On 10 May 2012, the European Commission published a proposal (“the Proposal”) for a Council Directive amending the Principal VAT Directive in regard of the treatment of vouchers.

The Proposal is meant to clarify the current VAT rules on vouchers by providing answers to some questions that currently raise issues to traders using vouchers, such as what a voucher is (distinguishing between single and multiple purpose vouchers), when and where is VAT due (especially in cross-border trade), which is the taxable amount for VAT purposes, etc.

It is expected that the directive is adopted this year. Its provisions will have to be transposed into the national legislation of Member States by 1 January 2014, at the latest, being applicable as of 1 January 2015.

Decision of the Court of Justice of the European Union (“CJEU”) on the VAT treatment applicable to supplies of prepaid phonecards through a network of distributors

(Case C520/10 Lebara)

The case concerns the VAT treatment of supplies of prepaid phonecards made by Lebara, a UK company, to distributors  located in other Member States for the onward supply to end users, located in the same Member State as the distributor.

The prepaid phonecards, bearing a face value (in the currency of the Member State of the distributor), were sold by Lebara at a price lower than the face value of these phonecards. The phonecards are for a single purpose (i.e. making of telephone calls up to the face value stated on the card to pre-determined destinations and at pre-determined rates).

The distributor resells the phonecards in its own name and on its own behalf towards end-users, under conditions established by him. Thus, Lebara does not generally know the sale price to the end user nor its identity.

The CJEU ruled that the supply of prepaid phonecards qualified as a supply of telecommunication services performed by Lebara to the distributors, who acted in their own name and for their own account. There was, therefore, no supply by Lebara to end users.

The CJEU’s decision is important, at least for single purpose prepaid cards, as it clarifies the country in which tax is due and the person liable for VAT. On the Romanian market, it may potentially impact telecom traders with prepaid cards, as well as retailers trading with vouchers.

Advocate’s General opinion (“AG’s Opinion”) on the VAT exemption for discretionary portfolio management services

(Case C44/11 Deutsche Bank AG “Deutsche Bank”)

The case concerns the application of the VAT exemption to discretionary portfolio management services towards private investors. The service under litigation consisted of the following activities:

Asset (securities) management;

Trading in securities (buying and selling);

Other administrative services connected with holding the securities.

The fee paid by the investors for this service had a part for asset management, while another portion was due for the trading of the securities (determined based on the value of the asset).

The AG considered that Deutsche Bank supplies to investors a bundle of services that should be regarded as a single indivisible supply for VAT purposes.

No VAT exemption should apply – according to the AG – to this single supply of services.

If the CJEU follows the opinion of the AG (we would expect that a decision is taken by the end of this year or early 2013 at the latest), banks, asset managers, traders / brokers and private bankers should review the VAT treatment of the discretionary portfolio management services supplied to clients or purchased from abroad in view of this case-law.

One should especially consider cases whereby a VAT exemption was applied by regarding these services as trading / intermediation (brokerage) of securities or other financial assets. In this regard, in our view, the AG’s opinion seems to open a room for exempting from VAT such services when the trading / brokerage of securities is the principal activity performed.

By Venkatesh Srinivasan, Partner – Head of Tax and Legal, Ernst & Young Romania

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