Common System of VAT (Vouchers)

Lord Mackinlay of Richborough Excerpts

Monday 2nd November 2015 General Committees

[Craig Mackinlay (South Thanet) (Con)]

It may help the Committee if I take a few moments to explain the background to the document and the reason that the European Scrutiny Committee in the previous Parliament recommended it for debate—it has been some time coming. The 2006 principal VAT directive consolidates the legislation governing VAT in the European Union to ensure smooth operation of the single market and equal treatment for all businesses trading across the EU.

The directive lays down rules to ensure a consistent approach to the questions about how much VAT is charged, when it should be declared and to which tax jurisdiction the tax should be paid. However, vouchers can present difficulties in relation to all those questions. The increase in cross-border use and distribution of vouchers, and the differences in treatment between member states, are some of the main causes of double or, indeed, non-taxation.

In May 2012, the Commission issued the proposal for a directive to amend the principal VAT directive to clarify and harmonise the rules on the VAT treatment of vouchers. The entitlements of the holder of a voucher are typically for goods or services or to receive a discount or a rebate in relation to a sale or a supplier. The issuer assumes an obligation to supply goods or services, to give the discount or to pay the rebate. In defining a voucher that way, the draft directive identifies it as an object in itself that can itself be supplied, meaning that the extensive distribution services in place for vouchers would be subject to VAT.

At the same time, a system for vouchers needs to recognise that, although VAT on any distribution service is captured, there is only one payment for the underlying goods or services for which the voucher acts as evidence of the right to receive. Thus, the draft directive would define supplying of the right to receive as a supply and would have subsequent supply viewed as a single transaction.

Negotiations in the Council of this complex—I think the Committee has gathered that so far—and somewhat technical proposal has been long drawn out. It has not been clear what the final shape of the amending directive might be. Accordingly, the previous European Scrutiny Committee recommended this debate to enable Members to explore the details of the proposed solutions to a complex problem, and the possible consequences for UK businesses. The current Committee endorses that recommendation.

--- Later in debate ---

[Mr Gauke]

It would be fair to say that there is some complexity in the current system because of inconsistency. The hon. Gentleman asks whether the draft directive will disrupt businesses because they will have to deal with a new regime. I would argue that it will not cause major disruption to businesses here. The most likely to be affected would be large, high street chains. High street shops that issue vouchers through distributors to other businesses would be most affected. Those that issue vouchers direct to their customers would be least affected.

Whether a business will be affected significantly will depend on the balance between the two types of operation within the same business. Some high street retailers issue both types of voucher. Some distributors might want to change their business model from buying or selling vouchers to arranging the sale of vouchers. That is quite possible.

Officials have had wide-ranging discussions with UK businesses on the changes. Although there may be some changes and disruption, the general feedback that officials have received from businesses is that they would welcome certainty on the matter in the future. Again, I make the point that, for the first time, VAT law would have a specific provision for VAT treatment of vouchers, which would mean that EU member states would have the same rules, making cross-border trading using vouchers far easier. Businesses would no longer have to set up different systems for different countries.

To give a topical example, the provisions would also make the collection of VAT on mobile phone roaming charges far simpler. The new rules would allow the UK to make changes to our law to make it easier to collect the right amount of tax on what the customer pays when using a voucher. Yes, there will be some disruption to and impact on high street retailers but, on balance, if an agreement can be reached, this is a favourable change.

[Craig Mackinlay]

To try to put into context the type of transaction that might be caught, I am thinking particularly of business-to-business transactions. I am not quite sure whether there is a voucher, but there must be one somewhere along the line. A reverse charge could come into play for some voucher that represents goods that could be redeemable elsewhere.

The rules for business-to-consumer transactions are obviously different. I would have thought that the most relevant example relates to the new digital services one-stop-shop rules that have applied since 1 January. I am thinking about an Apple iTunes or Google Play voucher, which I assume could be used on a computer in Germany to get a service delivered in Germany. The string of transactions could be complicated, but I am trying to understand how that might work under the scheme. I would assume that the German supplier of an iTunes service—whatever it is—would then be deemed to come under the German one-stop-shop arrangements.

I am also thinking about unusual transactions such as a restaurant discount voucher. Many companies in the UK offer diners the opportunity to join for a certain amount a year what is almost a club that allows a discount in restaurants. That would not cause difficulties in the UK, because I would imagine that joining the club is a chargeable supply, as is actually paying the reduced amount in a restaurant. It is just VAT. However, I am struggling to get my head around how it would work across borders. I am sorry to cause difficulties, but I want to understand how things might work in transactions, which makes the issue rather more important.

[Mr Gauke]

In part, I would go back to the principles that I set out in my opening remarks. As for business-to-business transactions for promotion purposes, to the extent that the reverse charge applies, that would operate as normal. The one-stop shop referred to by my hon. Friend is for business-to-consumer transactions only. There are some issues relevant to the one-stop shop, but I do not think that anything in particular arises as consequence of VAT on vouchers; the two things stand by themselves. To clarify an earlier remark, discount vouchers, to which the hon. Member for Wolverhampton South West referred, were removed from the proposal by member states, so the measure applies to face-value vouchers only. I hope that that is clear.

Resolved,

That the Committee takes note of European Union Document No. 9926/12 and Addenda 1 and 2, a draft Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of vouchers; welcomes the objective of harmonised VAT rules for vouchers to support a smooth operation of the Single Market and fewer possibilities of double and non-taxation; and further notes that the Government is keen that any solution ensures that the right amount of tax is collected on what the customer pays, in line with the principles of taxation of consumption.—(Mr David Gauke.)