The provision of a retail voucher constituted a supply of services within the meaning of art. 2(1) of directive 77/388

The taxpayer company provided retail vouchers to its employees under the terms of its remuneration packages. An issue arose concerning the treatment for VAT purposes of the vouchers. As part of the taxpayer's remuneration package, the employee was allowed to choose from a range of benefits including retailer vouchers which were standard gift vouchers in denominations of £10 redeemable from certain high street retailers.

The taxpayer claimed that it was entitled to deduct input tax on purchase of the vouchers on the basis that the cost was a business overhead, and also that it should not be required to charge VAT on the provision of the voucher to the employee as the voucher was not provided for any consideration.

HMRC ruled that the taxpayer was not entitled to input tax credit on the purchase of the vouchers as the vouchers were not used by the taxpayer for the purpose of any taxable transaction; alternatively, the taxpayer was entitled to deduct input tax but had to account for output tax on the provision of the vouchers to the employees.

The Tribunal took the view that it was necessary to make a reference to the ECJ for a preliminary ruling on the correct interpretation of art. 2(1) of Directive 77/388.

The ECJ (Third Chamber) ruled that having regard to the wide scope of VAT, a company such as the taxpayer, in so far as it provided retail vouchers to its employees in exchange for them giving up part of their cash remuneration, carried out an economic activity within the meaning of the sixth directive.

The retail vouchers enabled the employees who received them to purchase goods/services in specific shops, so that those vouchers conferred a future right to goods/services as yet indeterminate as to its specific object. As those vouchers did not immediately transfer the right to dispose of property, their provision constituted, for VAT purposes, not a ‘supply of goods’ within the meaning of art. 5(1) but a ‘supply of services’ since, under art. 6(1), any transaction which did not constitute a supply of goods within the meaning of art. 5 was then to be regarded as a supply of services.

Here there was a direct link between the provision of retail vouchers by the taxpayer to its employees and the part of the cash remuneration which the employees gave up in lieu of that provision. There was no doubt that the taxpayer actually received consideration for the provision of the retail vouchers at issue and that that consideration was expressed in money, since it corresponded to a fraction of the cash remuneration of its employees. Further, the burden of VAT on the provision of those vouchers was borne by the final consumer of the goods/services which might be bought since the deduction from their remuneration included the price of the vouchers inclusive of VAT.

When an employee wished to use such vouchers, he simply had to hand over the vouchers, which included VAT, to the retailer/provider concerned and would receive in exchange, the goods/services of his choice. It was also understood that the price of those goods or those services including VAT was paid by the employee at the time when he chose to receive the retail vouchers concerned in lieu of part of their remuneration. It was only when those vouchers were used that the retailer/service provider would pay the VAT to the tax authorities.

Accordingly, the transaction constituted a supply of services effected for consideration within the meaning of art. 2(1).

The full text of the judgment is available at http://www.bailii.org/eu/cases/EUECJ/2010/C4009.html