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Input volume 10, issue 7

October 2010


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Will VAT become due on your salary? VAT and vouchers, what are the impacts of Astra Zeneca’s case.

In a case decided at the end of July (Astra Zeneca, case C40/09 dated 29 July 2010), the Court of Justice of the European Union decided that the provision of a retail voucher by a company to its employees as a substitute to part of their cash remuneration constitutes a supply of services effected for consideration, and is thus subject to VAT.

This position might appear quite surprising in a country, like Luxembourg, where vouchers (as long as they are not redeemed) are usually treated as a “non-supply” for VAT purposes. The circumstances of the case, as well as the country where it took place, the United Kingdom, might explain part of the outcome of the judgment. It nevertheless will need to be followed in the other Member States, and will certainly give rise to a number of discussions about its potentially far reaching consequences.

The remuneration policy of Astra Zeneca in the UK provides for a fixed remuneration of the employees, part being under the form of cash, part under the form of a number of benefits, to be chosen by the employees. Among those benefits, Astra Zeneca offers retail vouchers to be used in certain shops. Because of the specificities of the vouchers‟ scheme under the UK VAT regulations, Astra Zeneca had to pay the UK VAT when purchasing the vouchers from intermediaries, before providing them to its employees. Within the course of a dispute with the UK tax authorities, two main questions came up: one regarding the treatment of the supply, i.e. whether the provision of the voucher is a supply for VAT purposes, the second regarding the VAT recovery of the input VAT incurred by Astra Zeneca.

A common issue with retail vouchers when trying to assess their VAT treatment is that they enable their beneficiaries (the employees of Astra Zeneca in this case) who receive them to purchase goods or services in specific shops, so that they confer a future right to goods or services that is as yet indeterminate as to its object. This indetermination is usually seen as an obstacle to apply a correct VAT treatment (which rate ? VAT liability ? place of supply ?) to the issue or the supply of a retail voucher. In Luxembourg for instance, this is one of the main reasons why most of the vouchers would be considered as a non-supply for VAT purposes. For the Court, this only means that the provision of a voucher is to be seen as a supply of services, and not as a supply of goods. Moreover, in the Court‟s view, this is a supply for consideration, as Astra Zeneca actually receives consideration for the provision of the retail vouchers at issue and that consideration is expressed in money, since it corresponds to a fraction of the cash remuneration of its employees. That fraction includes the price of the vouchers concerned and all the VAT on them.

As regards the mechanics of the levy of the VAT on redemption, the Court explains that when an employee wishes to use such vouchers, he simply has to hand over the
vouchers, which include VAT, to the retailer or the provider of the services concerned and receives, in exchange, the goods or services of his choice, it being understood that the price of those goods or those services, VAT included, was paid by that employee at the time when he choses to receive the retail vouchers concerned in return for giving up part of his remuneration and that it is only when those vouchers are used by that employee that the retailer or service provider will pay the VAT on those goods or services to the tax authorities.

The Court thus decided that the provision of a retail voucher by a company, which acquired that voucher at a price including value added tax, to its employees in exchange for their giving up part of their cash remuneration constitutes a supply of services effected for consideration within the meaning of that provision. This supply is such subject to VAT.

This case is very clear for those companies which have the same remuneration policies as Astra Zeneca: VAT is due on the provision of the retail vouchers to the employees. Accordingly, the input VAT incurred when purchasing the vouchers (if any, like in the UK), can be recovered. One might however wonder to what extent the outcome of the case shall be extended to similar situations where the employees receive meal vouchers for instance, as a part of their remuneration. Such a provision of meal vouchers, much more common in Luxembourg, is for the time-being not subject to VAT. VAT is only collected, at the correct rate and depending on the circumstances, at the time the employees redeem their meal-vouchers in restaurants, groceries or supermarkets. It is true that the provision of meal-vouchers is not fully comparable to the system put in place at Astra Zeneca, for instance with respect to the possibility for the employees to choose between the retail vouchers and the cash.

As pointed out by the Advocate General, “Astra Zeneca‟s employees can choose not to receive any part of their remuneration in retail vouchers and instead to be paid entirely in cash, in accordance with a more traditional mode of payment. The provision of vouchers to employees can therefore be interpreted as a transaction entered into by the employees in exchange for payment of a given sum of money (that part of their remuneration which, if they did not receive vouchers, they would obtain in money).” But extending the outcome of Astra Zeneca‟s case to the provision of meal-vouchers (or anything similar) would considerably change the VAT position of the employers concerned.

It makes very little doubt that in some cases, it will become very difficult to determine whether the provision of vouchers to the employees shall, or not, be subject to VAT. When trying to differentiate the two possible situations (vouchers are similar to means of payment or are to be seen as a supply of services) one will have to go back to some of the guidelines provided by Advocate General Mengozzi, when he observed that: “in order to accept Astra Zeneca‟s position that the payment of employees in retail vouchers constitutes a form of remuneration that is not subject to VAT, it would be necessary in practice to treat vouchers in the same way as money and to regard them as a simple „alternative‟ to cash.

In my opinion, however, that position cannot be sustained. First, unlike money, retail vouchers cannot be used everywhere but only at the premises of the retailers who issued them. Second, it should not be forgotten that, in general, retail vouchers are in point of fact provided in exchange for a sum of money and may, as in this case in the transfer from the retailer to Astra Zeneca, via an intermediary, generate added value and (as a consequence) VAT revenue; that does not, however, arise in the case of cash.” It may well be that the tax authorities will review the VAT treatment of vouchers in a number of European Member States further to this case of the Court of Justice of the European Union.

One more score for e-filing

The Luxembourg VAT authorities released a note on 1 September 2010 in which they inform that as of 2011, no more paper version of the VAT returns will be sent to the Luxembourg taxpayers.

In this context, taxpayers will not be able to rely on the reception of the form to be reminded that a VAT return must be submitted and particular attention should be paid to the various legal deadlines fixed for the submission of each return.

Even though these forms will be available in the different tax offices and printable on the VAT authorities‟ website, this decision is part of the global trend oriented to the standardization of the electronic filing of VAT returns.

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