3 

1.1.1.  Fiscalis seminars .......................................................................................................... 4 

1.2. 

1.3. 

1.4. 

2. 

Public consultation ....................................................................................................... 5 

Deloitte Study............................................................................................................. 10 

Difficulties encountered ............................................................................................. 10 

Policy context, problem definition and subsidiarity .................................................. 11 

2.1.  Why is there an issue in relation to the VAT treatment of vouchers which needs to be 
resolved? .................................................................................................................... 11 

2.2. 

2.3. 

2.4. 

2.5. 

Situation today - treatment of vouchers in Member States ........................................ 13 

Situation today – decisions of the ECJ which relate to vouchers .............................. 14 

Uncertainty and inconsistency in the definitions ....................................................... 19 

Tension between protecting revenue and ensuring the absence of barriers to 
commercial innovation............................................................................................... 20 

2.5.1.  Development of innovative payment systems............................................................ 20 

2.6. 

2.7. 

2.8. 

2.9. 

Problems concerning the taxable amount .................................................................. 22 

Time of supply ........................................................................................................... 23 

Supply of prepaid telephone cards by intermediaries ................................................ 24 

Other problems identified .......................................................................................... 24 

2.9.1.  Unused vouchers ........................................................................................................ 24 

2.9.2.  Premium call services and charity donations ............................................................. 25 

2.9.3.  Business gifts ............................................................................................................. 25 

2.10.  Baseline scenario and its evolution. ........................................................................... 26 

2.11. 

Subsidiarity ................................................................................................................ 27 

3. 

4. 

4.1. 

4.2. 

4.3. 

Objectives................................................................................................................... 27 

Policy options............................................................................................................. 28 

Doing nothing............................................................................................................. 29 

Soft law approach....................................................................................................... 29 

Legislative measures .................................................................................................. 32 

4.3.1. 

Introducing clear definitions ...................................................................................... 32 

EN 

2 

   EN 

 
4.3.2.  Distribution of vouchers through a chain and the distributor's margin...................... 34 

4.3.3.  Taxable amount for transactions involving vouchers ................................................ 36 

4.3.4.  Time of taxation ......................................................................................................... 37 

4.3.5.  Right of deduction questions...................................................................................... 39 

4.3.6. 

Issuing of invoices...................................................................................................... 39 

5. 

Analysis of impact...................................................................................................... 40 

5.1. 

Main impacts of proposal to reform the treatment of vouchers in the VAT system.. 40 

5.1.1.  Table A - Impacts on the main market players (prepaid mobile telecommunications).

.................................................................................................................................... 40 

5.1.2.  Table B - Impacts on market / sector structure .......................................................... 44 

5.2. 

5.3. 

5.4. 

5.5. 

5.6. 

6. 

7. 

Modernising the definitions of vouchers.................................................................... 47 

Distribution of vouchers through a chain and the distributor's margin...................... 47 

Taxable amount for transactions involving vouchers ................................................ 48 

Time of taxation ......................................................................................................... 48 

Neutrality between competing payment systems....................................................... 49 

Comparing the options ............................................................................................... 50 

Monitoring and evaluation ......................................................................................... 52 

EN 

3 

   EN 

 
MODIFICATIONS FOLLOWING THE OPINION OF THE IMPACT ASSESSMENT 
BOARD 

A first submission of this impact assessment was discussed by the Impact Assessment Board 
at its meeting of 12 January 2011. The opinion of the Board issued on 14 January indicated 
areas where improvements were needed. It was suggested that the evidence of the existence of 
problems  at  EU  level  needed  further  development  and  that  this  should  be  supported  by  the 
available evidence in  order  to  sustain  the case for EU action. It was  also suggested that the 
report should consider whether there were different ways of modifying the VAT Directive and 
that the analysis of the economic impact on the different actors in the VAT chain should be 
strengthened. 

In  order  to  take  into  account  the  recommendations  of  the  Board  a  number  of  changes  have 
been made. In section 1.2 (starting page 5), evidence is adduced on the basis of documented 
instances of mismatches in taxation or competitive distortions to justify the need for action at 
EU level. Because of difficulties in sourcing data  on  tax  mismatches,  it  is  qualitative  rather 
than  quantative.  This  notwithstanding,  the  quality  of  the  anecdotal  evidence  is  sufficiently 
strong and broad-based to establish the need for action. In section 4.3 (starting page 27) the 
approach  to  modifying  the  VAT  Directive  is  developed  and  explained  in  the  context  of  the 
need  to  work  within  its  existing  structure  and  which  imposes  constraints  on  choice.  The 
suggestions  raised  in  the  IAB's  opinion  about  possible  choices  in  modifying  the  VAT 
Directive  are  addressed  in  the  expanded  text.  The  deliverable  however  is  to  bring  the  VAT 
treatment of vouchers within the established VAT methodology in a consistent manner rather 
than  to  develop  specific  new  VAT  provisions  for  vouchers.  The  difficulties  encountered 
through scarcity of reliable economic data have had negative consequences in developing the 
quality of the analysis of the impact on the different actors in the VAT chain and this relies 
heavily  on  qualitative  evidence.  This  is  addressed  in  section  1.4.  The  background  to  the 
baseline scenario is addressed in section 2.10 and also under the status quo option in section 
6,  albeit  that  the  shortcomings  in  the  availability  of  data  mean  that  this  is  assessed  in 
qualitative terms. Finally two tables (starting page 32) seek to strengthen the analysis of the 
economic impacts by setting out in schematic form, the main impacts of the preferred choices 
on the different actors. 

1. 

PROCEDURAL ISSUES AND CONSULTATIONS OF INTERESTED PARTIES 

1.1. 

Dialogue with national tax administrations of Member States 

Because  of  the  technical  nature  of  the  taxation  of  vouchers1  and  concerns  about  increasing 
diversity in treatment, preparatory work had to involve national tax administrations. Vouchers 
were first discussed in DG TAXUD's VAT Working Party No 1 in 2004. The initial analysis 
concluded that, for VAT purposes, vouchers fell into defined categories. A distinction can be 
drawn  on  where  goods  or  services  supplied  are  sufficiently  defined  that  the  VAT 
consequences  are  clear  from  the  moment  the  voucher  is  issued  and  where  the  VAT 
consequences can only be known at the time of redemption. The former can be referred to as a 
single purpose voucher (SPV) and the latter as a multi purpose voucher (MPV). 

Since VAT is a tax on consumption, it is not the supply of a voucher but rather the underlying 
goods or services to which it carries an entitlement that should be taxed. The practicalities of 
achieving just such an outcome require a distinction between SPVs and MPVs. Furthermore, 

1 

The question of what constitutes a voucher for VAT purposes is addressed in section 2. 

EN 

4 

   EN 

 
                                                 
the  taxable  amount  for  the  supply  of  goods  or  services  should  be  the  sum  paid  by  the  final 
purchaser using the voucher. For certainty and simplicity, the face value of the voucher is in 
principle the presumptive taxable amount (after allowing for the VAT element) of the supply. 
The redeemer of the voucher, whether or not he has the issued it, should be the person liable 
to pay VAT. It was also posited however that circumstances might arise where someone else 
than the redeemer can be held jointly and severally liable for payment of the VAT (the issuer 
or an intermediary for instance). 

Member  States  agreed  with  this  broad  line  of  approach  but  asked  the  Commission  to  take 
account also of VAT treatment in distribution of vouchers. 

Three further meetings with Member States followed during 2004 and 2005. These explored 
the  chargeability  of  the  tax,  the  treatment  of  distribution  chains,  the  taxable  amount  for  the 
supply of redeemed goods or services, cash-back and money-off vouchers, as well as general 
compliance issues.  Within a distribution chain of MPVs the  Commission  suggested that the 
taxable amount of the distribution service will be the difference between the face value of the 
vouchers  and  the  purchase  price  paid.  Furthermore,  it  argued  that  transactions  involving 
vouchers  are not to be  regarded  as  (exempt) financial  services. Alternative solutions for the 
treatment of cash-back and money-off vouchers were considered, taking account of relevant 
ECJ judgments. 

Additional discussions with Member States took place during 2006 and 2007, covering, inter 
alia, the preparation and outcome of a public consultation. 

A  final  meeting  discussed  the  general  principles  for  taxing  transactions  involving  vouchers 
and  considered  an  early  draft  outline  of  legislative  provisions.  As  such  transactions  can  be 
relatively  complex,  involving  changes  in  the  value  of  a  voucher  as  it  progresses  though  a 
chain, different economic models of distribution, the margins or fees of intermediaries as well 
as resolving uncertainty regarding the taxable amount, they were held on the basis of a paper 
outlining examples of multilayered transactions involving vouchers. 

1.1.1.  Fiscalis seminars 

In addition to these meetings, vouchers were discussed at two Fiscalis2 seminars. 

During a seminar held in 2002 on schemes for the artificial reduction of the taxable amount 
for VAT avoidance purposes, participants outlined concerns about the use of vouchers in the 
course of promotional schemes. The Commission was urged by Member States to investigate 
the risks to tax revenue and to consider whether action was needed. 

A second seminar was held in 2006, specifically on the tax treatment of vouchers. It examined 
the  detailed  VAT  treatment  of  vouchers,  the  use  of  vouchers  in  promotion  schemes  and 
innovative payment systems which raises issues about the limits of vouchers. Attention was 
given to the potential for cross-border mismatches as well as practical problems arising from 
differences in national interpretations attributable to shortcomings in the VAT Directive.  

To develop an appreciation of evolving commercial practices, speakers and discussants from 
business  were  invited.  This  helped  to  identify  and  raise  awareness  of  VAT  problems  with 
vouchers  because  of  the  increasing  sophistication  and  functionality  of  these  instruments  but 

2 

The Fiscalis programme is a Community programme aimed at improving the operation of tax systems 
in the internal market. Seminars on tax issues have been a regular feature. 

EN 

5 

   EN 

 
                                                 
also concerns about the technical difficulties in securing an equitable charging of VAT. The 
seminar also addressed issues relating to the practical implementation of the ECJ judgments. 

The discussions emphasised the following points. 

•  The  need  for  a  dividing  line  between  the  issue  and  the  distribution  of  MPVs  and  more 
complex  innovative  payment  systems  which  fall  under  exempt  financial  service.  A  level 
playing field for tax is however required between suppliers of broadly similar services. 

•  Any  future  proposal  should  ensure  clear,  correct  and  consistent  taxation  through  the 

distribution chain of an MPV. 

•  Some  harmonisation  of  the  technical  qualification  of  vouchers  is  needed.  The  time  of 
taxation should be aligned so that it would normally be predicated on the ultimate supply 
of the underlying goods or services rather than the sale or supply of the voucher itself. This 
can only be assured by updating the EU legislation. 

1.2. 

Public consultation 

In  November  2006  the  Taxation  and  Customs  Union  Directorate-General  issued  a 
consultation  paper  seeking  views  from 
the 
inconsistencies  in  the  VAT  treatment  of  vouchers  between  Member  States,  explaining  that 
these  inconsistencies  may  offer  opportunities  for  tax  avoidance  or  may  raise  situations  of 
double taxation or non-taxation (for cross-border transactions). 

the  public  and  business.  It  described 

In describing several kinds of vouchers the consultation paper analysed possible options for 
their VAT treatment taking into account such fundamental elements as the place and the time 
of  supply  and  the  taxable  amount.  Also  the  dividing  line  between  vouchers  and  more 
generalised means of payment was analysed in order to avoid unwelcome distortions. 

Mention was made of existing ECJ case-law to clarify the understanding of the interpretation 
of the current legal framework. 

The  paper  was  addressed  to  stakeholders  who  issue  or  deal  in  vouchers  of  all  kinds,  and 
businesses operating or using payment systems as well as their advisors. 

The purposes of consulting the public on this issue were to: 

•  check the accuracy of the analysis;  

•  gather relevant feedback; and  

•  assist the Commission's services in developing their thinking on the subject. 

Over 30 responses were received. 

Virtually  all  agreed  with  the  analysis  and  tentative  definitions  put  forward  and  no  strong 
negative  comments  were  expressed  on  the  options  proposed.  Technical  complexity  of  this 
sector  and  the  diversity  of  the  respondents'  business  models  meant  that  the  results  did  not 
however  point  to  a  clear  course  of  action.  Nevertheless,  a  number  of  priority  areas  were 
highlighted as needing attention in any legislative initiative. These included: 

EN 

6 

   EN 

 
•  The  competitive  balance  between  some  more  developed  forms  of  vouchers  (particularly 
offered by a number of telecommunications operators) and the classic means of payment 
such  as  credit  and  debit  cards  is  considered  particularly  important.  The  neutrality  of 
treatment between systems having the same functionalities is considered fundamental and 
any change in the legislation should not disregard this principle. 

•  Strong  emphasis  from  business  respondents  on  the  need  to  clarify  the  VAT  treatment  of 
vouchers in a market which is constantly increasing and constantly evolving and indication 
of the misunderstandings and misapplications of the VAT rules with which they are faced.  

•  Divergence of national rules affects the development of the market. 

•  Change  in  the  VAT  treatment  should  take  into  account  the  time  needed  by  business  for 

adaptation of their systems. A transitional period should be considered. 

The consultation document itself and a summary of the responses can be found at   
http://ec.europa.eu/taxation_customs/common/consultations/ and should be seen as annexes to 
this Impact Assessment. 

In  addition,  the  work  leading  to  the  preparation  of  the  Impact  Assessment  has  unearthed  a 
significant body of well documented individual cases where the consequences of shortcoming 
in  VAT  legislation  at  an  EU  level  and  be  substantiated  and  shown  to  be  economically 
significant (see box below). In the absence of hard data, these documented examples describe 
disruptive  or  distortive  scenarios  which  are  of  sufficient  materiality  to  warrant  action. 
Although  the  evidence  presented,  as is  typical  of  information  on  tax  avoidance  activities,  is 
largely anecdotal, it is both sufficiently diverse and representative to sustain the existence of a 
systemic problem  

•  Problems currently being experienced by a pan-EU telecommunications operator. 

A recent (2011) contribution from a large multi-national telecommunications group gave the 
following  details.  The  company  has  given  this  information  on  the  basis  that  it  will  not  be 
identified3. 

The  company  systematically  tries  to  avoid  double  taxation  as  this  will  either  reduce  its 
margins or make its prices unattractive. Moreover, even if the VAT Directive and its related 
jurisprudence do not countenance double taxation, it is often impractical to recover a part of 
the  double  charge,  particularly  where  this  is  composed  of  myriad  small  sums  even  if  he 
overall  total  is  significant.  Moreover,  it  would  be  difficult  to  reach  agreement  with  the 
Member States concerned on who has the taxing rights with going to litigation. Where double 
taxation  is  inescapable,  it  is  usually  commercially  impossible  to  pass  the  full  cost  on  to 
customers (as some of the competitors do not face this problem,) so the company absorbs a 
large part of it. The company identifies recurrent double taxation in the following instances: 

•  Customers  of  Member  State  A  using  vouchers  issued  in  Member  State  B  to  top  up  their 
mobile  accounts  in  Member  State  A.  Double  taxation  occurs  where  Member  State  A 

3 

In  order  to  respect  confidentiality,  these  examples  of  existing  difficulties  to  not  identify  specific 
operators or individual Member States. Each case however is a description of documented cases of such 
problems received directly from authentic sources. 

EN 

7 

   EN 

 
                                                 
requires  VAT  to  be  accounted  on  usage  while  Member  State  B  collects  VAT  at  point  of 
sale. 

•  Where  a  Member  State  collects  VAT  on  top  ups  at  point  of  sale  but  the  top  up  is 
subsequently  used  to  purchase  goods  or  services  that  are  not  subject  to  VAT  (or  are  not 
subject to VAT at the standard rate) or to purchase goods or services from a 3rd party. 

The  company  estimates  that  within  the  EU,  it  overpays  around  €3,500,000  because  of 
unavoidable  double  taxation.  Their  2011  submission  to  the  Commission  gives  a  detailed 
breakdown (not for publication) of how this figure is made up from detailed figures for UK, 
Germany,  Netherlands,  Spain,  Italy,  Czech  Republic,  Greece,  Hungary,  Ireland,  Malta, 
Portugal and Romania. The company has a significant presence in these markets. 

This figure may seem relatively small if not given proper context. Even if extrapolated, based 
on the market share of this company, to the total market, quantifiable double taxation would 
probably  not  exceed  €20,000,000.  This   however  would  be  a  gross  understatement  of  the 
significance of the problem. 

Businesses however will seldom tolerate high levels of double taxation on an ongoing basis. 
They may lobby to change the rules which cause this but for small and medium-sized firms 
the  typical  response  would  simply  be  to  avoid  such  situations.  A  frequent  result  of  double 
taxation is to kill the market and the relatively low reported figures for actual double taxation 
need  to  be  seen  in  this  context.  Hence,  the  real  economic  cost  is  the  opportunity  cost  of 
ventures  not  pursued  due  to  the  shortcomings  in  the  current  VAT  rules.  This  will  be 
particularly marked for sectors with a high share of smaller operators or for new entrants to 
the market who need attractive pricing offers to attract customers and can neither absorb nor 
pass on the consequences of double taxation. 

•  Market access problems experienced by content provider. 

