On 27 June 2016, the Council of the European Union adopted Council Directive (EU) 2016/1065 (‘the Voucher Directive’). In amending Council Directive 2006/112/EC (‘the VAT Directive’), the Voucher Directive seeks to simplify, modernise and harmonise the VAT rules applying to vouchers across all EU Member States. It intends to eliminate mismatches in national tax rules, which can potentially lead to double taxation or non-taxation.

Ireland’s current position

While this is a complex area that has been (and continues to be) the subject of case-law across the EU, Irish VAT legislation provides that VAT is not normally chargeable on the issue of a voucher. Instead, VAT is chargeable when the voucher is redeemed for goods and / or services.

Overview of the new VAT rules

The new rules will affect the VAT treatment of vouchers so it is important to understand what exactly is meant by that term. The Voucher Directive defines a voucher as an ‘instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services and where the goods or services to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument’.

The new rules differentiate between two types of vouchers – single-purpose vouchers and multi-purpose vouchers.

A ‘single-purpose voucher’ means ‘a voucher where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the time of the issue of the voucher’. This would include a voucher which can only be redeemed by a specific supplier for a particular good or service.

Under the new rules, VAT will be chargeable upfront when a single-purpose voucher is issued. A transfer of a single-purpose voucher will be treated as a supply for VAT purposes. The subsequent redemption of the voucher is effectively disregarded.

A ‘multi-purpose voucher’ means ‘a voucher, other than a single purpose voucher’. This would include vouchers which can be redeemed against goods and services with different VAT rates and sold by a variety of suppliers. This would include a typical shopping centre gift voucher which can be redeemed against a magnitude of goods or services, by numerous different suppliers.

Under the new rules, VAT will not be chargeable on the issue of a multi-purpose voucher. Instead, VAT will arise when a multi-purpose voucher is redeemed.

Notably, the Voucher Directive does not deal with scenarios in which a multi-purpose voucher is not redeemed by the final consumer during its validity period, and the consideration received for that voucher is retained by the party that issued it. Therefore, guidance must be drawn from European case-law in the area of vouchers. Rather unhelpfully some of that case-law is conflicting, and some of it also appears to offend the basic principles of the EU VAT regime especially considering that it potentially provides for taxation even where consumption never actually occurs.

Will the new rules apply to all vouchers?

No - the Voucher Directive only applies to vouchers which can be used for redemption against goods or services. Instruments entitling the holder to a discount should not be affected by the new rules.

The Voucher Directive also specifically states that it should not result in changes to the VAT treatment of transport tickets, admission tickets to cinemas and museums, postage or similar.

When will the changes take effect?

The new rules will apply to vouchers issued after 31 December 2018.

Ireland is yet to transpose the provisions of the Voucher Directive into domestic law. Therefore, Ireland must legislate for the changes over the coming months. That being the case, we can expect to see changes announced in the upcoming Budget and Finance Act.

Concluding remarks

While the precise wording of the Irish legislation aimed at transposing the Voucher Directive is not yet known, it should ultimately provide for the same outcomes as the Voucher Directive. Accordingly, businesses affected by the changes should be considering the impact that the new rules will have for them, including possible adverse cash-flow implications.

Should you have any queries on this article’s contents or would like our assistance with dealing with any taxation matter, please feel free to contact us.