Cross Border Sales Of Vouchers:

We have recently had a new development from the Court of Justice of the European Union (CJEU) on vouchers. In the C‑68/23, M-GbR v Finanzamt O,case the CJEU was asked to decide how VAT should apply on a chain of businesses buying and reselling gift card vouchers when such transactions involved a cross border element.

The CJEU decided German VAT was due on sales of gift card vouchers between intermediaries in different countries, even though they were not German businesses. The decision further complicates the already complex VAT rules around transactions involving vouchers.

Background of the case

A German business called M-GbR sold gift cards in 2019 that were issued by Sony to be used in their PlayStation Store (PSN Cards). The cards were meant to be used by private individuals to purchase digital content in Germany only. The gift cards were designed to ensure they are redeemed by user accounts with a German address only. However, at the time of selling the gift cards M-GbR argued that it could not determine with certainty where the clients were actually located as the customers could provide false information concerning their address. Therefore, they believed the vouchers should qualify as a multipurpose voucher (MPV). MPV do not trigger a VAT liability (i.e. no VAT charged) until they are redeemed on the grounds that until that point the information required to determine the VAT amount is not known. In this case, the reasoning was at the time of the sale of the voucher by M-GbR it was not clear if the vouchers were sold to a German individual or a foreign one.

The German Tax Authorities undertook an audit and disagreed, stating that, in fact the vouchers were not MPVs as the location [and therefore VAT amount] was known since the vouchers had been designed to be used only in Germany. Consequently, they did not meet the condition of an MPV and should be considered a Single Purpose Voucher (SPV). SPVs, unlike MPVs are taxable when issued/prior to being redeemed since it is known at the time of sale what the corresponding VAT liability will be. M-GbR appealed the decision and the German Federal Fiscal Court referred the case to the CJEU as it believed the legislation was unclear on this matter.

CJEU decision

This is an important decision as it looks at the EU’s voucher rules after a number of amendments were made to the legislation in 2019.

The CJEU decided in favour of the German Tax Authorities and ruled that in the circumstances of the case the vouchers could be seen as an SPV. In other words, they took the view that when a cross border sale of gift vouchers takes place but where the vouchers can only be used in one particular country (Germany), and the other elements of the supply are known (i.e. what goods / services will be acquired and their VAT rate), then the gift cards should be seen as SPV, not MPV. Consequently, German VAT should be charged every time the gift voucher is sold.

The fact that people from other countries fraudulently acquired the vouchers was of no consequence to the VAT treatment as abusive practices should not have an impact on how a transaction is classified for VAT purposes according to the CJEU.

Impact on businesses

The clarifications in this case, although narrow in scope, do add to the definition of what an MPV and an SPV are. They should also ensure that EU Member States apply the same VAT treatment when gift vouchers are sold cross border as the reasoning of the court should be used in similar cases. Gift cards are a very popular way to boost sales but they do have a very complex VAT treatment. Any business selling gift cards should carefully consider the indirect tax treatment, especially where the gift cards are sold to, or can be used by, individuals or businesses outside of the country.