A  further  recent  example  given  to  TAXUD  concerns  the  take  up  of  3rd  party  purchases  in 
countries which tax mobile recharges at point of sale. A UK provider of ring-tones attempting 
to sell to the Italian market and collect payment from the customers’ prepay balances will find 
the fact that Italian VAT has to be accounted for by the network operator (without any viable 
mechanism  for  avoiding  or  recovering  UK  VAT)  a  significant  commercial  obstacle.  The 
source  did  not  offer  any  figures  for  double  taxation  suffered  but  made  the  point  that  the 
commercial reaction would be simply to close down this line of business as unsustainable. 

•  Tax losses being experienced by Member State. 

The  following  example  of  non-taxation  was  recently  (2010)  brought  to  the  attention  of 
TAXUD by a Member State which was suffering revenue losses because the provisions in the 
VAT Directive were open to more than one interpretation: 

Member State A (the source of this information) applies a system of taxation upon redemption 
system  which  leaves  it  open  to  tax  arbitraging  in  the  cross-border  sale  of  prepaid 
telecommunications  vouchers  resulting  in  non-taxation  of  the  service.  Prepaid  vouchers  are 
marketed  on  the  domestic  market  by  telecommunicationss  operators  established  in  Member 
State  B  which  normally  charges  taxation  upon  the  sale  of  vouchers.  In  practice,  these 
vouchers are for a fungible service and can be widely used, including in other Member States. 
Where a voucher is sold in Member State B to an intermediary established there in Member 

EN 

8 

   EN 

 
State  A,  the  sale  is  not  taxable  in  Member  State  B  because  under  the  general  rule  on  the 
chargeability  of  VAT  for  B2B  services,  this  service  occurs  in  the  Member  State  of  the 
recipient. Under the current rules, VAT will not be collected in the Member State A (where 
taxation is on redemption) if the voucher is redeemed against a telecommunications service by 
a private individual in this Member State. Following the general rule on the chargeability of 
VAT  on  B2C  services,  this  telecommunications  service  is  deemed  to  take  place  in  the 
Member State of the telecommunicationss operator but there is no mechanism for collecting 
VAT when the private individual using the service does so in another Member State. 

The  tax  losses  suffered  have  not  been  disclosed  to  the  Commission  but  were  sufficiently 
significant  that  Member  State  B  (at  the  behest  of  Member  State  A)  gave  consideration  to 
changing  its  VAT  law  to  end  the  mismatch.  In  the  event,  the  legislative  change  was  very 
limited  (seemingly,  Member  State  B  did  not  want  to  expose  itself  to  another  mismatch 
elsewhere) and this has not ended the tax losses for Member State A. 

•  Telecommunications operator complains that inconsistency in VAT rules for prepaid 

mobile exposes it to unfair competition. 

The Commission has recently received a complaint from a big telecommunications company 
Q established in Member State X. The complaint related to non-taxation of prepaid cards sold 
by retailers in Member State X of prepaid phone cards issued by another telecommunications 
company  R  established  in  Member  State  Y.  This  is  possible  through  exploitation  of 
differences in the time of taxation between the two countries. Since the sale of prepaid phone 
cards  by  company  Q  in  Member  State  X  carry  VAT,  a  serious  distortion  of  competition 
between companies Q and R has developed.  

The authorities in Member State X have also drawn the attention of the Commission to this 
specific problem which is leading to tax losses. The level of these losses was not disclosed but 
the  Member  State  stressed  the  absolute  need  to  establish  a  level  playing  field  for  vouchers 
since the current situation distorts competition within the Community and leads to tax losses. 

•  National  tax  administration  informs  Commission  of  systemic  tax  losses  which  can 

only be closed off by modernising the provisions of the VAT Directive. 

Member  State  M  reports  significant  ongoing  problems  with  prepaid  mobile  credit  vouchers 
originating  in  Member  State  K  and  which  escape  all  VAT.  Member  States  K  taxes  on 
redemption and Member State M taxes on issue. The mismatch is systematically exploited by 
an important number of small distributors who see an opportunity to either increase margins 
or  offer  lower  prices.  In  many  instances,  they  sell  vouchers  aimed  at  ethnic  or  emigrant 
communities with attractive rates for calls to particular countries. The authorities in Member 
State  M  have  had  some  limited  success  in  closing  off  tax  losses  by  initiating  prosecutions 
under  the  abuse  of  rights  principle.  This  however  is  proving  to  be  a  cumbersome  way  of 
addressing the issue and falls well short of being a panacea. There are a large number of small 
operators distributing the vouchers which meet a demand for cheap calls. If one is prosecuted 
successfully, another will fill the space here. The problem can only be resolved definitively by 
reforming the EU VAT rules. 

•  A  company  which  markets  games  downloads,  generally  paid  for  by  vouchers,  finds 
that it has to contend with persistent double taxation in developing its presence across 
the EU single market. 

EN 

9 

   EN 

 
Company D is an established VAT registered entity in EU Member State E where it operates 
a  games  download  business.  Customers  are  young  people  who  do  not  generally  have  credit 
cards. Payments for downloads can however be made using pre-paid cards (vouchers) which 
are distributed by retailers. The interpretation of the VAT rules applied in the Member State 
where  the  company  is  established  mean  that  VAT  will  always  be  due  there.  As  however 
different  interpretations  apply  in  other  Member  States,  the  distributors  in  several  of  these 
Member  States  also  have  to  account  for  VAT,  notwithstanding  that  VAT  has  already  been 
paid in E. It is impractical to recover this double taxation and as the retail price of the voucher 
is constant, the cost is absorbed by the company. The economic impact varies according to the 
combination of Member States concerned but can involve up to 35% of gross revenue from 
vouchers going to fund the VAT liability. Although this has not finally prevented the business 
model from proceeding, the company continues to face barriers in understanding the different 
rules and reconciling the variable margins (which also impact distributors) caused by double 
taxation. 

•  Position of EBF on distortion in the EU payment service sector. 

The European Banking Federation wrote: "that a consistent VAT-treatment is highly desirable 
to  ensure  a  level  playing  field  for  payment  service  providers  that  active  in  the  Single 
European  Payments  Area.  (…)  At  present  we  observe  that  the  VAT-regimes  in  Member 
States  are  different  between  Member  States  for  similar  payment  services."  The  EBF 
concludes that this can only be rectified by modernising the VAT Directive. 

•  Observations of the BBA on competitive imbalances. 

The  British  Bankers'  Association  "considers  that  it  is  imperative  that  a  new  definition  (or 
definitions) of what constitutes a voucher is introduced at the earliest opportunity. This would 
avoid potential distortions in the way exemptions are currently applied.(…) .Compared to the 
telecommunications operators the financial services companies suffer the additional costs of 
both  irrecoverable  VAT  and  regulation."  The  BBA  sees  the  current  lack  of  clarity  and 
consistency as conducive to unfair competition.4 

In  the  view  of  DG  TAXUD,  the  problems  described  here  are  clearly  of  an  EU  nature, 
generally extending across more than one Member State and cannot adequately be resolved at 
Member  State  level.  They  are  sufficiently  documented  and  sufficiently  serious  to  warrant 
action. The evidence here is also consistent with other, albeit less documented, examples of 
mismatches  and  competitive  problems  encountered  by  business,  something  which  confirms 
the representative nature of the examples cited here. 

1.3. 

Deloitte Study 

The  study  commissioned  from  Deloitte5  addressed  two  questions  –  firstly  what  economic 
significance attaches to vouchers and secondly why there are VAT consequences. 

As  far  as  the  quantitative  part  of  the  study  is  concerned,  the  objective  was  to  provide  an 
economic  justification  for  making  a  legislative  proposal  remedying  the  problems  identified. 

4 
5 

Letter of 26 January 2007 from the BBA to the Commission. 
"Study  of  the  VAT  treatment  and  quantification  of  vouchers  at  an  EU  level  for  the  provision  of 
economic  analysis  in  the  area  of  taxation"  Final  Report  of  14  July  2010  (as  revised).  This  study  is 
annexed to this Impact Assessment. 

EN 

10 

   EN 

 
                                                 
The  highest  justification  is  in  mismatches,  whether  actual  or  potential,  between  Member 
States  which  might  have  tax  consequences.  Therefore  the  study  focuses  on  both  actual  and 
potential cross-border exposure. Even in cases where there is limited evidence of actual cross-
border trade involving vouchers, the potential may be sufficient to justify legislative change in 
order to close off sources of mischief but also to give certainty to compliant businesses. 

As  is  often  the  case  in  studies  of  this  nature,  particularly  where  tax  policy  is  concerned, 
willingness  to  share  data  is  not  always  optimal.  Obtaining  comprehensive  and  accurate 
detailed figures was not always possible. The pragmatic objective however was to establish an 
indicative  overview  of  the  relative  importance,  in  monetary  value  of  the  main  European 
voucher markets. The methodologies applied were evaluated against this perspective.  

The  study  confirmed  that  pre-paid  telecommunications  services  were  by  far  the  single  most 
important  category  of  vouchers  with  an  annual  value  well  in  excess  of  other  categories 
combined. For 2008 (the most recent year where reasonably complete figures are available), 
the total value of pre-paid mobile credits issued in the EU is approximately €37 billion 6. This 
is also the field where concerns about tax problems have been most frequently identified.  

The next most significant category are gift vouchers where the EU total is between €6 billion 
to  €20  billion.  Limited  data  precluded  a  mo re  specific  finding.  The  methodology  used  to 
arrive at this range is explained in the study. Gift vouchers have not generally seen as a source 
of VAT problems7. There are however some developing issues arising from inconsistency in 
national  VAT  treatments,  particularly  for  retailers  who  operate  in  several  Member  States  or 
who have pan-EU business models which may act as a barrier to wider market penetration. 

Discount vouchers are estimated at a minimum of €2 billion.  

The  qualitative  part  of  the  study  is  limited  to  the  most  economically  significant  area.  It 
provides an overview of the VAT rules throughout the EU 27 for prepaid telephone vouchers, 
identified as by far the most important category of vouchers in monetary terms. 

1.4. 

Difficulties encountered 

Accessing data has been a recurrent problem in this exercise. The limitations this imposed are 
set out in the introduction to the Deloitte study. 

For  the  most  part,  there  has  been  little  centralised  collection  of  data  for  these  activities.  In 
consequence, the consultant was often dependent on direct approaches where responses were 
often just adequate. This could be attributed to commercial confidentiality but also perhaps to 
misguided (but largely unvoiced) concerns about provoking more onerous taxation. 

Given  the  significance  of  prepaid  telecommunications,  an  approach  was  made  to  that 
industry's representative body to assist but this was not fruitful. Some individual companies 
were cooperative. The consultant drew extensively on existing Commission documents on the 
industry8, without which the value of the study would have been greatly diluted. 

6 
7 
8 

Deloitte study, page 12. 
See however paragraph 2.9.1 below on unused vouchers. 
Notably, COM (2009) 140 final: 14th Report on the implementation of the telecom regulatory package 
which is credited at several points in the Deloitte study. 

EN 

11 

   EN 

 
                                                 
Because of these difficulties and, general budget constraints the quantative parts of the study 
concentrate on a limited sub-set of Member States that were considered as representative. 

The basic problem remains that there is no systematic collection of statistics on transactions 
involving vouchers. Any estimate of the market size would have to be made on the basis of 
approximate  estimate  based  on  surveys  but  the  response  rate  from  the  sector  was  low. 
Measuring the extent of the problem was further hampered by the nature of the issue at hand – 
there is a natural tendency to conceal cases of non-taxation and this is typically only brought 
to  light  when  another  company  starts  to  identify  its  consequences  in  terms  of  unfair 
competition. Double taxation will more often than not simply kill the market without leaving 
any statistical trace. 

It is also difficult to forecast a growth rate for the voucher market for the following reasons. 
The  most  important  driver  of  the  size  of  the  voucher  market  is  the  demand  for  pre-paid 
telecommunications  vouchers.  This  variable  is,  in  turn,  determined  by  the  rate  of  growth  of 
the market for mobile telephony services multiplied by the share of pre-paid contracts on the 
total.  The  latter  is  strongly  dependent  on  country  and  company-specific  pricing  policies,  as 
shown by the high degree of dispersion in this statistic observed by country (in the Deloitte 
report). As pricing policies and consumer behaviour can change relatively quickly in the IT 
sector, it would be imprudent to make a forecast of the future development of the size of the 
voucher  market.  It  seems  reasonable  to  assume  that  it  will  remain  roughly  unchanged  in  its 
order of magnitude in the near future. 

2. 

POLICY CONTEXT, PROBLEM DEFINITION AND SUBSIDIARITY 

2.1.  Why is there an issue in relation to the VAT treatment of vouchers which needs 

to be resolved? 

In common parlance, the term "voucher" may have a multiplicity of meanings but the focus of 
this Impact Assessment is on commercial schemes where the voucher carries a right to goods 
or services or to reduction in their price and is used in transactions which are subject to VAT. 

A  voucher  can  be  either  in  a  tangible  (e.g.,  card9  or  paper)  or  intangible  (e.g.,  electronic 
message) form. The rights entailed in a voucher are balanced by obligations assumed by the 
issuer  or  redeemer.  Technical  developments,  deregulation  of  services  (particularly 
telecommunications)  and  commercial  innovation  have  allowed  such  schemes  to  grow  in 
sophistication and to extend beyond the boundaries of individual Member States.  

These  developments  have  evolved  since  the  current  legislation  was  enacted  in  197710  and 
there  is  no  specific  guidance  there  on  how  vouchers  should  be  treated.  VAT  issues  arise 
nevertheless  because  a  voucher  can  influence  the  time  and  place  of  taxation,  the  taxable 
amount and create uncertainty about compliance obligations. 

9 

10 

The  term  "card"  is  employed  fairly  frequently  throughout  this  paper,  particularly  where  this  reflects 
common  commercial  usage.  It  should  however  be  understood  as  encompassing  equivalent  intangible 
instruments  including  in  particular  credits  in  electronic  form  which  may  be  stored  on  a  sim  card  or 
elsewhere.  
Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member 
States  relating  to  turnover  taxes  –  Common  system  of  value  added  tax:  uniform  basis  of  assessment 
(OJ 1977 L 145, p. 1), replaced, with effect from 1 January 2007, by Council Directive 2006/112/EC of 
28 November  2006  on  the  common  system  of  value  added  tax  (OJ 2006  L 347,  p. 1)  –  henceforth 
referred to as the “VAT Directive” or otherwise simply "the Directive". 

EN 

12 

   EN 

 
                                                 
It cannot however be said that these problems really go to the heart of the VAT system. There 
is no uncertainty about the taxability of the underlying transaction, the supply of goods or of 
services. Technical clarification is however required on how taxation should be applied at a 
detailed level. Inconsistency or uncertainty can otherwise cause tax losses or double taxation. 
There is also the risk that insecurity about the tax consequences of business transactions act as 
a damper on commercial innovations, particularly for cross-border transactions.  

With  no  clear  common  VAT  rules,  independent  approaches  by  Member  States  can  lead  to 
mismatches  but  also  contribute  to  tax  avoidance  and  form  barriers  to  business.  The  rules  in 
the VAT Directive do not take sufficient account of commercial developments, particularly in 
cross-border  and  chain  transactions.  Clarification  is  needed  on  the  taxable  amount  and  the 
time  of  taxation.  The  limited  guidance  given  by  the  ECJ  in  a  number  of  judgments  on 
vouchers has been helpful but has not totally resolved the uncertainty facing taxable persons. 
The  objective  of  the  intended  proposal  is  to  deal  with  these  issues  by  clarifying  and 
harmonising the rules in Community legislation on the VAT treatment of vouchers. 

The VAT treatment of vouchers might be relatively straightforward if the only impact were 
on  the  taxable  amount  or  time  of  taxation  in  a  direct  sale  between  a  retailer  and  a  final 
customer.  However,  when  the  transactions  involve  a  chain  of  intermediaries  or  have  cross-
border elements, a uniform application of the current VAT rules is hard to achieve. 

Recurrent problems occur with telephone pre-payment cards, illustrating the problems created 
by uncertainty on the time of taxation. When a pre-paid credit is issued in one Member State 
where  it  is  regarded  as  a  payment  on  account  for  the  service  (and  taxed  upfront)  and 
subsequently  used  in  a  Member  State  which  taxes  the  telecommunications  service  received 
against the voucher  when the  service is supplied, both will levy VAT. The former  however 
will  tax  when  the  voucher  is  issued  and  the  latter  when  it  is  used  (or  redeemed).  This  is 
legitimate from both perspectives, but the result is double taxation. In the converse situation 
no Member State would levy VAT and the result is unintended non-taxation. 

The  consequences  go  beyond  what  might  be  expected  from  occasional  purchases  by 
consumers seeking to avail of lower prices. There is at least prima facie evidence of systemic 
commercial-scale  schemes  to  exploit  tax  avoidance  opportunities  by  issuing  pre-paid 
telecommunications  vouchers  where  they  are  not  taxed  on  issue  with  the  sole  intention  of 
marketing them to consumers where they are not taxed on use. The nature of the market for 
wholesale telecommunications services facilitates such ad-hoc arrangements.  

Moreover,  the  evolution  of  some  voucher-based  systems  brings  them  increasingly  close  in 
terms of functionality to established payment systems (e.g., credit card, electronic purse) and 
the  dividing  line  is  not  clear,  raising  competitive  issues.  Conversely,  credit  card  companies 
are  introducing  pre-paid  money  cards  which  are  ever  closer  in  functionality  to  the  prepaid 
services offered by telecommunications companies. 

Discussions confirmed that differences in treatment are widespread. Individual Member States 
when faced with situations which are not specifically provided for in the VAT Directive have 
adopted ad-hoc solutions, which cause problems particularly for cross-border transactions. 

