COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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) 126 final 

COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE 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) 127 final} 

EN 

   EN 

 
 
 
 
  
 
1.  Problem definition 

Transactions involving the purchase of goods or services increasingly involve vouchers. 
These can take many forms including but, not limited to, prepaid telephone credits, tear-
off coupons which lead to a discount and electronic codes which generate an entitlement 
to  goods  or  services  or  something  as  traditional  as  a  gift  voucher.  What  they  have  in 
common is that vouchers are not in themselves the primary purpose of a transaction but 
rather facilitate the purchase of other goods or services. 

Vouchers  can  have  an  impact  on  the  taxable  nature  of  the  underlying  transaction.  This 
can  involve  the  timing  of  a  transaction,  the  place  where  it  occurs  and  the  value  to  be 
assigned to the exchange between buyer and purchaser. All of these factors can in turn 
influence the VAT consequences of the transaction and, as a result, the tax revenues of 
Member States. Given the increasing complexity and sophistication of many commercial 
transactions (particularly those facilitated by technology), this is a growing phenomenon. 

The VAT Directive1, on which the common VAT system of the Member States is based, 
has  no  provisions  which  address  vouchers.  This  is  largely  because  of  the  age  of  the 
legislation.  It  was  enacted  in  1977  when  vouchers  were  perceived  as  marginal  and  not 
giving rise to any particular VAT complications. The first pre-paid telecom cards did not 
appear  until  the  early  1980s  and  mobile  telecom  services  only  became  generally 
available during the 1990s. 

Although vouchers are used widely in commercial transactions, prepaid telecom services 
are  by  far  the  single  most  important  area  in  economic  terms.  In  preparing  this  impact 
assessment,  a  survey2  concluded  that  per  annum  revenue  from  prepaid  telecoms 
subscription (now overwhelmingly electronic rather than card based) could be estimated 
at €36 billion. All other types of vouchers have  an estimated total annual value of about 
half that. 

The amount of tax involved is clearly substantial. The lack of common rules in the VAT 
Directive  has  meant  that  over  time  Member  States  have  developed  their  own  national 
practices  for  ensuring  correct  taxation  of  the  underlying  transaction.  Unfortunately  this 
has evolved in an uncoordinated fashion. One fundamental dichotomy is between those 
Member  States  who  seek  systematically  to  tax  the  value  when  a  voucher  is  issued  and 
those who tax on redemption. This gives rise to mismatches in taxation which in turn can 
cause either double or non-taxation. Double taxation is probably relatively rare (if not, it 
might be expected that there would be more complaints) but in reality it will more often 
than not simply kill the market, leaving no measurable statistical trace. There is however 
strong anecdotal evidence that this is a systemic problem for enterprises trying to develop 
pan-EU  business  models  using  vouchers.  Non-taxation  does  not  always  readily  declare 
itself  and  macro-level  data  is  hard  to  come  by.  Nevertheless,  preparatory  work  here 
uncovered  sufficient  evidence  that  non-taxation  is  systematically  exploited  by  some 
operators in the telecom sector who see an opportunity for an unjustified price advantage 
or merely to increase profits. This information comes either from tax administrations that 

1   Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 

L 347, 11.12.2006, p.1) 

2  

"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  from  Deloitte  of  14  July  2010  (as  revised). 
This study is annexed to the Impact Assessment. 

 
 
                                                 
identify revenue losses which are not always easily stemmed as well as from businesses 
complaining  about  unfair  competition.  Meanwhile,  other  operators  whose  objectives 
include  being  tax  compliant,  will  simply  refrain  from  involvement  in  opportunities, 
particularly cross-border ones, where the tax consequences are not clear. 

2.  Subsidiarity 

Within the limits of the available data, the Impact Assessment (particularly in it's revised 
form)  substantiates  the  need  for  action  at  EU  level  to  resolve  these  problems.  The 
distortions in the functioning of the internal market and the concerns of industry players 
about unfair competition are illustrated by reliable reports from established players.  

Because the underlying problems can be attributed to shortcomings in EU legislation (in 
the VAT Directive) which can only be rectified by action at EU level, it is not possible 
for  Member  States,  acting  independently,  to  remedy  the  situation  and  to  achieve  the 
objective of uniform application of the tax. 

3.  Objectives 

Other than rectifying the mismatches in taxation mentioned above, uncertainty about the 
proper  tax  treatment  has  given  rise  to  a  succession  of  ECJ  cases  involving  vouchers 
where  either  national  tax  administrations  or  businesses  have  resorted  to  litigation  in  a 
search for order. This path has been occasioned by problems in the calculation of VAT 
on  discounts,  treatment  of  input  tax,  promotional  gifts  linked  to  vouchers,  advance 
payments  generally  as  well  as  the  computation  of  the  taxable  amount  for  transactions 
involving  vouchers.  Particular  problems  arise  in  the  distribution  of  vouchers  through 
chains  of  distributors,  a  widely  employed  commercial  practice  which  often  extends  to 
cross-border  arrangements.  Whilst  helpful,  none  of  the  decisions  of  the  Court  have 
totally  cleared  the  air  and,  in  the  absence  of  more  fundamental  and  systematic 
clarification, further recourse to the ECJ on questions relating to the VAT treatment of 
vouchers is inevitable. The proposal aims to rectify this situation. 

Increasing  functionality  in  vouchers,  notably  prepaid  mobile  credits,  has  blurred  the 
dividing  line  between  vouchers  and  innovative  payment  systems.  In  order  to  ensure 
correct taxation, this line has to be clearly defined and neutrality assured. 

4.  Policy options/Assessment of impacts 

Three possible policy options for dealing with these problems have been identified. 

