VAT on unredeemed vouchers issued by an auction site

The Dutch Supreme Court ruled on the VAT consequences of a winning bid at an online auction that is never redeemed. The auction site owes VAT at the moment the winner pays, whether or not the voucher is redeemed.

The facts

Third-party businesses offered trips, packages and products on the auction site. The highest bidder wins the service or product auctioned and must pay for it. The contract between the winner and the auction site cannot be cancelled or revoked. The winner must pay the amount bid plus administrative charges within five working days.

After payment the winner receives a digital voucher with a code. With that code the prize can be redeemed on the site within a set period and subject to availability. The voucher can also be given away or sold. Where the winner redeems it in time, the auction site instructs the third-party business to provide what was won.

The auction site auctions in its own name, and the third-party business supplies the winner on the site's behalf and at its request. It is agreed that after redemption the site pays the third party the agreed amount, by way of a monthly self-billing invoice that also states the VAT due from that third party. In 4 to 16 per cent of cases a prize is not redeemed in time. The winner then has no right to a refund and the site pays the third party nothing.

For the period 2008 to 2012 the site concluded a settlement agreement with the Dutch Tax Administration recording that unredeemed vouchers constitute a supply and that the VAT treatment of the underlying supply is to be followed. The agreement was then tacitly extended. For various periods after 2012 the site objected to the VAT paid on its returns, arguing that no taxable supply had been made.

The Court of Appeal

In 2022 the Court of Appeal in Amsterdam held that the site is bound by the settlement agreement, because it was tacitly extended. The court applied the commissionaire fiction: for VAT purposes the site is treated as supplying the winner in its own name but on behalf of the third-party businesses, and those businesses are treated as supplying the site.

The site's argument that the fiction does not extend to unredeemed vouchers because no supply is made was rejected: that does not follow from the settlement agreement, which expressly records that unredeemed vouchers do constitute a supply.

The court also considered the position without that provision. On payment, a legal relationship arises between winner and site, and the winner must receive the voucher enabling the supply to be redeemed. There is therefore a clearly identifiable supply, and the fact that the voucher is not always redeemed does not alter that. The supply takes place when the winner receives the voucher.

The Supreme Court

On appeal, the Supreme Court held that where a business agrees with its customer that the consideration must be paid in whole or in part before it makes the supply, the VAT becomes due at the time of that prepayment.

The Supreme Court also held that the winner obtains the right to redeem the voucher and that the site is obliged to make the supply, regardless of whether the winner exercises that right. That the supply is never completed is attributable to the winner alone. The amount paid, with no right to a refund, is therefore consideration for a transaction carried out for consideration and is subject to VAT. The Court of Appeal's decision stands.

Comment

There is consideration and the winner obtains a right to a particular prize. That the payment is taxable is therefore understandable. Failure to redeem is attributable to the winner alone, and the winner accepted that no refund would be made.

It is striking that the Supreme Court holds both that there is a prepayment and that a right is obtained at the moment of payment. With a prepayment the supply follows later, which sits awkwardly with a right arising at the time of payment. In both analyses, however, the VAT consequences are the same.