EN 

13 

   EN 

 
2.2. 

Situation today - treatment of vouchers in Member States 

The  information  available11  confirms  that  for  prepaid  telephone  credits  the  VAT  treatment 
varies widely. This inconsistency leads to double or non-taxation and in practice operates as a 
barrier to full exploitation of single market opportunities.12 

The  experiences  recounted  in  Section  1.2  (Public  Consultation),  notably  the  anecdotal 
accounts  of  difficulties  being  experienced  by  operators  and  by  national  tax  administrations, 
confirm the existence and significance of problems. 

The position in Member States can be summarised as follows: 

Member State 

Time of VAT liability  Other Comments 

Austria 

At sale 

Normal VAT rules apply 

Belgium 

the  voucher 

When 
actually used. 

is 

Bulgaria 

At sale 

Cyprus 

Time of sale 

Czech Republic  At sale 

Denmark 

At sale 

Estonia 

Finland 

France 

At sale 

At sale 

At sale 

The  sale  of  prepaid  telephone  cards  or  sim 
card credits is not subject to VAT in Belgium 
and is seen as outside the scope of VAT as it 
concerns the exchange of money for money. 

Agents  are  considered 
to  be  acting  as 
“transparent agents” and special administrative 
arrangements  apply.  The  issuers  of  prepaid 
telephone  cards  are  entitled  to  full  input  tax 
deduction. 

Special  rules  for  intermediaries  and  non-EU 
telecommunications operators. 

Special  rules  for  intermediaries  and  non-EU 
telecommunications operators. 

Special  rules  for  intermediaries  and  non-EU 
telecommunications operators. 

Normal VAT rules apply 

Exempt if multi-functional. 

Special  rules  for  intermediaries  and  non-EU 
telecommunications operators. 

11 
12 

This is confirmed by the Deloitte report, see in particular Appendix 7. 
Such mismatches can of course open up opportunities for tax-arbitraging, even to the extent of complete 
tax  avoidance.  Eliminating  these  lacunae  cannot  be  seen  as  a  restriction  on  legitimate  business 
opportunities.  The  reality  is  that  uncertainty  about  the  tax  consequences  or  the  likelihood  of  an 
unfavourable  tax  outcome  creates  barriers  for  compliant  business,  with  a  decrease  in  the  number  of 
possible market interveners 

EN 

14 

   EN 

 
 
                                                 
Germany 

The  time  at  which  the 
liability 
to  pay  VAT 
arises  depends  on  the 
type of voucher and may 
be  the  time  of  supply, 
activation or actual use. 

The VAT treatment depends on whether: 

- 

- 

- 

is 

voucher 

the 
for 
telecommunications services provided by a 
is 
telecommunications  company  which 
known at the time the card is purchased; or 

used 

the  voucher  is  used  for  payment  for 
telecommunications services provided by a 
telecommunications  company,  which  is 
known  only  at  the  time  the  card  is 
activated; or 

the  voucher  is  multi-purpose  and  can  be 
used  for  payment  for  telecommunications 
services  as  well  as  goods  or  services 
provided by a third party supplier. 

Greece 

Hungary 

Ireland 

Italy 

Latvia 

Lithuania 

Luxembourg 

At sale 

At sale 

Special rules for intermediaries.  

Special  rules  for  intermediaries  and  non-EU 
telecommunications operators. 

Depends  on  the  place 
and time of the supply of 
the prepaid voucher.  

Special provisions for prepaid vouchers which 
are subsequently used outside the EU. Special 
rules for intermediaries. 

On redemption 

At sale 

At sale 

Special rules for intermediaries. 

Depends  on  nature  and 
functionality of voucher. 

For  telecommunications  services,  taxation  is 
generally on actual use. 

Malta 

Not clear 

Netherlands 

Generally 
redemption. 

taxed 

on 

Poland 

At sale 

Portugal 

At sale 

VAT  treatment  of  vouchers  is  on  an  ad-hoc 
basis. 

The  sale  of  telecommunications  vouchers  is 
exempt  from  VAT,  being  considered  as  the 
supply  of  a  security.  Card-issuing  companies 
and resellers of prepaid telephone cards should 
therefore not be entitled to deduct input VAT. 

Where  a  telecommunications  voucher  (sim 
card  credit)  can  be  used  to  purchase  other 
services  or  goods,  payment  of  VAT  is  by 
imputation. 

EN 

15 

   EN 

 
 
 
 
 
Romania 

Slovenia 

Slovakia 

Spain 

At sale 

At sale 

At sale 

At sale 

VAT  correction  can  subsequently  be  made  if 
subsequent use justifies it. 

If  functionality  of  voucher  extends  beyond 
is  at 
mere 
redemption. 

telecommunications, 

taxation 

Sweden 

On redemption 

United Kingdom  Generally on redemption 

In  practice,  where  the  voucher  leads  to  the 
supply of a mixture of goods or services which 
attract  different  VAT  rates  (including  zero 
rates), a composite rate may be applied.  

As far as the effect on individual Member States is concerned, those who tax vouchers at the 
time  of  issue  or  first  sale  face  the  risk  of  tax  arbitraging  using  vouchers  issued  in  Member 
States  where  these  are  tax  on  redemption.  This  is  particularly  the  case  for  prepaid  mobile 
telecommunications  credits.  Mobile  virtual  network  operators  (MVNOs)  and  smaller 
operators base their business model on buying network capacity from the network operators 
and the fungibility of this capacity allows that vouchers issued in one Member State are easily 
used in another. 

The  mismatches  outlined  above  cause  adverse budget  consequences for a group of  Member 
States which would be rectified by aligning the time of taxation. 

Conversely, this alignment will also see the end of double taxation. As explained elsewhere, 
both double and non-taxation are not easily measured. The probability however is that non-
taxation  is  more  significant.  The  consequences  of  dealing  with  the  shortcomings  identified 
should be a net increase in tax revenue, accruing to those Member States who currently suffer 
from tax arbitraging. 

2.3. 

Situation today – decisions of the ECJ which relate to vouchers 

Because  Community  legislation  is  silent  on  the  correct  VAT  treatment  of  transactions 
involving vouchers, the ECJ is asked to provide clarification. Whatever common rules exist, 
are largely dependent on this case law. The question arises as to whether the Court has helped 
or has it raised issues which in turn need resolution in legislation. It would therefore be useful 
to look at the decisions of the Court in this area and to consider which aspects, if any, need to 
be considered in contemplating a legislative initiative. 

In  Argos  Distributors  Limited13  the  Court  held  that  Article 11(A)(1)(a)  of  the  Sixth 
Directive (now Article 73 of the VAT Directive) must be interpreted as meaning that, when a 
supplier has sold a voucher to a buyer at a discount and then promised to accept that voucher 
at its face value in full or part payment of the price of goods purchased by a customer who 
was not the buyer of the voucher, and who does not normally know the actual price at which 

13 

Case C-288/94 Argos Distributors Ltd v Commissioners of Customs and Excise [1996] ECR I-5311. 

EN 

16 

   EN 

 
 
 
 
                                                 
the voucher was sold by the supplier, the consideration represented by the voucher is the sum 
actually received by the supplier upon the sale of the voucher. 

The issue at dispute concerned the calculation of the VAT which the company must pay on 
the sale of goods paid for by vouchers. In the Court's view, the taxable amount is the amount 
of money received by the company when it accepts vouchers as payment for its goods which 
is  the  sum  that  is  received  from  the  sale  of  the  voucher  less  any  discount  allowed.  This 
decision is accepted as a clarification leading to a consistent application of the law. No further 
action is required here. 

In Elida Gibbs14 the Court interpreted Article 11(A)(1)(a) and Article 11(C)(1) of the Sixth 
Directive (now Article 73 and Article 90(1) and (2) of the VAT Directive) as meaning that the 
taxable amount as far as a manufacturer is concerned is equal to the selling price charged by 
him, less the amount indicated on the voucher and refunded where  

(a) 

(b) 

(c) 

(d) 

the  manufacturer  issues  a  money-off  voucher15  in  a  promotion  scheme,  which  is 
redeemable  at  the  amount  stated  on  the  coupon  by  or  at  the  expense  of  the 
manufacturer in favour of the retailer, 

the  cash-back  voucher,  which  is  distributed  to  a  customer  in  a  sales  promotion 
campaign, may be accepted by the retailer in payment for a specified item of goods, 

the manufacturer sells at the "original supplier's price" direct to the retailer and 

the retailer takes the voucher from the customer on sale of the item, presents it to the 
manufacturer and is paid the stated amount. 

The same would apply if the supply is made by the manufacturer to a wholesaler rather than 
directly to a retailer. The company sought a repayment of the output tax which had previously 
been accounted for on the basis that reimbursement amounted to a retroactive discount. 

In the view of the Court the taxable amount must equate to the amount actually paid by the 
final consumer. The problem it faced in achieving this result is that the rebate received by the 
consumer  does  not  follow  the  links  in  the  contractual  chain.  In  its  search  for  neutrality,  the 
Court had concluded that the taxable turnover of the manufacturer should be reduced with a 
consequent  reduction  in  its  VAT  payments.  It  did  not  however  see  any  need  to  adjust  the 
position of any other parties in the chain such as a wholesaler or retailer. 

This leaves uncertainty about the correct treatment when the ultimate consumer is a taxable 
person (the invoice received from the retailer will overstate the correct reclaimable VAT). 

The  Court  seems  to  say  that,  in  the  circumstances  outlined  here,  a  free  gift  (the  cash-back 
voucher  given  by  the  retailer  to  the  customer)  does  not  have  direct  VAT  consequences. 
Questions remain on how to ensure neutrality for all participants in a distribution chain. 

In  Kuwait  Petroleum16  the  Court  held  that  in  interpreting  Article 11(A)(3)(b)  of  the  Sixth 
Directive (now Article 79(b) of the VAT Directive), the terms "rebates" and "price discounts" 
cannot be applied to reductions covering the whole cost of supplying redemption goods. 

14 
15 
16 

Case C-317/94 Elida Gibbs Ltd v Commissioners of Customs and Excise [1996] ECR I-5339. 
The judgment speaks of "coupons". For ease of reading, the term "voucher" is used here.  
Case C-48/97 Kuwait Petroleum (GB) Ltd v Commissioners of Customs and Excise [1999] ECR I-2323. 

EN 

17 

   EN 

 
                                                 
Article 5(6) of the Sixth Directive (now Article 16 of the of the VAT Directive) leads to the 
conclusion that the application by an oil company of goods which are given to a purchaser of 
fuel  in  exchange  for  vouchers  obtained  according  to  volume  of  fuel  purchased  at  full  retail 
price  under  a  sales  promotion  scheme  and  where  the  goods  are  not  of  small  value,  must  be 
treated as a supply for consideration within the meaning of that provision. 

There is no  link between the  consideration and the goods given by Kuwait Petroleum since 
the price for the fuel was the same whether the customer took the vouchers or not.  

Here the Court seems to say no retrospective adjustments is needed in respect of a money-off 
voucher. There is no need therefore for any legislative follow-up. 

In  BUPA17  the  Court  noted  that  VAT  is  a  tax  on  supplies  of  goods  or  services,  not  on 
payments. Therefore, payments on account can only be linked to future supplies of goods or 
services if, at the time of payment, those supplies have clearly been identified. Consequently, 
advance payments do not fall within the scope of the VAT Directive, if they take the form of 
lump sums paid for goods referred to in general terms, which may be altered at any time by 
agreement  between  the  customer  and  supplier,  and  from  which  the  customer  may  possibly 
select articles on the basis of an agreement, from which he may unilaterally withdraw at any 
time, thereupon recovering the unused balance of the advance payments. 

It can be posited that the observations of the ECJ here regarding the advance payments also 
apply  to  prepaid  telephone  credits.  When  a  prepaid  credit  is  acquired,  it  may  not  be  certain 
what  goods  or  services  will  be  purchased.  In  such  circumstances,  the  supply  of  prepaid 
telephone cards should not be the occasion for charging VAT. 

In  purchasing  a  prepaid  telephone  credit,  it  could  even  be  considered  that  the  buyer  merely 
moves money from his bank account to a means of payment that can be used for the purchase 
of  a  variety  of  services,  not  only  telecommunications  services,  but  also  information  or  ring 
tones, etc., or parking time at a car park. Purchasing a telephone card could be compared with 
making a withdrawal of cash. In that situation, the “buyer” merely exchanges the money from 
his bank account into cash money. That change in the form of money should be outside the 
scope of VAT because the exchange of money is not a taxable event for VAT purposes. 

As far as vouchers are concerned, the line adopted by the Court here would seem to confirm 
that if at the time a voucher is issued, it is not possible to say what goods or services will be 
purchased with it, the consequence is that the voucher should not be subject to VAT.  

In Sociéte thermale d'Eugénie-les-Bains18 the Court held that Articles 2(1) and 6(1) of the 
Sixth Directive (now Articles 2(1)(c) and 24(1) of the VAT Directive) must be understood to 
mean  that  a  sum  paid  as  a  deposit,  in  a  contract  for  the  supply  of  hotel  services  (subject  to 
VAT)  and  where  the  client  opts  not  to  complete  the  transaction  in  circumstances  where  the 
deposit is retained by the hotel, there is no direct connection with the supply of any service for 
consideration and the payment is therefore not subject to VAT. 

17 

18 

Case C-419/02 BUPA Hospitals Ltd and Goldsborough Developments Ltd v Commissioners of Customs 
& Excise [2006] ECR I-1685. 
Case  C-277/05  Société  thermale  d’Eugénie-les-Bains  v  Ministère  de  l’Économie,  des  Finances  et  de 
l’Industrie [2007] ECR I-6415. 

EN 

18 

   EN 

 
                                                 
Can  the  same  reasoning  be  applied  to  vouchers  where  a  payment  has  been  made  but  the 
voucher  is  never  redeemed  with  the  result  that  there  has  been  no  supply  of  goods  for 
consideration? If yes, unredeemed vouchers should be seen as giving rise to no tax liability. 

In Commission v Germany19 the Court confirmed that the taxable amount in the hands of the 
retailer for a sale to a final consumer was the retail price, in effect the amount paid plus any 
further amount reimbursed to the retailer by the manufacturer. 

The  importance  of  this  judgment  is  that  here  the  Court  reaffirmed  the  full  force  of  Elida 
Gibbs, despite attempts by the German and UK governments to persuade it to reconsider its 
position  in  that  case.  Neutrality  requires  that  VAT  should  not  be  charged  on  an  amount 
greater than the true proceeds of the transaction of supply and this must take account of what 
the trader has to part with, even if this entails some loss of revenue for the tax authorities. 

In Astra Zeneca20, the ECJ has confirmed that a company giving face value retail vouchers 
(conferring a right to goods or services) to its employees as part of their remuneration was in 
receipt of a supply of services for consideration and that this was subject to VAT. 

The  vouchers  in  question  confer  a  right  to  acquire  goods  or  services  whose  nature  is 
unspecified. They cannot therefore constitute a supply of goods for VAT purposes but rather 
must  be  a  supply  of  services  within  the  meaning  of  Article  24(1)  whereby  any  transaction 
which does not constitute a supply of goods is to be regarded as a supply of a service. 

This confirms the nature of the supply of a voucher as a supply of a service. Since however 
the  desired  outcome  will  always  be  to  tax  the  underlying  goods  or  services  which  are 
ultimately supplied against a voucher rather than the voucher per se, any legislative changes 
which define vouchers must also ensure that double taxation is avoided. 

The  flow  of  litigation  attributable  to  difficulties  in  interpreting  the  provisions  of  the  VAT 
Directive  in  relation  to  vouchers  has  not  ceased.  A  more  recent  referral  to  the  ECJ21  has 
highlighted  the  difficulties  caused  by  the  existing  legislation.  It  concerns  a  company  who 
issues  prepaid  telecommunications  vouchers  which  are  sold  through  distributors  in  other 
Member States. The question posed by the referring tribunal was whether the company can be 
considered as making two supplies for VAT purposes – one at the time of the initial sale to 
the distributor and another at the time of redemption (when the prepaid credit is actually used 
to make phone calls). In the event of that being the case, the Court is asked how VAT should 
be applied through the distribution chain. 

The  need  for  a  referral  to  the  Court  is  a  clear  indication  of  the  difficulties  that  are  being 
encountered  with  the  legislation.  Any  resolution  offered  by  the  Court,  however,  will  only 
extend to the specific questions posed and the specific circumstances which gave rise to them. 
Unless a definitive resolution is found, and this can only be by modernising the relevant EU 
legislation, there will be an ongoing need for such litigation in the search for clarity. This is 
not a desirable scenario22.  

19 

20 
21 
22 

Case  C-427/98  Commission  of  the  European  Communities  v  Federal  Republic  of  Germany  [2002] 
ECR I-8315. 
Case C-40/09 Astra Zeneca UK Ltd v HMRC [2010] ECR I- 
Case C-520/10 Lebara Ltd v The Commissioners for Her Majesty's Revenue & Customs 
The  amount  of  tax  at  stake  is  not  specified  in  the  aforementioned  Lebara  case  but  other  evidence 
indicates  the  impact  of  a  double  taxation  charge  for  an  individual  calling  card  company  in  similar 
circumstances would fall within a range of €25 to €45 million. 

EN 

19 

   EN 

 
                                                 
2.4. 

