EU: There is no such thing as a single purpose voucher

In the next couple of posts I will go through the various main items of the EU Voucher Directive proposal. Let’s start with the single purpose voucher which seem to be major pain for some of the biggest players in the voucher industry.

Single purpose voucher (“SPV”)

The idea of the SPV is to treat its sale just as if goods/services represented by the SPV would be sold. This means that even though a company is selling a piece of paper (or its electronic equivalent) this transaction is already treated as the supply of the underlying goods/services

The definition as per the EU Voucher Directive proposal is:

“Single-purpose voucher” shall mean a voucher carrying a right to receive a supply of goods or services where the supplier’s identity, the place of supply and the applicable VAT rate for these goods or services is known at the time of issue of the voucher.

The key point here is that the issuer of the voucher must be “at the time of the issue” in the position to 100% identify the place of supply (i.e. the country of VAT taxation) and applicable VAT rate (standard, reduced, exempt, or zero-rated) – and also suppliers identity (but this is non-essential for the moment).

And here comes my provocative thesis: it is normally not possible to 100% define the place of taxation or the applicable VAT rate at the time when the voucher is issued – there is always at least one exemption applicable!

Exemption No. 1:

Let’s take a look on an example involving supply of services – and to be extra provocative, let’s take the same example as used by the EU Commission in their Voucher Directive proposal: prepaid telecom cards, which can be used to make only telephone calls. This example of a typical SPV is provided in the paragraph 3 of page 6 of the proposal document.

According to the definition of the SPV this would mean that in 100% of cases the issuer of the voucher must be able to determine in advance the place of taxation and the applicable VAT rate.

This means that if a UK company issues a prepaid telecom card (to be used to make telephone calls only) it must know that this card will be in all cases taxed with the UK standard VAT rate. This works as long as the card is sold to a consumer or to a UK company. But, if the prepaid card is sold to a foreign company then the place of taxation is no longer UK but the country where the company is established and thus no UK VAT should be charged.

And because in normal circumstances the issuer of the voucher cannot always know in advance who will buy the prepaid card at the moment of the issuing of the prepaid card (voucher), prepaid cards do not qualify as SPV (see also the argumentation of the ECJ in the Lebara judgement).

By applying the above argument to supply of any kind of services (subject to general rules) we can prove that it is never possible to assign the SPV treatment to a voucher issued for a supply of a service (underlying the general VAT rules).

And I hear you saying: “But, Tom, what about services related to real-estate and supplies of goods? There we always know the place of taxation”.

This brings us to the next point:

Exemption No. 2:

Supplies/sales to international organizations and diplomats are zero-rated/exempt from VAT. Always. For all goods and services. No exemption from exemption.

This means in practice that it is never possible to define with 100% guaranty the place of taxation and/or applicable VAT rate in advance – at the moment when the voucher is issued.

A genuine SPV – is it possible?


And here comes a theoretical assignment: would it be nevertheless possible to create a fool prove SPV? I believe it is possible if one would really like to do it. The voucher would have to be defined as to be sold only to private customers, not to be used for telecommunication, broadcasting, consulting, electronically supplied or similar services and not applicable to diplomats (or something similar)… So yes, it is in theory possible to create a clear SPV – but who would like to do something like this considering the  many cash-flow and cash-saving advantages MPV has over the SPV.

The best example of a genuine SPV is a gift voucher – for example a gift card for a language course, which mom and dad have both for their daughter as her birthday present. Of course such voucher cannot be resold and is totally unsuitable for distribution and while meeting all SPV criteria it is not really useful as a good SPV example.

Conclusions of the analysis


The proposal of the Voucher Directive gives a first impression of a rushed job – judging by the timing when it was published it seems that the EU Commission wanted to present it to the general public at the heels of the Lebara judgement . The EU Commission will have to considerably improve the Voucher Directive proposal and find a better definition of a SPV in order to make this work.

The result of the analysis of the current text of the Voucher Directive proposal is that it is virtually impossible to issue a SPV – instead all vouchers should be treated as multipurpose vouchers (“MPV”). These have their own issues, which I will address in the a later post.

What does this mean for you?

The Voucher Directive proposal provides a huge cash-flow and cash-saving opportunity for all companies which thought they would have to treat their vouchers as SPVs – it seems that it could be interpreted as just the opposite of what the EU has tried to achieve. The saving is two-fold: (i) the moment when the VAT should be paid is postponed and (ii) no VAT is charged for unused vouchers (“breakage”).

The big question remains – will you be able to persuade your VAT authorities in all countries where your company operates that the above interpretation is logical and flawless and it can be applied to your business model – thus giving you access to all these nice VAT benefits? Will the VAT authorities agree with your reasoning? I have the feeling they might not give in so easily.