Taking no action would mean that the problems would persist and probably grow as they 
are not capable of resolution without action at EU level. The consultation of stakeholders 
was  strongly  against  such  an  approach.  Doing  nothing  at  EU  level  would  be 
fundamentally  unsatisfactory  as  current  difficulties  would  only  grow,  giving  rise  to 
increased uncertainty and litigation. Member States do not really have the tools to deal 
with mismatches in taxation unilaterally, particularly as the VAT Directive in its current 
state does not provide guidance on arriving at a consistent treatment. 

The  use  of  soft  law  options,  such  as  guidance notes or similar instruments,  are only of 
real value when the underlying legislative provisions are sound. This is not the case here 
since the problems identified can generally be attributed to the absence of clear rules in 
the  VAT  Directive.  Seeking  resolution  through  an  approach  which  stops  short  of  full 
legislative reform, perhaps through the use of soft law structures such as guidelines, has 

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some initial attraction but is finally considered as unsuited to a fundamental tax problem. 
Where  taxation  is  concerned,  soft  law  will  always  be  a  second-best  to  a  legislative 
formulation  and  is  generally  only  useful  to  compliment  or  explain  what  is  already 
provided  for  in  legislation.  Here,  the  fundamental  problem  is  a  lacuna  in  the  VAT 
Directive and this is not amenable to a soft law solution. 

The problems identified reveal the need for modernisation in several articles in the VAT 
Directive. The objectives identified can only be met by amending them and introducing 
other appropriate consequential amendments in the Directive. 

5.  Assessments of impacts 

Impacts  vary  according  to  the  roles  of  different  players  and  the  nature  of  the  problems 
which they now contend with. 

For tax administrations, the main objective of the exercise is to close down the loopholes 
in the tax system which allow or facilitate schemes aimed at the avoidance of taxation. 
This will be manifested through a reduction in tax avoidance or unintended non-taxation. 
Secondary  benefits,  with  positive  effects  on  businesses,  would  be  the  elimination  of 
double  taxation  and  the  negative  economic  consequences  this  entails  as  well  as  a 
reduction  in  uncertainty  about  tax  compliance  obligations.  Those  Member  States  who 
have  indicated  that  they  suffer  revenue  losses because of mismatches in taxation under 
the current rules will see an end to these losses. As indicated in the main text, reluctance 
on their part to supply specific data on tax losses makes it difficult to quantify the likely 
benefit. 

Actual compliance costs savings are hard to quantify but this does not mean that they are 
insignificant. Although the impact on recurring standard VAT compliance costs are not 
expected to be a major factor, the effect on once-off or intermittent costs associated with 
inconsistency and complexity in tax rules is expected to yield savings. 

Litigated solutions, which are a feature of the ongoing problems, are expensive and often 
unsatisfactory for stakeholders. Reducing the need to have recourse to the courts would 
represent a significant economic saving, albeit one which is difficult to quantify. 

For businesses more generally, achieving order and consistency in these tax rules across 
the  Internal  Market  will  remove  barriers  to  commercial  innovation.  It  is  difficult  to 
measure the impact here but the economic benefits can be measured in more qualitative 
terms.  Clear  and  consistent  tax  rules  should  provide,  for  the  telecommunications 
industries  in  particular  but  also  for  retail  distribution  operators,  an  environment  which 
enables them better to reap the economic benefits of the Internal Market. 

The expected economic impact on main market players and on the market structure is set 
out  in  qualitative  form,  given  the  lack  of  quantification  of  the  tax  avoidance  problem. 
The  underlying  analysis  is  however  based  on  standard  economic  reasoning  and  on 
knowledge of the sector built up during the investigatory work.  

The  expected  impact  of  a  legislative  proposal  will  to  some  extent  be  asymmetric. 
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 

4 

 
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. Suppliers 
of  pre-paid  telecom  vouchers  whose  primary  focus  is  tax  arbitraging  are  often  virtual 
operations  with  a  negligible  physical  presence.  Conversely  however,  the  improved 
market  environment  should  yield  price 
international 
reductions,  notably 
telecommunications benefiting consumers who use pre-paid services. 

for 

6.  Comparison of options 

This leads to the conclusion that a modernisation of the provisions of the VAT Directive 
is the only way to deliver a robust long term solution. This should include definitions of 
the  different  kinds  of  vouchers,  clarification of the tax treatment of distribution  chains, 
rules  on  computation  of  the  taxable  amount  and  the  time  of  taxation  as  well  as  the 
consequences for the right of deduction. 

The  VAT  problems  associated  with  vouchers  can  at  times  appear  to  be  extremely 
technical. For this reason, the preparatory work involved considerable consultation with 
Member States and with the businesses involved. In the latter instance, this went much 
wider  that  the  formalities  of  the  public  consultation  and  in  practice  extended  over  the 
whole  timescale  of  this  project.  Particular  care  was  taken  to  cover  the  implications  of 
innovative  practices  and  to  ensure  at  least  some  degree  of  future-proofing  for  the 
proposal. As a result, the approach recommended is based on a broad consensus among 
stakeholders  as  to  what  is  needed.  It  is  however  probable  that  one  consequence  of  any 
proposal  will  be  to  recognise  that  some  services,  notably  those  offered  by  telecom 
operators  which  had  their  origins  in  vouchers,  have  evolved  into  something  which 
compete with more  traditional payment service providers and neutrality now requires a 
level playing field for tax purposes. 

7.  Monitoring and evaluation 

It is established practice for the Commission to monitor the implementation by Member 
States of legislation such as is envisaged here. No further measures are foreseen. 

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