Uncertainty and inconsistency in the definitions  

There  is  no  definition  of  a  voucher  in  the  VAT  Directive,  something  which  does  not  lend 
itself to a consistent outcome. It can be seen both from discussions with stakeholders, and in 
particular from the decisions of the ECJ, that vouchers have a range of characteristics which 
influence the tax consequences. The Court has not provided a general definition of a voucher 
but has rather dealt with the specific issues with which it has been presented. 

Whilst the guidance of the Court has undoubtedly been of benefit in bridging the gaps created 
by outdated legislation, it has not produced a comprehensive set of rules. It is however clear 
that there is no single concept of a voucher and that any attempt to define vouchers has to be 
on the basis that there are several different kinds of vouchers. 

The  Deloitte  study23  identifies  different  types  such  as  free  vouchers,  paid  vouchers,  single-
purpose or multi-purpose vouchers and discount vouchers. These are not mutually exclusive 
categories and an individual voucher may fall under more than one of these characteristics. 

The study concludes that one particular type of voucher – prepaid telecommunications – is by 
far the largest single category and can be both single and multi-purpose in functionality. Total 
pre-paid  mobile  revenue  is  estimated  (for  2008)  at  €36  billion 24.  Although  most  usage  is 
domestic, the potential for cross-border use is relatively high. 

The total minimum monetary value for gift vouchers has been estimated at €9 billion 25. Other 
significant areas are loyalty cards, estimated at €4 billion 26 and discount vouchers which are 
estimated at €2 billion 27. Cross-border usage is generally limited for each of these categories 
although specific technical problems can occur with discount vouchers. Any solution should 
deliver  a  clear  and  consistent  understanding  of  what  a  voucher  is,  in  all  its  different 
manifestations, ideally through clear definitions which are applied consistently. 

The study estimates the minimum monetary value of the EU voucher market at €52 billion. 
Given  that  prepaid  telecommunications  accounts  for  almost  70%  of  that  figure,  it  merits 
special  attention.  Here  technological  development  and  innovative  business  practices  raise 
questions  about  the  very  nature  of  vouchers  and  whether  such  an  apparently  traditional 
concept covers what is actually occurring in the market place. Increased functionality may put 
into question the merits of any approach which is based on an outdated understanding. 

The  perspective  taken  so  far  has  been  that  prepaid  telephone  credits  should  be  regarded  as 
vouchers  and,  where  appropriate,  as  multi-purpose  vouchers.  This  might  have  the 
consequence  that  the  supply  of  certain  vouchers  or  at  least  some  elements  of  the  supply 
should  be  seen  a  supply  of  money  and  should  be  ignored  for  VAT  purposes.  In  this 
perspective,  the  transfer  of  money  from  one  point  (say,  the  customer’s  mobile  phone)  to 
another point (the supplier of goods or services) might be exempt from VAT on the basis of 
Article 135(1)(d) of the VAT Directive. 

The purchase of prepaid telephone credits could also be regarded as an advance payment for 
the  goods  or  services,  which  will  be  supplied  to  the  cardholder  at  a  later  moment.  In  this 

23 
24 
25 
26 
27 

Deloitte study. Page 11, et seq. 
Deloitte study. Page 23. 
Deloitte study. Page 33. 
Deloitte study. Page 38. 
Deloitte study. Page 42. 

EN 

20 

   EN 

 
                                                 
respect, Article 63 of the VAT Directive provides that “the chargeable event occurs and VAT 
becomes chargeable when the goods are delivered or the services are performed. However, 
where  payments  are  made  on  account  before  the  goods  are  delivered  or  the  services  are 
performed,  VAT  becomes  chargeable  at  the  time  of  receipt  of  the  payment  and  upon  the 
amount received”. 

On  balance,  the  acquisition  of  prepaid  telephone  credits  which  offer  no  other  functionality 
than telecommunications services in the country where they are issued could be regarded as 
constituting  an  advance  payment,  which  is  subject  to  VAT.  However,  due  to  the  increasing 
multi-functional character of prepaid telephone credits, it is not always clear for what future 
supplies will arise. At the time of acquisition of the prepaid credit, the VAT regime applicable 
to the future supplies (subject to VAT at the standard or a reduced rate or exempt from VAT 
or indeed the Member State where the VAT might arise) cannot always be predicted. 

2.5. 

Tension  between  protecting  revenue  and  ensuring  the  absence  of  barriers  to 
commercial innovation 

2.5.1.  Development of innovative payment systems 

The  issues  at  stake  become  more  complex  if  prepaid  telephone  cards  can  also  be  used  to 
purchase  services  other  than  telecommunications  services.  These  are  increasingly  used  to 
purchase services from other suppliers, acquiring a multifunctional character. They can also 
be used for traffic or weather information, financial information, medical advice, ring tones, 
parking  fees,  or  for  participating  in  online  lotteries  or  games.  The  range  of  options  is 
increasing  rapidly.  In  some  parts  of  the  world,  mobile  phone  services  enable  subscribers  to 
send  money  in  instant  transactions  at  competitive  costs28.  Here  there  is  a  combination  of  a 
telecommunications service a different type of supply, i.e. a “content” service supplied by a 
third party but paid for through the prepaid telephone card. 

As regards those combinations of services, different views could be taken: 

-  a  telecommunications  service  is  supplied  enabling  the  final  recipient  to  acquire  content 
from a third-party. The content supplier provides the content service to the final recipient; 
or  

-  a telecommunications service is provided enabling a third-party to deliver content service 
to  the  final  recipient.  The  content  supplier  not  only  provides  the  content  service  to  the 
final recipient but also the telecommunications service, i.e. ensures that the content service 
is delivered to him; or  

- 

since  the  final  recipient  of  the  combined  supply  pays  the  telecommunications  company 
through  the  prepaid  telephone  card,  the  telecommunications  company  supplies  the  total 
package to the final recipient after the content service has been supplied to it by the third-
party supplier. 

The  main  issue  arising  in  those  situations  is  the  determination  of  the  VAT  liability  of  the 
parties concerned. Payment for the content services by means of the telephone card is not only 
convenient  for  the  third-party  suppliers,  whose  share  in  the  total  price  is  usually  relatively 

28 

See  http://news.bbc.co.uk/2/hi/africa/6510165.stm.  There  is  no  evidence  of  such  money  transfer 
services being available within the EU but the technical possibility is clearly there to include on a sim 
card a money transfer menu that allows account funds to be managed. 

EN 

21 

   EN 

 
                                                 
low.  It  is  also  the  only  practical  method  because,  since  the  services  are  delivered  through  a 
(mobile) telephone, the third-party suppliers do not even know the identity of their customers. 

If  the  relationship  between  the  telecommunications  company  and  the  third-party  supplier  is 
not clearly defined, there is a risk that the  telecommunications company could also account 
for VAT on the total value of the service. This not only gives rise to the risk that the company 
accounts for VAT on supplies made by third parties but may also have the effect the right to 
deduct input tax if the supply involves an online lottery or purchase of financial or medical 
information.  As  previously  pointed  out,  the  transfer  of  money  from  one  point  (say,  the 
customer’s mobile phone) to another (the third-party content provider) might be considered as 
exempt from VAT with negative consequences for deductibility. 

In practice, there is some confusion about the correct VAT treatment of content services paid 
for by prepaid telephone cards. In similar situations, the parties involved may assess the VAT 
consequences in  a different way and a more  consistent treatment is needed. It is difficult to 
see how this can be achieved other than by updating the legislation in the VAT Directive. 

This could be based on the principle that content providers make their supplies directly to the 
final  recipient  as  that  respects  the  final  recipient’s  perception  of  the  transaction  where  the 
content  provider  alone  make  the  supplies. It also provides a valid solution in those  cases in 
which the telecommunications companies do not wish to take responsibility for the content, 
for example the correctness of medical advice, or do not wish to be associated with e.g., adult 
content.  

On this basis, the content provider must determine the VAT status of its supplies and, if they 
are subject to VAT, account for and pay the VAT due on the content services. Where those 
services  are  exempt  from  VAT,  the  exemption  only  affects  the  content  provider’s,  not  the 
telecommunications company’s, right to deduct input tax. The telecommunications company 
merely  collects  the  price  from  the  final  recipient  on  behalf  of  the  content  provider.  That 
service  can  be  treated  as  an  exempt  transaction  in  relation  to  payments,  but  also  as  debt 
collection, which is subject to VAT. However, since the core business of telecommunications 
companies is the supply of telecommunications services, the most obvious solution is to treat 
its  service  rendered  to  the  content  provider  as  a  telecommunications  service,  enabling  the 
content  provider  to  deliver  its  services  through  the  telecommunications  network  to  the  final 
recipients and, as an ancillary service, collect the price from the final recipient on behalf of 
the  content  provider.  The  telecommunications  company  would  charge  VAT  to  the  content 
provider in respect of the supply of telecommunications services. The advantage here is that 
the telecommunications company does not run into input tax deduction issues. 

There  are  however  an  increasing  range  of  scenarios  where  the  commercial  reality  of  the 
operation would not justify such an approach. Where the reality is that a telecommunications 
service provider offers what is in effect a comprehensive payment service or money transfer 
service,  they  clearly  enter  into  competition  with  the  traditional  or  established  providers  of 
such services. It is difficult to see a justification for different tax treatments.  

2.6. 

Problems concerning the taxable amount 

Assuming that most prepaid telephone cards merely constitute a special type of money with 
VAT due on the purchase of goods or services, since these cards are often distributed through 
a network of agents, the question arises of what the taxable amount must be. 

EN 

22 

   EN 

 
Where the face value of the prepaid telephone card is €10 and the card is distributed through 
the  holder  of  the  card  for  goods  or  services 
an  agent,  who  earns  €2,  the  payment  made  by 
supplied by the card issuer is higher than the amount received by the issuer of the card. For 
example, where the card is issued by a telecommunications company and is used at face value 
to  purchase  telecommunications  services,  the  recipient  of  the  services  pays  €10,  whilst  the 
telecommunications  company  only  receives  €8.  Here  it  does  not  make  much  difference 
whether the agent acts as an intermediary, i.e. acting in the name and for the account of the 
card issuer and earning a commission of €2 for  his intermediary services, or as a commission 
agent, i.e. acting in his own name but for the account of the card issuer and receiving the card 
for a price of €8 and, subsequent ly, supplying it for a price of €10. 

Under Argos, the taxable amount is the payment actually received by the card issuer. On the 
the 
basis  of 
telecommunications company in the above example, for which the supplier received payment 
by means of the prepaid telephone card, would be €8. 

the  services  supplied  by 

taxable  amount 

judgment, 

that 

the 

for 

On  the  other  hand,  in  Bally29,  the  ECJ  declared  that,  where  a  customer  purchases  goods  or 
services,  and  pays  by  means  of  a  credit  card,  the  taxable  amount  for  the  supply  is  the  total 
amount paid by the customer, not the lower amount actually received by the supplier from the 
credit card company. In that case, the ECJ declared that the payment received by the supplier 
of the goods and services was the balance of the payment made by the customer (€10) and the 
value of a service rendered by the credit card company to the supplier (€2). On the basis of 
that  judgment,  the  taxable  amount  for  the  services  supplied  by  the  telecommunications 
company  in  the  above  example,  for  which  the  supplier  received  payment  by  means  of  the 
prepaid telephone card, would be €10. 

The view that the supplier of goods and services must account for VAT on the full payment 
made by the customer was supported by the ECJ’s decisions in Freemans30 and First Choice 
Holidays31. In Freemans, the ECJ ruled that a reduction of the purchase price can only reduce 
the  taxable  amount  if  the  reduction  is  actually  used  by  the  customer.  Since  the  holder  of  a 
prepaid  telephone  card  does  not  receive  a  reduction,  the  supplier  of  the  goods  and  services 
should  account  for  the  VAT  on  the  payment  made  by  the  customer  (€10).  In  First  Choice 
Holidays,  the  amount  that  the  travel  agent  must  pay  to  the  tour  operator  in  excess  of  that 
received  from  the  traveller  constituted  consideration  for  the  supply  of  services  by  the  tour 
operator.  There  was  a  direct  link  between  the  additional  amount  that  the  agent  (as  a  “third 
party”) paid to the tour operator and the supply of the services to the traveller. On this basis, 
the additional amount paid by the agent must be included in “the total amount to be paid by 
the traveller” for the purpose of calculating the taxable amount. 

On  the  basis  of  the  above  ECJ  case  law,  it  could  be  argued  that,  where  prepaid  telephone 
cards  are  distributed  through  agents,  the  issuer  of  the  card  who  also  supplies  the  goods  or 
services to the holder of the card must account for VAT: 

-  on the full price paid by the recipient of the goods and services (i.e. €10) where the agent 

acts as an intermediary, i.e. in the name of the issuer of the card; and 

-  on the amount actually received (i.e. €8), where  the agent acts as a commissionaire, i.e. in 

his own name. 

29 
30 
31 

Case C-18/92 Chaussures Bally SA v Belgian State, Minister for Finance [1993] ECR I-2871. 
Case C-86/99 Freemans plc v Commissioners of Customs & Excise [2001] ECR I-4167. 
Case C-149/01 Commissioners of Customs & Excise v First Choice Holidays plc [2003] ECR I-6289. 

EN 

23 

   EN 

 
                                                 
Where  the  agent  acts  as  a  commission  agent,  the  prepaid  telephone  card  is  deemed  to  be 
supplied to him (for a price of €8) and, subseque ntly, by him (for a price of €10). By contrast, 
where  the  agent  act  as  an  intermediary,  the  total  price  received  by  the  issuer  of  the  card  is 
deemed to be the total price (€10) paid by th e holder of the card, and the difference between 
that payment and the net amount received by the card issuer (€10 – €8) must be attributed to a 
separate service rendered by the intermediary. However, in practice, the view that the agent 
acts  as  an  commission  agent  is  not  very  realistic  because  prepaid  telephone  cards  nearly 
always state the name of the issuer (usually, the telecommunications company). Therefore, the 
to  obtain 
cardholder  knows 
telecommunications services, those services are directly provided by the card issuer (and not 
by the commission agent). 

that,  where  he  uses 

telephone  card 

the  prepaid 

2.7. 

Time of supply 

Under Article 63 the  tax  becomes chargeable when  the services are performed or goods are 
delivered. The Directive however also provides that in the case of a payment on account (an 
advance payment) which is made before the performance of the service or the delivery of the 
goods, the tax is chargeable on receipt of the payment and on that amount. 

For this to happen, sufficient clarity about the goods or services in question is required so that 
VAT can be correctly charged. If a voucher can be used only with the Member State of issue 
for the supply of a defined product, the VAT rate applicable is clear from the outset. Where it 
can be used at the holder's discretion to acquire range of goods or services, then the applicable 
tax may not be known in advance. 

Uncertainty would also apply where a voucher, issued say by a retail chain, can be redeemed 
against  similar  goods  but  at  outlets  in  several  Member  States.  The  time  of  supply  (time  of 
taxation) cannot therefore always be fixed at the time a voucher is paid for. Any solution will 
have to take account of the reality that taxation can occur either at the time a voucher is first 
issued or at the time it is redeemed for goods or services. 

2.8. 

Supply of prepaid telephone cards by intermediaries 

Many  prepaid  cards  are  distributed  through  intermediaries,  perhaps  involving  two  or  more 
Member  States.  Since  the  supply  of  such  prepaid  telephone  cards  should  not  be  a  taxable 
transaction for VAT purposes, questions arise on the treatment of the intermediary services. 

The intermediary services could be regarded as services for the promotion of the supply of the 
underlying goods and services. Under that view, the intermediaries must charge VAT on their 
commission  and,  where  the  issuer  of  the  prepaid  telephone  cards  renders  taxable 
telecommunications services to the cardholders, the VAT on the intermediary services would 
be deductible as input tax. 

Alternatively,  the  intermediary  service  could  be  regarded  as  a  transaction  concerning 
payments, which is exempt from VAT under Article 135(1)(e), although, Member States may 
also allow financial service providers to opt for taxation. 

Treating the intermediary services as taxable transactions produces an optimal result, in that 
the VAT on the intermediary’s operating expenses would be deductible and, therefore, must 
not be absorbed as hidden tax in the commission charged to the card-issuing companies. It is 
certainly defensible that the activities of the intermediaries promote the distribution of taxable 

EN 

24 

   EN 

 
goods or services and, in view of the fact that distribution of prepaid telephone cards should 
be  ignored  for  VAT  purposes,  it  would  not  make  any  sense  if  that  distribution  were  to  be 
burdened by non-deductible input tax. 

2.9. 

Other problems identified 

In the course of the preparatory work, a number of other areas of concern were raised. Some 
of these could only be considered peripheral or their resolution would require changes which 
are disproportionate to the scale of any problem identified. 

2.9.1.  Unused vouchers 

If  a  voucher  does  not  lead  to  any  supply,  then  any  payment  made  for  the  voucher  is  not 
subject  to  VAT  under  current  legislation.  The  logic  underlying  the  ECJ's  decision  in  the 
Eugénie-les-Bains case seems to confirm this, albeit the facts of this case relate to a forfeited 
deposit rather than a payment for a voucher. 

The  possibility  of  a  relatively  high  level  of  unredeemed  vouchers  was  raised.  For  gift 
vouchers in particular, there is anecdotal evidence of significant non-redemption and some tax 
administrations expressed concern that this represented income outside the scope of VAT. For 
vouchers taxed on issue, it might seem logical that businesses would seek to recover this tax if 
the voucher remains unused but it is unclear to what extent this happens in practice. 

