The Court of Justice on single-purpose and multi-purpose vouchers

In M-GbR the Court of Justice clarifies the distinction between single-purpose and multi-purpose vouchers. Possible abuse by customers plays no part in that assessment.

Since 1 January 2019 revised rules have applied to charging VAT on vouchers, distinguishing three instruments: vouchers, stamps and gift certificates. Vouchers are divided into single-purpose and multi-purpose vouchers.

Single-purpose or multi-purpose

With a single-purpose voucher the VAT consequences are certain at the moment of issue: both the place of the supply and the rate are known in advance. With a multi-purpose voucher that is still unclear at the moment of transfer.

M-GbR

The German company M-GbR sold what were known as X-cards, which could be used to buy digital content in a webshop operated by Y, a company established in the United Kingdom. Y issued the X-cards and sold them through intermediaries. Country codes were attached to the cards: the German code was intended for customers resident in Germany with a German user account.

Customers could, however, get around those conditions by supplying false information or hiding their IP address. M-GbR therefore argued that the X-cards were multi-purpose vouchers.

The German tax authorities disagreed: the fact that customers could abuse the arrangement was not, in their view, decisive for the classification. The Federal Finance Court referred the matter to the Court of Justice, asking how the directive should be interpreted in the context of a chain of taxable persons established in different member states.

The ruling

Under the VAT Directive there is a single-purpose voucher where the place of the supply to which the voucher relates and the VAT due on it are known at the time of issue.

The Court held that, for that classification, it makes no difference whether a voucher is transferred between taxable persons acting in their own name and established in member states other than the one where the end users are. Only the requirements in the directive matter, and possible abuse cannot be taken into account.

The resale of a multi-purpose voucher can be subject to VAT where there is a separate supply of services to the taxable person who physically hands over the goods to, or performs the services for, the end user in return for the voucher.

Why this matters in practice

The judgment brings welcome clarity to the intricate voucher rules and is, in our view, consistent with the purpose of the directive's provisions. Uniform treatment of vouchers is assured and inconsistencies, double taxation and non-taxation are avoided.