Under the European Union VAT regime, the VAT treatment of telephone cards – and, in general, vouchers –differs among the EU member states. Recently, the Court of Justice of the EU provided some clarity regarding the VAT treatment of single-purpose telephone cards. Moreover, the European Commission adopted a proposal for an amendment to the VAT Directive regarding the VAT treatment of vouchers.
The telecom company in question issued telephone cards with a nominal value, which qualify as multi-purpose telephone cards. Such cards could be used to obtain telecommunication services rendered by the telecom provider and other services such as content and information services. These telephone cards are distributed via third party retail distributors. The price paid by the retail distributor is equal to the nominal value of the telephone cards minus a discount, which was generally the profit margin for the retail distributor, although the distributor was free to set his own pricing and could thus offer the cards below or above nominal value.
Under the Dutch VAT regime, the issuance and (re)sale of a multi-purpose telephone card itself is not subject to VAT. Instead, the underlying services provided to the end-user are taxed with the telecom provider. The dispute revolved around the question whether the taxable base of the underlying services is the amount that the telecom provider actually receives from its retail distributor, or if the taxable amount is equal to the nominal value of the telephone card disregarding the discount.
The Court ruled in favour of the telecom provider by deciding that the taxable base is the amount that the telecom provider actually receives from its retail distributor, i.e., the nominal value minus the discount. The Court rejected the view of the tax inspector that the taxable base should be the nominal value of the telephone card. Although in this way VAT is not levied on the full amount paid by the end-user per se, the Court acknowledged that this is also not always the case with taxation based on the nominal value (for example, if the cards are sold to the end-user above or below nominal value).
The Court considered a system whereby the taxable base of the telecom provider would consist of the amount paid by the end-user. However, such a system is not possible on the basis of existing Dutch or EU VAT legislation. In this regard, the Court observes that the telecom provider itself is not aware of the amount paid by the end-user to the retail distributor.
The Ministry of Finance has appealed the decision and now the Dutch Supreme Court will have to give its judgment. Telecom providers that pay VAT on the full amount are recommended to lodge (pro forma) appeals in order to secure their legal position.