The Deloitte report gives some indication of the rate of unused vouchers, particularly in the 
gift voucher segment where the share of unused vouchers is considered highest (see page 33 
of  the  study).  The  percentage  of  unredeemed  vouchers  here  was  estimated  at  around  10%. 
Elsewhere  the  share  of  unredeemed  vouchers  was  found,  unsurprisingly,  to  vary  strongly 
depending  on  the  type  and  market  segment  (from  1%  to  around  20%).  It  has  to  be  said 
however that there are many reasons why a company will understate the extent to which its 
vouchers are unredeemed. 

Changing  the  tax  treatment  of  unredeemed  vouchers  would  require  a  modification  to  the 
supply of services provisions in the VAT Directive. Such change would presumably lead to 
additional tax revenue but there are at least two arguments against taking such a step. 

In some cases unredeemed vouchers may be so scarce as to be hardly worth recording but in 
others companies may be secretive to protect an untaxed stream of revenue. Apart from the 
issue  of  quantification,  a  more  practical  issue  would  be  determining  what  an  unredeemed 
voucher is. Many vouchers will have an expiry date and there would be logic in making use of 
that. Realistically however if the expiry date determines that an amount becomes taxable, this 
will merely encourage businesses to extend the life of a voucher indefinitely.  

Changing  the  rules  on  the  taxation  of  unredeemed  vouchers  might  therefore  have  little  real 
effect.  

2.9.2.  Premium call services and charity donations 

It  is  not  clear  that  there  is  a  relevant  VAT  problem  linking  vouchers  and  premium  call 
services per se. 

The income which charities receive in the form of donations is usually outside the scope of 
VAT. From time to time however charities or somebody acting on their behalf make use of 

EN 

25 

   EN 

 
premium SMS or call services to facilitate donations. This involves the donors making use of 
a telecommunications service to give money to a cause. Normally this involves a payment for 
the service, which is collected by the telecommunications service provider and passed on to 
the  charity,  possibly  after 
its  operational  costs.  The 
the  operator  has  deducted 
telecommunications  service  which  is  provided  to  the  donor  is  however  considered  to  be  a 
single service for VAT purposes and the entire sum paid will attract tax. The amount available 
to be passed on to the charity will be what is left after deducting this VAT (and possibly the 
operator's costs).  

Charities see this outcome as the collection of VAT on donations which would otherwise be 
exempt. It is not however practical, or perhaps even necessary, to address this issue here but 
rather it seems there might be scope for service providers and tax administration to cooperate 
on an administrative resolution of any problem. 

2.9.3.  Business gifts 

In the course of the consultation, mention was made of unevenness in the tax treatment of so-
called "business gifts". Article 16 of the VAT Directive sets down some rules for goods which 
are given away free of charge. Where these are used as samples or as "gifts of small value", 
they  need  not  be  treated  as  supplies  for  consideration  and  consequently  ignored  for  VAT 
purposes. The corresponding provisions on services differ slightly. It had been suggested that 
clarification  was  needed  here,  mainly  because  of  significant  differences  among  Member 
States in their understanding of "small value". There were also concerns about some residual 
differences between goods and services. 

Without denying that differences exist, it could only be concluded that the internal market or 
distortive impact was minimal, even non-existent. Accordingly, no action is envisaged here. 

2.10.  Baseline scenario and its evolution. 

The  baseline  scenario  for  this  Impact  Assessment,  in  so  far  as  pre-paid  telecommunications 
credits  are  concerned,  is  one  of  mismatches  in  taxation  which  give  rise  to  problems  in  tax 
collection  and  to  difficulties  in  maximising  Internal  Market  opportunities.  Shortcomings  in 
available  data  have  meant  that  this  baseline  is  sustained  by  a  combination  of  strong  and 
consistent  anecdotal  evidence  (in  Section  1.2)  as  well  as  an  analysis  of  the  actual  tax 
treatment in Member States (in Section 2.2). 

The situation for non-telecommunication vouchers is seen as experiencing a constant increase 
in  the  volume  of  vouchers  as  well  as  growing  diversity  in  their  form,  content  and 
application32.  All  of  the  stakeholders  consulted  have  expressed  concerns  about  the 
consequences of not addressing the VAT problems – the only exception being some operators 
whose vouchers are limited to the Member State within which they are sold, distributed and 
redeemed  and  where  local  solutions  have  been  found  to  tax  issues.  For  others  meanwhile, 
cross-border trade involving vouchers always causes problems33. 

Furthermore, in the absence of corrective action, tax neutrality will be increasingly difficult to 
ensure between different payment systems which deliver the same result in paying for goods 
and  services.  Significant  and  growing  problems  are  foreseen  by  business  as  long  as  the  tax 
system cannot ensure that the choice of payment instrument should not be determining factor 

32 
33 

Submission from Federation of Enterprises in Belgium. 
Submission from EuroCommerce. 

EN 

26 

   EN 

 
                                                 
and the same tax charge should apply to a supply whether a customer uses cash, a voucher or 
any other form of consideration34. 

The consequences for this baseline scenario, if no action is taken would see a continuation of 
existing problems for both business and tax administrations. The following consequences can 
be reasonable envisaged, based notably on experiences to date: 

-  There would be a continued need to seek recourse to the ECJ in the ongoing absence of 
clear common rules. This is not a path readily accessible to smaller businesses (because of 
the costs involved) and they will continue to suffer the consequences of uncertainty and 
inconsistency in tax rules. 

-  Decisions by national courts also playing a role in fixing national tax rules. The absence 
of rules at EU level increases the liklihood that these decisions will be uncordinated and 
increase, by increasing fragmentation, add to the complexity and inconsistency faced by 
businesses. 

-  Revenue losses attributable to mismatches or aggressive tax planning will persist. Double 
taxation would probably be limited in its actual impact and its effect felt in limitations on 
market opportunities. 

-  The  absence  of  a  level  playing  field  will  continue  to  hamper  the  development  of  pan-
European  business  models  in  areas  of  commerce  which  make  use  of  vouchers.  It  is 
difficult to quantify this because of the shortcomings in data on the existing situation but 
also  because  many  businesses  will  simply  refrain  from  certain  ventures  because  of  tax 
uncertainty and this is not always detectable. 

As  a  result  of  the  adoption  of  Council  Directive  2008/8/EC  of  12  February  2008  amending 
Directive 2006/112/EC (the VAT Directive) as regards the place of supply of services, with 
effect from 1 January 2010, new tax rules on the place of supply of services have come into 
effect.  Certain  of  these  changes  which  concern  services  such  as  restaurant  and  catering 
services,  the  hiring  of  means  of  transport,  cultural,  sporting,  scientific  and  educational 
services are likely over time to exacerbate the uncertainty caused by the lack of common rules 
for transactions using vouchers. 

For  telecommunications,  broadcasting  and  electronic  services,  the  introduction  of  the  new 
rules on the place of business to consumer supplies will however be delayed until 1 January 
2015. The purpose of these changes is to ensure that to the maximum extent possible, the tax 
on the consumption of services accrues to the Member State where they are consumed. This is 
a  crucial  reform  where  these  are  services  which  can  be  supplied  remotely  such  as 
telecommunications. There are now real fears that, unless the VAT rules here are reformed, 
vouchers issued in one Member State and used by consumers in another can be employed to 
frustrate  the  intention  of  legislators  by  facilitating  tax  arbitraging.  The  existing  pattern  of 
mismatches in the time of taxation35 lends itself to such a probability. 

From  the  foregoing,  it  is  difficult  to  envisage  a  positive  evolution  of  the  current  baseline 
scenario  in  the  absence  of  intervention.  The  conclusion  has  to  be  that  this  is  not  a  problem 
which can be resolved through benign neglect. 

34 
35 

Submission from European Telecommunications Network Operators.  
See table in section 2.2. 

EN 

27 

   EN 

 
                                                 
2.11. 

Subsidiarity 

Action  by  Member  States  alone  could  not  achieve  the  objective  of  uniform  application  of 
VAT due to the possibility of different interpretations of rules. The current legislation is not 
clear  and  its  heterogeneous  application  by  Member  States  is  the  main  reasons  for  the 
problems  being  encountered.  Clarifying  the  VAT  treatment  of  taxable  goods  and  services 
supplied against vouchers requires an amendment of the Directive. 

The relevant VAT rules are set out in the VAT Directive. These rules can only be amended 
via  the  Community's  legislative  process.  The  proposed  changes  of  the  VAT  Directive  are 
needed in order to re-establish neutrality and this falls under the exclusive competence of the 
Community. 

The proposal aims at a harmonised interpretation and application of the VAT rules through a 
common definition of vouchers. This will require that Member States apply the same rule and 
so avoid distortion in taxation, eliminating double or non-taxation.  

The reasons set out above are clear and the scope of the proposal is limited to what Member 
States  cannot  satisfactorily  achieve  themselves  and  can  only  be  achieved  with  Community 
legislation. 

3. 

OBJECTIVES 

The  Commission's  starting  point  was  set  out  in  the  consultation  paper  of  March  2006.  The 
general objective for any initiative here is to remove uncertainty from the tax system, protect 
public revenue and deliver neutrality in competition on the basis of a consistent application of 
the taxing rules. The consultation paper foresaw that possible measures should be assessed in 
the context of three deliverable and specific objectives: 

-  Dealing with mismatches in place and/or time of taxation 

To rectify the problems caused by the absence of clear rule (as explained above), a clear and 
consistent tax treatment for the main types of vouchers needs to be set out in a manner which 
removes  the  risk  of  mismatches  between  Member  States.  It  is  likely  that  this  objective  can 
only be fully achieved if the VAT Directive is modernised.  

-  Dealing with the consequences of certain ECJ decisions 

The  specific  objective  here  is  to  ensure  that  the  decisions  of  the  Court  are  consistently 
applied.  If  implementing  these  decisions  creates  uncertainty  or  technical  difficulties  (e.g., 
applying  the  Elida  Gibbs  principles  to  chain  transaction),  legislative  clarification  may  be 
needed.  

-  Setting clear lines between vouchers and innovative payment systems 

Technical  and  regulatory  changes  have  led  to  a  degree  of  convergence  in  the  provision  of 
payment services where innovative products now compete with more traditional systems. The 
tax  rules  should  take  account  of  the  need  for  tax  neutrality  between  different  categories  of 
service providers who deliver competing services. 

EN 

28 

   EN 

 
4. 

POLICY OPTIONS 

Three  possible  paths  arise.  One  might  be  for  the  Commission  to  do  nothing,  leaving  it  to 
Member States to find ad hoc solutions or to seek guidance from the ECJ. A second option 
would be to achieve the objectives by revisiting the legislation. A third is to consider whether 
the same result could be achieved by other means, for instance issuing guidelines. 

A further theoretical option might be to resolve the tax difficulties by simply banning the use 
of vouchers in any circumstances where tax might be at risk. This would indeed end concerns 
about  non-taxation  or  double  taxation  and  would  remove  uncertainty  for  business.  It  would 
however be totally disproportionate and cannot be given serious consideration. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 
administrations). 

Private sector stakeholders (business and 
consumers). 

Member States have repeatedly identified this 
as an issue where the Commission must take 
remedial action. 

Discussions with stakeholders and their 
advisors have consistently pointed to the need 
for the Commission to deal with the VAT 
problems being encountered with transactions 
involving vouchers. 

(Addressing) the (VAT) treatment of vouchers 
is long overdue and the current fragmented 
interpretation results in both nil and double 
taxation …(and) hampers the development of 
business in the Single Market36. 

Problems arise frequently with cross-border 
treatment of vouchers – we agree with the 
objectives set out in the (Commission's) 
consultation paper37. 

We welcome the Commission's review and the 
prospect of harmonised VAT accounting on 
vouchers across the EU.38 

4.1. 

Doing nothing. 

The  work  undertaken  indicates  that  difficulties  in  this  area  will  continue  unless  corrective 
action  is  taken.  These  difficulties  originate  from  gaps  in  the  VAT  Directive  which  lead 
Member States towards individual uncoordinated approaches. Doing nothing is not a realistic 
option,  particularly  as  both  national  tax  administrations  and  private  sector  stakeholders  are 
unanimous in seeking an end to the current uncertainty. 

36 
37 
38 

Submission from Business Europe. 
Submission from Chartered Institute of Taxation. 
Submission from Voucher Association (UK) 

EN 

29 

   EN 

 
 
                                                 
Left unresolved, current difficulties will only grow. For telecommunications vouchers, there 
is  at  least  anecdotal  evidence  of  increasing  systematic  attempts  to  exploit  mismatches  in 
taxation  and  even  organised  VAT  fraud  targeting  the  gaps  in  coverage  which  vouchers 
cause39. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 
administrations). 

Private sector stakeholders (business and 
consumers). 

Doing  nothing  is  not  an  option  for  Member 
States tax administrations. 

The majority of the comments received raised 
the unsatisfactory nature of the current 
situation and emphasised the need for action 
in this area. 

Not a single respondent in the public 
consultation or elsewhere advocated doing 
nothing. 

The lack of consistent VAT treatment, 
reporting rules and documentation 
requirement for transactions creates 
significant uncertainties and compliance 
challenges for business. Resolving these 
issues should be a priority for the 
Commission.40 

Le monde des entreprises se réjouit de 
l'attention prêtée par la Commission 
européenne à la problematique des bons41 

4.2. 

Soft law approach 

VAT  is  an  important  source  of  revenue  for  Member  States  who  are  therefore  extremely 
cautious about any possible limitation of their powers in this respect. 

The Council only adopts provisions for the harmonisation of legislation concerning VAT to 
the extent that such harmonisation is necessary to ensure the establishment and functioning of 
the  internal  market  and  to  avoid  distortion  of  competition.  While  the  Treaty  prescribes  no 
particular  legal  instrument,  VAT  has  mainly  been  regulated  by  means  of  directives.  No 
powers  have  been  delegated  to  the  Commission42,  so  all  substantive  changes  need  to  go 

39 

40 
41 
42 

See  "The  Italian  Job  --  Voice  Over  Internet  Protocol  MTIC  Fraud  in  Italy"  by  Professor  Richard 
T Ainsworth published in Taxanalysts 1 June 2010. 
Tax Executives Institute, Inc. 
FEB-VBO Federation of Enterprises in Belgium. 
Under  Article 290 TFEU,  a  legislative  act  may  delegate  to  the  Commission  the powers  to  adopt  non-
legislative  acts  of  general  application  to  supplement  or  amend  certain  elements  of  the  legislative  act. 
The exercise of these powers is dealt with in a Communication from the Commission to the European 
Parliament  and  the  Council:  Implementation  of  Article 290  of  the  Treaty  on  the  Functioning  of  the 
European Union (COM(2009) 673). 

EN 

30 

   EN 

 
 
                                                 
through the established legislative procedure, involving unanimous adoption by the Council. 
Under  Article  398  of  the  VAT  Directive,  the  Council  has  explicitly  reserved  for  itself  the 
power to adopt implementing measures (Implementing Regulations). 

The  use  of  so-called  soft  law,  which  has  no  binding  force,  can  be  advantageous  in  some 
instance. However its effectiveness depends on the type of regulatory environment in which it 
functions. With few exceptions, VAT has not developed as a fertile ground for so-called soft 
law  measures.  Reflecting  this,  in  the  more  than  40  years  which  have  passed  since  the  first 
steps  were  taken  to  the  creation  of  a  common  VAT  system,  the  Commission  has  only  once 
issued a Communication to the Council and Parliament on a VAT issue43. 

Guidelines on the application of the VAT provisions adopted by the Council have also been 
issued  by  the  VAT  Committee,  a  consultative  body  made  up  of  representatives  of  Member 
States  with  no  legislative  powers,  from  time  to  time  (on  the  basis  of  consensus).  Such 
guidelines  however  do  not  represent  an  official  interpretation  of  the  law.  As  they  are  not 
binding  on  Member  States,  the  guidelines  do  not  prevent  differences  in  practice  from 
persisting. 

In  a  very  limited  number  of  instances,  these  guidelines  have  evolved  into  more  formal 
instruments through being transposed into Council Regulations (at which stage of course they 
cease  to  be  soft  law).  The  agreement  reached  on  guidelines  may  pave  the  way  for  a 
subsequent  agreement  in  the  Council  but  it  does  not,  as  such,  solve  the  underlying 
inconsistencies  in  the  VAT  system  which  hamper  the  smooth  functioning  of  the  Internal 
Market. 

Soft law instruments are of value where there is no question about the underlying soundness 
of the legislative provisions  being addressed or interpreted, the purpose of such instruments 
being merely to achieve order or a more consistent understanding. 

If  however  pragmatic  or  other  reasons  were  to  point  to  a  solution  based  on  soft  law,  the 
desired  outcome  could  possibly  be  achieved  though  either  a  Communication  or  VAT 
Committee  guideline.  A  Council  Regulation  could  then  be  considered  if  the  underlying 
primary legislation is sound but this is far from the case here.. Otherwise, a soft law approach 
could conceivably address some of the detailed remedial measures list in the next section but, 
for brevity, these are not repeated here. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 
administrations). 

Private sector stakeholders (business and 
consumers). 

Guidelines (or soft law) in the views of 
Member States would only be feasable if 
primary law provides a clear base from which 
guidance could be drawn. This is not the case 
here. 

The need for legal certainty was a priority for 
many respondants. 

A key element to avoid imposing onerous 
administrative obligations on business is to 
ensure (though EU law) the adoption of 
uniform definitions, consistent 

43 

Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  VAT 
Grouping option provided for in Article 11 of Council Directive 2006/212/EC on the common system of 
value added tax. COM 2009(325) of 2 July 2009. 

