Vouchers as part of remuneration and VAT

On 29 July 2010, the European Court of Justice stated that the provision of a voucher to an employee as part of its remuneration amounts to a supply of services effected for consideration in the meaning of the Sixth VAT Directive.

The original dispute involved a pharmaceutical company, Astra Zeneca, that used to offer a remuneration package to its employees partly made up of a fixed amount of cash, and partly of vouchers that the employee could then use in various shops.

The British court made reference for a preliminary ruling to the European Court of Justice concerning the following question: “whether Article 2(1) of the Sixth Directive must be interpreted as meaning that the provision of a retail voucher by a company to its employees as part of their remuneration constitutes a supply of services effected for consideration”.

To answer this question, the European Court of Justice had to assess whether the provision of a voucher as part of the remuneration of the employees in exchange for their giving up part of their cash remuneration amounts to an economic activity. After being reminded that the Sixth VAT Directive provides an extremely broad definition of  economic activity, the court answered positively, and stated that the transaction was a supply of services.

Second, the court had to determine whether this economic activity was effected for consideration. Considering that there was a direct link between the supply of the voucher and the activity of the employee, the answer was also positive.

Finally, the court underlined that, as required by the Sixth VAT Directive, VAT is indeed incurred by the final consumer since Astra Zeneca’s employees have the value of the voucher and the VAT deduced from their cash remuneration.

For these reasons, the exchange of a voucher against giving up part of an employee's remuneration is a supply of service effected for consideration.