EN 

31 

   EN 

 
                                                 
interpretations, consistent administrative 
practices and consistentent compliance 
requirements by all Member States.44 

For some businesses such as 
telecommunications the present 
arrangements for vouchers will make the 
proposed Place of Supply of Services 
Directive45 unworkable in practice. The VAT 
Directive needs to be updated accordingly 46. 

4.3. 

Legislative measures 

The VAT treatment of vouchers involves issues which touch on in several articles of the VAT 
Directive.  The  objectives  listed  above  could  be  met  by  amending  them  and  introducing 
additional provisions as appropriate. 

It  is  a  fundamental  tenet  of  the  VAT  Directive  (itself  the  outcome  of  a  recast  of  Council 
Directive  77/388/EEC  of  17  May  1977,  the  Sixth  VAT  Directive)  that  a  greater  degree  of 
harmonisation would serve to enhance the neutrality of the tax in both domestic and intra-EU 
trade47. 

In interpreting EU VAT legislation, the ECJ has drawn heavily on the teleological method of 
interpretation whereby it relies on the design and purpose of the provisions of the Directive. 
Individual  provisions  of  the  VAT  Directive  form  part  of  a  complex  system  of  taxation  and 
their function is usually best understood when they are read together with other provisions48. 

These  two  long  established  factors,  the  need  for  a  harmonised  approach  and  that  the 
provisions of the Directive need to be read together, mean that when it is necessary to modify 
the Directive any changes must be presented in a manner which conforms to the established 
ordained methodology of the Directive. The reality therefore is that once the desired outcome 
is clear, there will seldom if ever be significantly different ways of modifying the Directive 
and any proposal will have to respect a settled order. 

The various  elements listed  here are not to be seen as sub-options  but rather  form part of a 
coherent  overall  approach  to  modifying  the  VAT  Directive  in  a  manner  which  is  coherent 
with the overall structure and philosophy of the Directive. 

4.3.1. 

Introducing clear definitions 

There is no definition of a voucher in the VAT Directive. Article 65 provides that "where a 
payment  is  to  be  made  on  account  before  the  goods  or  services  are  supplied,  VAT  shall 

44 
45 

46 
47 
48 

Tax Executives Institute, Inc. 
The reference is to Council Directive 2008/8/EC of 12 February 2008, the relevant provisions of which 
come  into  effect  on  1  January  2015  and  effect  the  VAT  treatment  of  a  range  of  services  including 
telecommunications. 
TelefonicaO2. 
See in particular the 4th, 5th and 7th recitals in the preamble.  
See  judgement  of  20th October  1993,  Balocchi  v  Ministero  della  Finanze  dello  Stato, [1993]  ECR  I-
5105. 

EN 

32 

   EN 

 
 
                                                                                                                                                         
become chargeable on receipt of the payment and on the amount received. On the other hand 
(in BUPA) the Court has said where the goods or services cannot be known in advance, the 
payment  cannot  be  subject  to  VAT.  This  should  be  made  clearer  in  the  Directive  if  the 
legislative path is chosen. 

In addition, at least the following would be required. 

A  general  definition  of  a  voucher  for  VAT  purposes  would  cover  vouchers  which  carry  a 
right to receive certain goods or services, or to obtain a discount when acquiring those goods 
or  services,  or  to  receive  a  refund,  at  the  time  of  redemption.  That  right  can  be  a  value 
expressed in terms of monetary value or of a percentage (of reduction) or of units or quantity. 

The  issuer  of  the  voucher  accepts  a  corresponding  obligation  but  this  obligation  may  also 
extend to other commercial operators who participate in the arrangements. Within the general 
category of voucher, some specific types of voucher will need to be explained. 

A  single  purpose  voucher  (SPV)  is  one  where  the  goods  or  services  involved  can  be 
identified  at  the  time  of  issue  or  supply  of  the  voucher  to  a  sufficient  extent  that  the  tax 
consequences  of  their  supply  are  clear.  A  voucher  ceases  to  be  a  SPV  when  the  applicable 
VAT rates for the redeemable goods or services varies, or cannot be known in advance. SPVs 
would be taxed at the time when they are issued. 

If  a  voucher  can  be  used  to  acquire  a  specific  identifiable  good  (for  example  a  book  token 
usually leads to the acquisition of a book) within a single Member State, the tax consequences 
(rate and destination) would be clear from the outset. If however if however the voucher can 
be redeemed against books or DVDs (which generally attract a different tax rate) or it can be 
redeemed in branches in other Member States (where not only the tax rate might be different 
but the tax would also accrue to a different tax authority) then this certainty disappears and it 
would not be possible to compute the tax correctly at the time of issue. The voucher is then a 
multi-purpose voucher (MPV). This should be relatively straightforward to define if it were 
to cover any voucher that would not fall under any other category.  

A  free  voucher  is  one  that  is  issued  without  any  charge,  normally  with  the  intention  of 
promoting a product or a service. Examples of free vouchers are those that can be found in 
newspapers  or  simply  given  away  by  businesses  to  their  customers.  Following  the  views  of 
the  Court  in  Kuwait  Petroleum  the  relevant  test  to  determine  whether  the  voucher  discount 
has been supplied free of charge should be whether or not the customer has the right to pay 
less if he does not want to take the offered voucher. 

A  discount  voucher  can  probably  be  seen  as  a  subcategory  of  free  vouchers.  The  discount 
can be expressed either as a percentage or as a fixed amount. It represents a right to a discount 
either directly from the issuer or from the redeemer of the voucher. It does not carry a money 
value  in  that  it  cannot  generally  be  redeemed  for  money  in  the  absence  of  any  purchase.  A 
line  will  need  to  be  drawn  between  a  discount  voucher  leading  to  a  price  reduction  on  a 
product or a service and vouchers that are sold at a discount and this merely reflects the way 
intermediaries earn their margin. 

In concrete terms, this would require the insertion of a new article in the VAT Directive. The 
established  logic  of  the  Directive  would  indicate  that  it  should  be  situated  within  Title  IV 
(Taxable Transactions) Chapter 3 (Supply of Services). This should set out a legal definition 
of  a  voucher  for  VAT  purposes,  taking  due  account  of  the  essential  characteristics  which 

EN 

33 

   EN 

 
ditinguish  vouchers  from  other  instruments,  notably  monetary  payments  in  money  or  close 
equivalents, used to acquire goods or services. 

The  definitions  in  this  new  article  should  extend  to  the  categories  identified  above.  In 
addition, in order to delimit clearly the scope of vouchers, it should make that any instrument 
or  transaction  which  can  be  considered  as  a  payment  service  (notably  payments,  transfers, 
cheques  and  other  negotiable  instruments)  under  other  provisions  of  the  Directive  is  not  a 
voucher for VAT purposes. 

In addition, it would be necessary to include a further clarification in Chapter 3 to ensure that 
the operations linked to a voucher are not taxed twice.This risk arises since, in the case of an 
MPV, a right exits up to the point of redemption but this right is linked to the supply of goods 
or services. The assignment of that right, and the supply of goods or services at the time of 
redemption should be regarded as a single transaction. 

Stakeholder view – how addressed. 

Public sector stakeholders (tax 
administrations). 

Private sector stakeholders (business and 
consumers). 

A majority of the views received by the 
Commission from stakeholders were 
supportive of the need to clarify the legal 
nature of vouchers for tax purposes in the 
VAT Directive including defining the main 
categories of vouchers. Some respondants 
even suggested specific forms of wording for 
inclusion in the Directive as definitions49. 

We agree on the desirability of a broad 
definition of vouchers (in the VAT 
Directive)50 

Sony supports the introduction of harmonised 
legislation based on the MPV guidelines 
addressed in the consultation51. 

4.3.2.  Distribution of vouchers through a chain and the distributor's margin 

It would be necessary to amend Article 25 so as to confirm that the activity of distributing a 
voucher in the name and on behalf of a third party against a fee for that distribution is to be 
treated as a service. This usually happens in a distribution chain involving agents. 

Further provisions would be needed to deal with the consequences of a voucher's distribution 
reflecting  the  fact  that  in  a  distribution  chain,  the  price  usually  paid  to  obtain  a  voucher 
increases at each stage by an amount which is the margin made by each distributor. If VAT is 

49 
50 
51 

e.g., European Telecommunications Operators Association and European Banking Federation. 
Royal Dutch Telecom KPN. 
Sony. 

EN 

34 

   EN 

 
 
 
                                                 
applied to the sale price, the margin made by distributor is taxed. However, if it is also being 
proposed that the sale of an MPV does not trigger VAT (because here the tax is chargeable 
only at the time of redemption) there is a risk that the margin of the distributors would not be 
taxed. To avoid this, it is would be necessary to provide that any positive difference between 
the  nominal  value  of  the  voucher  and  the  amount  paid  by  the  seller/distributor  to  the 
preceding seller/distributor is payment for a service and taxed as such. 

Taxing the margin made by distributors separately avoids interfering with the nominal value 
of the voucher which will be the taxable amount, at the time of redemption, for the goods or 
services to be supplied. Usually the price at which the issuer sells the voucher at the beginning 
of  the  chain  differs  from  the  price  paid  by  the  customer  at  the  end  of  the  chain  because 
distributors  add  their  margin  to  the  price  of  the  voucher.  Separate  taxation,  as  a  distinct 
service, of these distributors’ margins avoids any mismatch between the value of the voucher 
at the beginning and the end of a chain. The distribution of a voucher, made by a commission 
agent or by the owner of a voucher, would be regarded as a service supplied for consideration 
(as expressed in the margin achieved) rather than being treated as a sale of the voucher. 

Member States have in some cases developed local practices which generally ensure that tax 
is  collected  without  any  undue  disruption  of  business.  For  cross-border  distribution  this 
cannot be said with the same certainty. In making a legislative proposal, there might be a case 
for  limiting  any  impact  to  such  cross-border  arrangements,  leaving  purely  domestic 
arrangements  to  the  discretion  of  Member  States.  The  drawback  here  is  that  businesses 
wishing to exploit single market opportunities may well then be faced with two different sets 
of  VAT  obligations  for  their  voucher  distribution  chains  –  one  for  domestic  operations  and 
another  for  intra-Community.  This  would  not  be  a  desirable  outcome.  Any  legislative 
proposal  from  the  Commission  should  therefore  cover  the  VAT  treatment  of  all  voucher 
distribution chains. 

In  concrete  terms,  this  would  involve  additional  indents  to  Article  25  (which  clarifies  what 
can be considered as a supply of services for VAT purposes) would have have the purpose of 
clarifying  that  when  the  price  paid  for  a  voucher  increases  at  each  stage  in  a  distribution 
chain, the benefit this represents to distributor is to be considered as a supply of services for 
VAT  purposes.  This  new  provision  would  ensure  the  margin  for  distributionis  seperately 
taxed as an independent service. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 
administrations). 

Private sector stakeholders (business and 
consumers). 

In the absence of any provisions in the VAT 
Directive, Member States have been left to 
their own devices and developed their own 
solutions. These give rise to frequent 
problems of compatability when they interact. 

Although they are probably reluctant to 
change what is already in place, there is a 
general acceptance common provisions in the 
Directive are needed to deal with intra-EU 
arrangements. 

Beyond drawing attention to the difficulties 
they encounter in this area (notably with 
intra-EU arrangements), few of the 
stakeholders have made specific suggestions 
on how this should be addressed in 
legislation. Among those who did go into 
detail, the changes being contemplated here 
are close to those suggested by the 
stakeholders. 

Dealing with (problems) in relation to the 

EN 

35 

   EN 

 
supply of vouchers through interlediaries 
(has) resulted in the introduction of complex 
anti-avoidance legislation in 2003 (in the 
UK). We suggest that where face-value 
vouchers are sold by the issuer to an 
intermediary at less than face value, the 
adjustment to the consideration on 
redemption should be disapplied by the new 
EU legislation so that VAT is chargeable on 
the full value at the time of redemption52. 

4.3.3.  Taxable amount for transactions involving vouchers 

The rules for the computation of taxable amount in transactions for VAT purposes are set out 
in Articles 72 to 92 of the VAT Directive. They do not however adequately deal with some of 
the  complexities  which  arise  from  vouchers,  particularly  where  complex  distribution  chains 
are involved and part of the consideration may be generated from a party who is remote to the 
actual  transaction.  The  taxable  amount  is  not  a  subjective  concept  but  rather  one  where 
certainty is paramount and any potential for misunderstanding should be eliminated. 

The taxable amount, in the case of vouchers, needs to be defined as anything received or to be 
received  (in  money  or  in  kind)  against  a  voucher  by  the  issuer  of  the  voucher  in  order  to 
ensure that the normal rules for the computation of the taxable amount can be applied. 

This clarification is needed to take account of the value of the distribution service supplied by 
the distributor of a voucher in a chain involving commission agents. It should be defined with 
sufficient clarity to obviate the practice of netting off which makes it difficult to identify the 
value of the service supplied at each stage in a chain. 

It  should  also  resolve  any  residual  uncertainties  in  the  correct  application  of  the  guidance 
provided by the Court in the Elida Gibbs case. 

The  objective  for  any  legislative  change  is  merely  to  ensure  that  that  standard  rules  for  the 
taxable amount can be applied consistently in all cases. 

A further amendments to Article 25 would also be envisaged to ensure that in the case of a 
free discount voucher, the correct taxable amount is applied when the voucher is redeemed in 
a Member State other than the one in which it has been issued. 

In  addition,  the  existing  provisions  in  Title  VII  (Taxable  Amount)  Chapter  2  (Supply  of 
Goods or Services) would need the insertion of specific provisions on the computation of the 
taxable  amount  for  the  underlying  transaction  or  transactions  as  well  as  the  taxable  amount 
relating to distribution and redemption services. A modfication will also be needed (in Article 
79) regarding the correct treatment of discounts in operations involving vouchers. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 

Private sector stakeholders (business and 

52 

Submission from Tax Faculty of the Institute of Chartered Accountants. 

EN 

36 

   EN 

 
 
                                                 
administrations). 

consumers). 

The  changes  under  consideration  here  are 
broadly  in  line  with  the  views  expressed  by 
tax administrations. 

The  specific  technical  issues  here  were  not 
taken  up  by  many  stakeholders  but,  in  the 
context  of  the  general  desire  for  order  and 
legal  certainty,  the  issue  of  removing  any 
uncertainty  about  the  taxable  amount  cannot 
be overlooked. 

Where  a  taxable  supply  is  made,  the  taxable 
amount should be based on the consideration 
paid  by 
final  consumer  where  no 
the 
intermediary is involved53 

We agree the definition of the taxable amount 
of goods or services supplied against a 
voucher in the Consultation Paper. We also 
agree the comment in the same paragraph 
that the sale of an MPV should be considered 
as outside the scope of VAT and that it is not 
necessary to identify th etaxable amount of 
the voucher itself54. 

We agree with the principles applied to 
thetaxable amount as set out in the 
Consultation Paper55 

4.3.4.  Time of taxation 

An SPV is to be seen as a voucher giving a right to receive only a specific good or service 
with the customer paying in advance for what will be receive later. 

The point in time when the tax becomes chargeable is currently regulated by Articles 62 to 67 
of the VAT Directive. Article 65 provides that the tax becomes chargeable “on receipt of the 
payment and on the amount received” where a payment is to be made “on account before the 
goods  or  services  are  supplied”.  The  last  phrase  refers  to  goods  and  services  to  be  received 
when the quantity is not already known. To apply this provision to the vouchers it is necessary 
that the voucher is linked to a “quantity” or a “quantity unit” of a good or a service already 
identified. 

Therefore  the  application  here  of  the  above-mentioned  rule  should  not  cause  any  particular 
problem and VAT can be charged at the time of sale on the basis of the consideration paid. 
Such a treatment should be applicable to all SPVs. 

The VAT rate applicable to prepaid vouchers should be the same rate applicable to the good 
or service to be supplied on redemption of the voucher.  

53 
54 
55 

Submission from European Telecommunications Operators Association. 
Submission from Voucher Association. 
Submission from British Retail Consortium Brussels. 

EN 

37 

   EN 

 
 
                                                 
If a voucher can be used in more than one Member State, VAT would have to be accounted 
for  in  a  manner  which  deals  correctly  with  differences  in  VAT  rates.  This  can  only  be 
achieved  at  the  time  of  redemption.  Time  of  taxation  lies  at  the  heart  of  any  distinction 
between an SPV and an MPV. The distinction lies in whether there is sufficient certainty to 
charge tax at the time of issue or whether it is necessary to wait until the goods or services are 
supplied. 

Since the time of taxation in a transaction involving a voucher can at the moment be either at 
the  time  the  voucher  is  issued  or  at  the  time  of  redemption  (when  goods  or  services  are 
supplied), there might appear to be a choice to be made in opting for one or the other as the 
norm. This might seem to be confirmed by the evidence on mismatches in taxation which are 
attributable to timing differences between Member States. 

It is not however a question here of presenting arguments in favour of one or another of these 
choices  (there  are  only  two  possible  choices  for  the  time  of  taxation  here  –  issue  or 
redemption).  Rather  it  is  the  case  that  certain  types  of  vouchers  lend  themselves  to  one  of 
these  choices  whilst  others  are  more  appropriately  (and  practically)  taxed  at  the  other.  The 
Directive however contains no guidance on this and as a result there is inconsistency between 
Member  States  with  the  consequences  for  tax  revenue  and  market  opportunities  outlined 
above. 

The path chosen here is to clarify in legislation which vouchers should be taxed on issue and 
which  should  be  taxed  on  redemption  in  a  manner  that  achieves  consistency  across  all 
Member States and ensures that similar transactions are taxed in a similar manner. 

It  might  be  theoretically  conceivable  to  contemplate  alternative  solutions  whereby  all 
vouchers are taxed on issues or all vouchers are taxed on redemption. Both however would 
lead  to  considerable  practical  difficulties.  The  former  would  be  impossible  to  administer  in 
practice  as  the  tax  consequences  are  not  always  clear  at  the  time  of  issue.  Taxing  vouchers 
generally on redemption could be contemplated but it would be a highly disruptive step. The 
market for single purpose vouchers, taxed at the time of issue, is a considerable one and the 
tax  obligations  are  relatively  easily  handled  by  both  businesses  and  tax  administrations. 
Introducing what would amount to a tax deferral obligation (by taxing on redemption rather 
than issue) would be extremely disruptive for established business models and would be seen 
as  a  highly  disproportionate  measure  carrying  little  tangible  benefit  ("harmonisation  for  the 
sake  of  harmonisation")  by  all  stakeholders.  Furthermore,  it  would  probably  encourage  the 
artificial introduction for purely tax deferral reasons in situations where a simple payment on 
account is made before goods or services are supplied. Under the current VAT system, such 
payments are taxed upfront but the use of a voucher would, if these were to be generally taxed 
on  redemption,  mean  that  VAT  would  be  levied  only  when  the  transaction  is  completed. 
Hence, these options are not considered to be realistic. 

The  concrete  measures  measures  needed  in  the  VAT  Directive  to  give  effect  to  this  would 
involve  a  modification  to  Article  65  making  specific  reference  to  SPVs  and,  conversely,  a 
modification to Article 66 to ensure that its provisions exclude SPVs. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 
administrations). 

Private sector stakeholders (business and 
consumers). 

EN 

38 

   EN 

 
The  changes  under  consideration  here  are 
broadly  in  line  with  the  views  expressed  by 
tax administrations. 

This was generally seen by stakeholders as a 
fundamental 
to  be  overcome  by 
addressing the relevant provisions in the VAT 
Directive. 

issue 

In our view, the time of supply for an MPV is 
determined by the normal (existing) rules but 
this needs to be clarified in the legislation. 
The sale of an MPV constitutes a supply of 
services for VAT purposes and the timeof 
supply should be determined by the VAT 
Directive in Article 65. This however should 
not be confused with the time of supply of the 
underlying goods or services and payment for 
an MPV cannot be regarded as a payment on 
account for these goods or services56. 

4.3.5.  Right of deduction questions 

It would be necessary to make certain consequential adjustments to the rules on the right of 
deduction. 

Where  the  issuer  of  an  MPV  redeems  the  voucher  against  taxed  transactions,  Article 168 
provides  that  he  can  deduct  the  VAT  due  or  paid  in  relation  to  the  issue  of  that  voucher. 
Where the MPV is redeemed, in the course of transactions which give rise to deduction, by 
someone other than the issuer, the latter should also have an equal right to deduct VAT. 

An appropriate modification to Article 169 would be needed to achieve this result. 

The  issue  did  not  arise  in  consultations  with  private  sector  stakeholders  but  is  required  for 
completeness. 

4.3.6. 

Issuing of invoices and simplification issues 

Certain minor consequential changes in the wording of Articles 220 and 226 would be needed 
to reflect changes made elsewhere in the VAT Directive. 

Some  other  changes  in  the  VAT  Directive  would  be  needed  to  avoid  the  creation  of 
disproportionate  administrative  burdens  for  business  as  an  incidental  outcome  of  the  wider 
rationalisation  of  the  VAT  treatment  of  vouchers,  notably  to  limit  the  impact  of  Article  28 
which was never intended nor is appropriate to operations involving MPVs. 

In the course of discussions with stakeholders, many business respondants stressed the need 
for a suitable time lag inimplementation to take account of the reality that IT system changes 
are costly and have to be planned, usually requiring at least 12 months' notice. One realistic 
way of responding to these concerns would be to schedule the proposed changes in the rules 

56 

Submission from Voucher Association. 

EN 

39 

   EN 

 
 
                                                 
for  vouchers  to  come  into  effect  on  1  January  2015,  coinciding  with  the  recently  adopted 
changes in the rules on the palce of supply for certain telecommunication and other services. 

Stakeholder views – how addressed. 

Public sector stakeholders (tax 
adminitrations). 

Private sector stakeholders (business and 
consumers). 

No  specific  views  were  advanced  by  tax 
administrations  under  this  heading  but  they 
are  likely  to  have  a  constructive  approach  to 
simplification  and  would  have 
similar 
concerns about lead-in. 

Simplification and sufficient preparation time 
were  a  constant  request  from  the  businesses 
concerned. 

Operators  should  be  allowed  sufficient  time 
to  change  the  accounting  and  other  systems 
should  the  Commission  deem  thatsignificant 
changes to the  current rules be  required …a 
lead-in time of one year would be prudent57. 

The  Commission's  willingness  to  introduce 
simple  rules  for  a  complex  world  is  much 
appreciated58 

5. 

ANALYSIS OF IMPACT 

5.1.  Main  impacts  of  proposal  to  reform  the  treatment  of  vouchers  in  the  VAT 

system. 

The following tables provide an overview of the expected economic impact on main market 
players and on the market structure. The descriptions are mainly in qualitative form, given the 
lack  of  quantification  of  the  tax  avoidance  problem.  The  analysis  is  however  based  on 
standard economic reasoning and on knowledge of the sector built up during the investigatory 
work.  

The  expected  business  impact  will  be  as  highlighted  in  the  table.  Business  location  will  be 
more  closely  linked  to  economic  and  competitive  factors  rather  than  tax  arbitraging.  A 
reduction in the degree of fragmentation in the Internal Market is to be expected, bring with it 
benefits  of  greater  market  efficiency,  choice  for  consumers  and  better  economies  of  scale. 
Some  small  and  marginal  operators,  whose  business  model  is  entirely  predicated  on  tax 
arbitraging, may need to adapt if they are to survive in this environment. 

No  marked  social  impacts  are  really  expected.  Those  businesses  which  might  be  adversely 
affected are small, few in number and are not significant employers. Conversely however, the 
improved  market  environment  should  yield  price  reductions,  notably  for  international 
telecommunications benefiting consumers who use pre-paid services. 

57 
58 

Submission from European Telecommunications Operators Association. 
Submission from Hewlett Packard. 

EN 

40 

   EN 

 
 
                                                 
5.1.1.  Table A - Impacts on the main market players (prepaid mobile telecommunicationss). 

Player 
type 

Situation 
before 
reform 

Pan-EU 
and  other 
internatio
nal  major 
telecoms 
operator 

Faces significant 
irrecoverable VAT 
costs in some 
countries because 
of double taxation 
→ impact on 
margins on markets 
which it cannot 
abandon 

Comments/Explanation

Situation 
after 
reform 
(impact). 

Resolution of 
double taxation 
problem 

See  page  6  of  working  paper  for 
examples  of  problems  currently 
being encountered. 

Reduced 
compliance costs 

Reduced  distortion 
of pricing structure 

Cross-subsidisation 
of lines of business 

Enjoys level playing 
field 

Faces 
tax 
uncertainty 

risks, 

Faces competition 
from operators 
enjoying more 
favourable VAT 
treatment 

Faces risk of 
competition from 
unscrupulous 
operators 

Some operators 
more touched than 
others (e.g. pure 
B2B wholesalers 
may be only 
marginally affected) 

Mainly 
domestic 
telecoms 
operator 

from 

tax 

(but 
of 
to 

Discouraged 
seeking 
international 
integration  by 
uncertainty, 
complexity 
rationalisation 
industry 
encourage 
partnership 
arrangements). 

tends 

Certainty of tax 
treatment will make 
them more likely to 
move into new 
markets or new 
market segments 
for pre-paid mobile 
services 

Many traditional national 
operators are gradually 
disappearing though a 
process of rationalisation 
in the industry. 

Mobile 

Branded sellers in 

Removal of tax 

Often have limited infrastructure 

EN 

41 

   EN 

 
 
 
 
 
obstacles will allow 
for better 
exploitation of 
single market 
opportunities.  

and will not have own-licence 
frequency allocation but can 
nevertheless attain significant 
size, using platform of major 
operators. 

May often operate as branded 
sellers using established brands 
(e.g. a large supermarket chain) 
with existing customer base. 

More opportunities 
to expand across 
single market 
without 
encountering tax 
difficulties. 

Consistent 
transparent prices 
across all Member 
States  

Can  be  set  up  with 
relatively 
little  capital, 
purchasing  capacity  on 
what is effectively a spot 
to 
market.  This 
more  choice  and  better 
prices for consumers. 

leads 

virtual 
network 
operators 
(MVNO) 

New 
entrant.  

particular will wish 
to maximise market 
penetration across 
MS where brand is 
established – 
mismatches in 
taxation will act as 
a barrier here. 

Marketing or 
functionality often 
restricted to a 
single Member 
State to avoid 
unmanageable tax 
consequences. 

Effectively shut out 
of parts of single 
market possibilities 
due to VAT 
obstacles 

Ethnic markets 
which attract new 
entrants and/or 
small operators are 
typically cross 
border – as such 
they are particularly 
vulnerable to 
taxation 
mismatches. These 
markets are price-
sensitive and the 
cost of supporting 
double taxation 
may be prohibitive 
for a new entrant. 

UK 

content 
(e.g. 
provider – see page 7 of 
WP) 

Content 
providers 

Lack of clarity on 
tax consequences 
extend to content 
downloads as well 
as mere 
connectivity. 

Heavily dependent 
on vouchers as 
target market may 
often not have 
credit cards. 

Tax mismatches 
create additional 
cost and hinder 

Restrictions on 
single market 
opportunities 
without 
encountering tax 
difficulties (or 
carrying double 
taxation) would be 
avoided. 

Consistent 
transparent prices 
across all Member 
States  

EN 

42 

   EN 

 
 
 
 
 
Tax 
arbitrager 

internal market 
possibilities. 

Buys and sells 
contracts based 
mainly on VAT 
differences 

Typically smaller or recent 
entrants who target mismatches in 
taxation on an opportunistic basis, 
buying capacity wherever they 
can. 

Unintended tax 
based cost 
advantage is 
removed. 

Successful 
modernisation 
of 
the  VAT  Directive 
would  see  an  end 
to this category. 

Voucher 
distributo
rs 

Face considerable 
tax uncertainty, 
particularly on intra-
EU operations. 

Intra-EU 
distribution 
arrangements are 
made easier when 
tax obstacles are 
removed. 

Branded re-sellers often have well 
developed intra-EU distribution 
networks associated with their 
primary business (e.g., 
supermarket retailers) which they 
would like to exploit fully. 

Complex tax 
compliance 
obligations are 
simplified. 

Saves regulatory 
and administrative 
costs as incentive 
for uncoordinated 
regulatory action 
removed. 

Ensures that tax 
revenue is 
collected and goes 
to the correct 
Member State. 

National 
tax 
administr
ations 

Must attempt to 
limit tax avoidance, 
arbitrage through 
un-coordinated 
action – this effects 
all operators and is 
not always 
successful. 

Transient operators 
who come and go, 
operating on an 
opportunistic basis, 
cause problems for 
tax administrations. 

Voucher sector 
produces revenue 
losses and is 
difficult to control in 
practice, 
particularly 
because of its 
fragmented nature 
at the lower level. 

The 18 MS taxing 
at issue or on sale 
exposed to losses 
on vouchers 
coming from MS 

EN 

43 

   EN 

 
 
 
 
 
 
 
 
taxing upon use 

Consumer  Owing to tax 
differences, 
location may 
impact on prices 
and choice of 
operator 

Will benefit from 
more competition, 
more choice and 
more attractive 
prices. 

Unclear tax rules leading 
to  double  taxation  which 
will  often 
the 
consumers  as  higher 
prices. 

fall  on 

Efficiency of 
markets and quality 
of choice may be 
hampered by 
distortive presence 
of operators 
targeting primarily 
tax savings. 

Double taxation will 
often fall on the 
customer in the 
form of higher 
prices. 

Tax system 
fragments the 
market and leads to 
higher prices. 

5.1.2.  Table B - Impacts on market / sector structure 

Variable 

Situation 
before 
reform 

Situation 
after  reform 
(impact) 

/ 
Comment 
Explanation 

Number 
operators 

of 

Highly varied across 
Internal Market, in 
some cases depending 
also on tax advantages 

Tax arbitragers (and 
possibly some other 
marginal operators) 
might go out of 
business following 
reduction of tax 
distortions, more level 
playing field. 

This will probably 
however be 
compensated by more 
attractive opportunities 
for new entrants who 
currently hesitate 
because of 
uncertainties in the tax 
system. 

Trend today is towards 
rationalisation in the 
industry. 

Infrastructure is 
provided by large 
international players 
who may or may not 
sell direct to public. 

They in turn support a 
large and diverse 
group of smaller 
operators who provide 
mobile phone services 
but do not necessarily 
possess the entire 
infrastructure required 
to provide it. 

EN 

44 

   EN 

 
 
 
Type 
operators 

of 

Differs widely 
depending, inter alia, 
also on tax advantages 
or tax compliance 
rules. 

Tax 
compliance 
costs 

High and uneven 

Possibly, greater 
homogeneity as loss of 
tax arbitrage 
possibilities creates 
some convergence 
towards a single, most 
efficient business 
model. 

Conversely, level 
playing field for tax 
may attract more intra-
EU operators or 
encourage nationally 
based operators to 
expand. 

Lower and more even 
across Internal Market 

Tax 
avoidance 
tax evasion 

/ 

Situation creates 
opportunities for tax 
avoidance 

Tax avoidance 
opportunities reduced 
or even eliminated. 

Sale prices 

Depending on price 
elasticities, some of the 
tax differences might 
be passed over to 
consumers, resulting in 
price differentiation 
across internal Market. 

Fragmentation of 
Internal Market 
prevents companies 
fully to exploit 
economies of scale. 

Degree 
competition 

of 

Not strictly based on 
efficiency / biased 

Geographical 
distribution 
of 
businesses 

Business attracted to 
establishing in MS 
taxing upon use to 
exploit tax differences 
by targeting consumers 
in MS where tax is on 
sale of voucher 

Removal of tax 
distortions expected to 
lead to greater price 
convergence across 
the internal market, 
particularly for price-
sensitive market 
segments owing to 
higher elasticity. Better 
opportunities for 
international integration 
should allow lower 
average prices and 
better quality in the 
long run.  

Will better allow more 
efficient operators to 
grow. 

Removal of distortive 
factors will tend to 
increase competition. 

Business location 
orientated towards 
economic efficiency 

EN 

45 

   EN 

 
 
 
 
 
 
 
 
 
The main objective of this initiative is to close down the currently existing loopholes 
in  VAT  legislation  which  allow  or  at  least  facilitate  schemes  aiming  at  avoiding 
taxation. From the perspective of tax administrations, the principal desired impact is 
therefore  a  reduction  in  tax  avoidance  or  unintended  non-taxation  on  this  account. 
Secondary  benefits  involve  the  elimination  of  the  risk  of  double  taxation  and  the 
distortion this generates, as well as a reduction in economic agent's uncertainty about 
the legal obligations needed to ensure tax compliance. 

This is not an initiative which is likely to have a major impact on the operation of the 
EU's common VAT system outside the sector specifically targeted. The intention is 
to deal with conditions which have arisen through developments in technology, and 
to  a  certain  extent  deregulation,  and  which  were  not  envisaged  at  the  time  the 
provisions of the VAT Directive were first enacted. 

Other than those already provided for in the Directive and implemented by Member 
States, no new obligations for taxpayers or tax administrations are envisaged.  

The  changes  envisaged  will  close  down  certain  openings  for  tax  avoidance  or 
evasion  which  are  being  exploited  today.  These  however  are  not  activities  which 
readily declare themselves and accordingly it is not possible to quantify the impact of 
their  elimination.  Nevertheless,  one  can  evaluate  the  potential  benefits  against  a 
number of considerations. First, the telecommunications sector, where the study has 
identified the biggest market segment for vouchers at around €36 bi llion, is of great 
importance: it directly accounts for about 3% of EU GDP and, according to the latest 
data, almost € 50 billion in  annual investment. Second, the sector is at the forefront 
of  technological  innovation  and  a  key  driver  of  innovation  and  growth  in  other 
sectors  as  well.  Third,  within 
the  European 
the  high 
telecommunications  industry  has  been  performing  relatively  well  in  terms  of  the 
international  competition  and  has  therefore  demonstrated  an  important  potential  to 
contribute to maintaining EU competitiveness. It is therefore crucial not to distort the 
functioning of the sector by allowing investment and trading choices to be dictated 
by  the  desire  to  exploit  tax  loopholes  instead  of  maximising  economic  efficiency. 
This  is  all  the  more  true  as  the  dimension  of  the  problem  is  bound  to  grow  in  the 
absence of any regulatory action as traders 'learn by doing' and reinvest their profits 
in  new  schemes.  Furthermore,  the  economic  possibilities  inherent  in  the  increasing 
common ground between mobile telecommunications and mobile payments risk been 
stifled if there is no clarity on the tax treatment applicable or if the tax system does 
not assure neutrality in competition between competitors. 

technology  sector, 

Inaction  at  EU  level  would  on  the  other  hand  bring  with  itself  a  clear  risk  that 
individual  Member  states  introduce  ad-hoc  solutions  in  an  uncoordinated  manner, 
which  would  result  in  undermining  the  Internal  Market  in  the  sectors  concerned. 
Conversely, removing uncertainty and inconsistency in the tax treatment of voucher-
facilitated  transactions,  particularly  in  telecommunications,  is  expected  to  facilitate 
business development and give some reduction in overall compliance costs. 

In the course  of the  public consultation and in ongoing  dialogue, these points were 
repeatedly made by private sector stakeholders. They did not however quantify their 
expectations for enhanced business and no independent data is available but there is a 

EN 

46 

   EN 

 
 
reasonable  expectation  of  positive  economic  impacts  even  if  these  are  difficult  to 
quantify.  The  overall  size  of  the  market,  for  prepaid  telecommunications  in 
particular, is however both significant and continues to grow59. This in itself would 
provide  sufficient  justification  for  removing  any  unnecessary  tax-based  barriers  for 
business and the economic benefits can only be positive. 

Actual compliance cost savings are hard to quantify but this does not mean that they 
can  be  dismissed.  Little  or  no  impact  is  expected  on  recurring  standard  VAT 
compliance  costs  (record  keeping,  periodic  declarations,  etc)  as  no  changes  are 
envisaged in the obligations which create them. Any savings are likely to be found 
elsewhere.  Responding  to  uncertainty,  inconsistency  and  complexity  in  VAT, 
particularly when this is attributed to differences between Member States in applying 
the  tax,  usually  manifests  itself  in  once-off  or  intermittent  actions.  Their  cost  will 
vary  according  to  how  business  deals  with  them  and  the  saving  generated  by  their 
partial or total elimination would not be easy to verify. The fact that these savings are 
difficult  to  measure,  particularly  on  a  global  basis,  does  not  diminish  their  value. 
Modernising the legislation and removing the likelihood of individual Member States 
implementing diverse or ad hoc solutions will bring definite compliance cost savings 
to  businesses  which  operate  in  more  than  one  Member  State.  The  consequent 
reduction  in  uncertainty  is  likely  to  translate  into  cost  savings  for  the  businesses 
concerned generally. 

5.2.  Modernising the definitions of vouchers 

There  are  currently  no  definitions  of  vouchers  in  the  VAT  Directive.  The  definitions  being 
contemplated  follow  broadly  the  approaches  taken  by  tax  administrations  with  whom  the 
Commission has had frequent discussions over the year. 

To  that  extent  therefore,  any  legislative  change  would  merely  bring  the  Directive  into  line 
with the practices which have evolved on the basis of pragmatic solutions. 

No  real  evidence  has  emerged  that  businesses  would  have  any  difficulty  with  this  although 
some concerns were expressed in the consultation process about future developments leading 
to obsolescence which in turn would create tension for new business models or innovations in 
technology.  This  however  is  unlikely  given  the  very  general  and  high  level  approach  taken 
which  would  be  unlikely  to  act  as  a  constraint  on  innovation  within  any  reasonable  time 
perspective.  

The economic impact here is not readily quantifiable. A reduction in compliance costs would 
however  be  expected  from  more  consistent  interpretations  across  all  Member  States, 
particularly for pan-EU businesses or those seeking to exploit single-market opportunities. 

The  maximum  economic  benefit  would  be  expected  from  a  legislation  based  solution.  Soft 
law  is  unlikely  to  deliver  the  same  degree  of  certainty  and  uncertainty  about  the  taxing 
outcome is generally regarded as highly undesirable. 

5.3. 

Distribution of vouchers through a chain and the distributor's margin 

Distribution chains (typically for prepaid telecommunications vouchers but often described as 
a "credit top-up" or similar) operate on one of two broad bases. Either the distributor changes 

59 

This is confirmed by the Deloitte study. 

EN 

47 

   EN 

 
                                                 
a stated fee for the distribution service or takes a mark-up in the process. The contemplated 
changes  are  predicated  on  the  notion  that  these  are  economically  equivalent  and  should  be 
taxed in the same way. 

Amending  the  VAT  Directive  to  reflect  this  and  to  ensure  neutral  treatment  should  not  in 
itself  have  any  significant  for  most  businesses  or  tax  administrations.  It  should  however 
facilitate  cross-border  distribution  chains  when  the  Directive  sets  common  rules  for  the 
treatment of distributors' income. 

It cannot however be excluded that this setting of common rules will be disruptive in a very 
small  number  of 
small  distributors  of  prepaid 
telecommunications  vouchers  are  covered  by  specific  local  arrangements  which  would  be 
difficult to incorporate in the Directive. These include concessional or forfaitaire schemes or 
high registration thresholds for small businesses.  

instances,  particularly  where 

By their nature, it is not always easy to get a clear picture of such local arrangements and it 
would be impossible to construct something at the level of the VAT Directive to take account 
of all local variations. In the unlikely event of this giving rise to insurmountable problems or 
having a disproportionate negative impact, the Commission would seek to find a solution on 
the basis of dialogue with the Member State concerned.  

As  the  impact  is  uncertain  (because  in  many  instances,  existing  practices  may  be  based  on 
concessional arrangements which are often not documented), it is not practical to quantify it. 
The overall economic impact, particularly in so far as the outcome facilitates business, should 
however be positive and even extend to clear practical benefits such as the opening up of pan-
EU distribution chains. 

5.4. 

Taxable amount for transactions involving vouchers 

Clarification  of  the  taxable  amount  is  not  likely  to  have  any  significant  impact  on  either 
business  of  tax  administrations,  beyond  the  benefit  of  clarifying  the  correct  procedure  to 
follow in chain transactions. 

In  so  far  as  that  the  existing  situation  has  been  a  source  of  litigation,  and  this  has  not  yet 
solved  all  of  the  interpretation  issues  involved,  positive  economic  benefits  should  be 
expected.  These  would  include  reduction  in  costs  created  by  uncertainty  and,  in  some 
circumstances, removal of barriers which hinder economic expansion. 

Here, as elsewhere, litigated  solutions are  an expensive and often  unsatisfactory in bringing 
clarification.  Removing  the  need  to  have  recourse  to  the  Court  puts  an  end  to  a  potentially 
significant economic burden for both taxpayers and tax administrations. 

5.5. 

Time of taxation 

Where  the  purchase  of  prepaid  telephone  cards  cannot  be  considered  to  be  an  advance 
payment for future supplies of certain goods or services and, on that ground, is not subject to 
VAT,  the  tax  must  become  due  at  the  time  the  holder  of  the  card  actually  uses  it  for  the 
purposes of making payment for specific supplies of goods or services (Article 63 of the VAT 
Directive). It normally remains the responsibility of the supplier of the service to ensure tax 
compliance in such circumstances. 

EN 

48 

   EN 

 
In  the  most  circumstances  the  likely  changes  will  have  little  effect  on  the  tax  outcome. 
Acquiring  telecommunications  services  by  means  of  a  voucher  (prepaid  credit)  should  not 
endanger the application of the rules of taxation. For B2C telecommunications services, these 
are currently taxed on the basis of where the supplier is established (provided this is within 
the  EU).Uncertainty  about  the  time  of  taxation  can  however  lead  to  uncertainty  about  the 
place (Member State) of taxation where Member States have mismatched practices. 

Following  recent  changes  in  the  rules  for  place  of  taxation,  from  1  January  2015 
telecommunications  services  will  be  taxed  where  the  consumer  is  established.  For  an 
essentially anonymous service, such as prepaid telephone credits, linking the place of taxation 
to where a sim card is issued would generally be a path to securing this result.  

for  most 

Achieving  a  correct  taxing  outcome  will  not  be  incompatible  will  the  established  operating 
model 
sellers  of  prepaid 
telecommunications  service.  That  the  tax  system  might  include  measures  to  ensure  that 
vouchers  cannot  be  employed  to  frustrate  normal  tax  rules  or  to  sustain  other  mischief  can 
never be seen as having a burdensome impact on compliant businesses.  

service  providers  or 

telecommunications 

By  ensuring  a  clear  and  consistent  tax  outcome,  the  contemplated  changes  will  give 
reassurance  to  both  businesses  and  tax  administrations,  particularly  where  cross-border 
transactions are involved.  

In  most  cases,  this  will  not  have  any  significant  impact.  The  changes  will  however  remove 
residual  uncertainty  about  the  time  of  taxation  which  may  act  a  barrier  to  commercial 
arrangements. 

Aligning  the  time  of  taxation  for  voucher-facilitated  transactions  will  close  opportunities  to 
avoid  taxation  on  certain  types  of  transactions  and  which  cause  concern  to  tax 
administrations. This will have an economic impact on operators who currently exploit such 
loopholes. It is however impossible to quantify this. Even where tax-arbitraging or simple tax 
avoidance is the driving force behind a particular business model, it will usually be presented 
in  such  a  way  as  to  conceal  or  minimise  such  motivation.  Identifying  schemes  which  are 
created purely to generate a tax advantage (VAT or otherwise) is not always straightforward. 

There  is  no  measurable  impact  here  but  the  economic  benefits  can  be  envisaged  in  more 
qualitative terms. Clear and consistent tax rules should provide a growing industry (and one 
which is increasingly pan-European) with an environment which enables them better to reap 
the economic benefits of the Internal Market. 

5.6. 

Impact on Member States from modifying the VAT Directive 

If  a  proposal  from  the  Commission  to  amend  the  VAT  Directive  along  the  lines  indicated 
above is adopted by the Council, Member States will be required to take the necessary steps to 
ensure their legislation is in conformity. 

On  the  basis  of  the  information  and  explanations  available  to  the  Commission,  it  does  not 
appear  that  any  Member  State  currently  has  legislation  in  place  which  reflects  in  full  the 
particular  measures  envisaged  for  a  proposal.  The  absence  of  any  common  rules  has  meant 
that Member States have found their own solutions over the years (as shown by the identified 
mismatches  in  section  2.2  above).  The  obligation  to  bring  national  legislation  and  practice 

EN 

49 

   EN 

 
into line with EU provisions will probably involve all Member States in taking measures to 
achieve that. 

Member  States  who  have  responded  to  problems  through  concessional  or  extra-statutory 
arrangements  will  have  to  ensure  that  these  are  placed  in  conformity  with  their  EU 
obligations. As these practices are not always fully documented, it is not possible to indicate 
which Member States might face significant conformity issues. It is noticeable however that 
in the course of the discussions mentioned in section 1.1, not one of the Member States gave 
any indication that bringing their legislation in line with a common EU practice would be seen 
as unduly onerous. 

Those  Member  States  who  have  indicated  that  they  suffer  revenue  losses  because  of 
mismatches in taxation under the current rules would see an end to those losses. As indicated 
elsewhere  however,  there  is  reluctance  on  their  part  to  supply  specific  data  on  tax  losses, 
making it difficult to quantify any beneficial impact. 

There  is  however  no  reason  to  expect  that  any  Member  States  will  face  negative  revenue 
consequences  because  of  these  measures.  Moreover,  the  removal  of  obstacles  to  intra-EU 
commerce is potentially beneficial for all. 

5.7. 

Neutrality between competing payment systems 

Defining vouchers has the consequence that some operations may cease to qualify as vouchers 
if  they  fall  outside  that  definition.  As  MPVs  acquire  increased  functionality,  they  become 
more like a mainstream payment service. The implications of this is analysed in section 2.2.1. 

If  the  outcome  is  to  qualify  certain  services  now  offered  by  telecommunications  service 
providers  as  payment  services  and  if  these  services  are  treated  as  exempt,  there  will  be 
consequences associated with partial exemption including some restriction on recovery. 

It  is  possible  that  some  of  the  service  providers  concerned  will  see  this  as  a  negative 
consequence  but  it  would  be  difficult  to  ignore  the  competitive  imbalance  that  would  result 
from  any  other  treatment.  Current  uncertainty  about  what  constitutes  a  voucher  for  VAT 
purposes and where the dividing line is to be drawn between vouchers and general payment 
systems may allow certain operations to benefit from a more advantageous tax regime. This is 
contrary  to  the  notion  of  neutrality  in  competition  which  is  central  to  the  VAT  system  and 
cannot continue. 

The Commission has however already made a proposal60 which is currently under discussion 
in the Council which would allow providers of otherwise exempt financial services to opt to 
tax them. If this is accepted by the Council, there would then be no negative economic impact 
for businesses that are deemed as providing payment services.  

6. 

COMPARING THE OPTIONS 

Policy 
Objectives 

1. Doing nothing 

2. Soft law approach 

3. Modification of the 
VAT Directive 

60 

Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  on  the  common  system  of  value 
added tax, as regards the treatment of insurance and financial services [COM(2007) 746].  

EN 

50 

   EN 

 
                                                 
Removing 
uncertainty 
from tax 
system. 

Protect public 
revenue. 

The outcome would 
be continued reliance 
on the ECJ to 
overcome the 
legislative gaps. As 
already mentioned 
this is cumbersome 
and does not always 
deliver clarity. 

Revenue losses 
attributable to 
mismatches or 
aggressive tax 
planning will 
continue. Member 
States often find 
their options for 
dealing with the 
latter are limited. 

As with option 1, litigated 
solutions would remain a 
feature. As there is really 
no clear rule at all in the 
VAT Directive, there is 
no core element of law 
from which guidance 
might be drawn. 

The only certain way 
of meeting this 
objective would be to 
modernise the 
Directive by inserting 
new provisions dealing 
with vouchers. 

Threats to revenue would 
persist and it is unlikely 
that Member States would 
accept this as a 
sufficiently robust 
response. 

Clear legislation which 
assures correct taxation 
in all circumstances is 
the best way of 
protecting tax revenue. 

Deliver 
neutrality in 
competition. 

Existing absence of 
level playing field 
would persist. 

Existing absence of level 
playing field would 
probably persist. 

Deal with 
mismatches in 
place and/or 
time of 
taxation. 

Mismatches would 
persist, leading to 
unintended double or 
non taxation. 

Existing absence of level 
playing field would 
probably persist. This 
instrument is not really 
suited to solving conflicts 
of interpretation between 
different Member States. 

When VAT works 
properly, neutrality is 
assured. This can only 
be achieved by filling 
the gaps in the system, 
an outcome that can 
only be assured by 
legislative measures. 

Mismatches in taxation 
can be attributed to the 
shortcomings in the 
Directive. 

Clear comprehensive 
provisions in the 
Directive, applied 
consistently by 
Member States would 
end this. 

Dealing with 
the 
consequences 
of ECJ 
judgements. 

Litigation would 
remain the main way 
to deal with 
problems of 
application. 
Problems with 
existing 
jurisprudence which 

Litigation would in all 
likelihood still be seen as 
a remedy. Guidance (say 
in the form of VAT 
Committee output) would 
only provide a remedy to 
minor interpretational 
problems or unevenness 

Although it is 
impossible to rule out 
future litigation, some 
reduction could be 
expected from 
modernised legislation. 

In so far as it is 

EN 

51 

   EN 

 
can be difficult to 
apply or is applied 
unevenly would 
persist. 

in application associated 
with existing ECJ 
jurisprudence. 

Setting clear 
lines between 
vouchers and 
innovative 
payment 
systems. 

Continued problems 
about neutrality in 
competition between 
similar services 
would persist with 
possible negative 
effects on business 
innovation. 

Some clarification could 
be achieved through e.g. 
VAT Committee 
guidelines. 

However uncertainties 
arise from the application 
of specific provisions in 
the Directive (such as the 
rules on recovery) and it 
is not clear that these 
could be overcome 
through guidelines. 

necessary to deal with 
the consequences of 
ECJ decisions, this can 
best be achieved by 
updating the Directive. 

Definitions of the 
different types of 
vouchers in the 
Directive will give 
certainty about what is 
and what is not a 
voucher. Neutrality 
and consistency in the 
tax treatment should 
follow from this. 

It  is  by  now  clear  that  the  problems  encountered  and  which  this  initiative  seeks  to 
address, are attributable to shortcomings in the Directive in so far as it has not kept 
abreast of more recent commercial developments. 

Given  that  taxation  requires  absolute  legal  certainty  and,  as  far  as  intra-EU 
commerce is concerned, this can only satisfactorily be achieved through Community 
legislation. None of the other options considered would deliver this outcome. 

Moreover, in discussions with Member States and other stakeholders (notably in the 
public  consultation),  there  were  few  voices  raised  in  favour  of  a  non-legislative 
solution.  This  reflects  the  reality  of  their  limitations  in  taxation  generally.  The 
conclusion  of  this  impact  assessment  has  to  be  that  a  legislative  solution  is  needed 
since none of the other options will assure the desired outcome. 

7. 

MONITORING AND EVALUATION 

It is established practice for the Commission to monitor the implementation by Member States 
of legislation of the kind envisaged. No particular additional measures are envisaged in that 
respect. 

Beyond  this  it  is  likely,  reflecting  experience  with  other  recent  changes  to  VAT  legislation, 
that technical or legal issues consequent to implementation will give rise to discussions within 
the VAT Committee. These will be scheduled as the need arises. 

Depending on the views expressed by Member States, or by other stakeholders, consideration 
may  also  be  given  to  holding  a  further  Fiscalis  seminar,  to  examine  issues  arising  from 
implementation  and  possibly  to  share  experiences  of  best  practice.  Although  these  seminars 
are  aimed  at  bringing  together  officials  from  national  tax  administrations,  the  practice  has 
developed that business expertise is also given a voice where this is appropriate. 

EN 

52 

   EN