2. VOUCHERS AND VAT  INTERNATIONAL GROUP WITH COMPANIES IN SEVERAL EU COUNTRIES  SAME ACTIVITY IN EVERY COUNTRY  DIFERENT UNDERSTANDINGS ACCORDING TO EACH TAX AUTHORITY  DIFFERENT VAT RULES IN DIFFERENT COUNTRIES  THE SPECIFIC CASES OF PORTUGAL, SWEEDEN AND UK 2

3. VOUCHERS AND VAT  Business activity of the company  The company is a multinational company operating in several EU Member States.  The company owns a website (www.XXX.pt). The website has subscribers to whom the Company sends an email every day. Each email contains one or two offers for a voucher.  A voucher, if purchased, entitles the purchaser to goods or services supplied by other Portuguese companies with which the Company has no relationship only a cooperation agreement (“Partners”).  There are two kinds of vouchers: Vouchers whose cost price for its subscribers is below the face value of the voucher Vouchers with no face value, which entitle its subscribers to particular goods or services.  If they so choose, the subscribers email the Company accepting the offer to purchase the voucher. The offer depends on a certain set number of other subscribers agreeing to purchase vouchers for the same offer.  Once the offer becomes unconditional, payment is debited to the subscribers and vouchers are issued. 3

4. VOUCHERS AND VAT 4

5.  Redeemed vouchers  If subscribers choose to redeem the vouchers within a set period of time, the Cooperation Partners, after having made available to the subscribers the goods or rendered the service, send the voucher to the Company. The Cooperation Partner would then receive the payment made by the subscriber less the commission fee charged by the Company to the Cooperation Partner, plus VAT.  The commission will only be charged by the Company if the goods and services are provided by the Cooperation Partner.  Under the terms and conditions agreed with the subscribers and Cooperation Partners, the Company is not obligated to provide goods or services to the subscribers. 5

6. VOUCHERS AND VAT  Unredeemed vouchers  If the subscribers do not redeem the voucher before it expires, the Company is entitled to retain the payment made by the subscribers.  In this case the Cooperation Partner does not receive any amount.  The Cooperation Agreement establishes that the Cooperation Partners must make the goods or services available on presentation of the vouchers and they agree to indemnify the Company against any claim related to the goods or services to be provided. 6

7. VOUCHERS AND VAT  Company’s arguments  There shall be liable to VAT the supply of goods and services carried out in the Portuguese territory, against remuneration, by a taxable person acting as such.  The Company itself does not provide or is obliged to provide goods or services which might be exchanged for vouchers. The Company only guarantees that the Cooperation Partner provides the service or good mentioned in the voucher if they are redeemed by the subscriber.  The Company considers that the vouchers provided to the subscribers are a mere exchange of means of payment not subject to VAT as the services or goods purchased by the subscribers can only be provided by other VAT taxpayers, the Cooperation Partners.  When the voucher is redeemed by the subscriber following transactions are liable to VAT: The services or goods provided by the Cooperation Partner to the subscriber The commission charged by the Company to the Cooperation Partner 7

8. VOUCHERS AND VAT  Company’s Arguments (cont.)  The payment of a voucher to the Company cannot be considered an advance payment liable to tax.  According to Article 8(1)(c) of the VAT Code combined with Article 29(1)(b), VAT related to advance payments will only be invoiced and due if the payment is made to the taxpayer which provided the services or goods.  On the other hand the Company considers that the commission invoiced to the Cooperation Partner is the payment for the services rendered by the Cooperation Partner to the Company and therefore liable to the general VAT rate, which will only be charged if the voucher is redeemed.  If the voucher is not redeemed, the payment of the subscriber will be withheld by the Company and there is no taxable operation, i.e. these vouchers will not be liable to tax and the corresponding payment cannot be considered an advance payment. 8

9. VOUCHERS AND VAT  Sweedish Tax Authority’s arguments and conclusions  The Swedish Tax Agency considers that the Company is acting as an intermediary with respect to products, services and “gift certificates” in the name of, and on behalf of, others. In addition, the Swedish Tax Agency considers that the Company receives the compensation on behalf of the companies (Partners).  The described procedure is according to the Swedish Tax Agency’s assessment not to be considered as transactions concerning a purchase and on-sale of products and services or the acting as an intermediary in its own name on behalf of others.  This means that the Company is not liable to pay tax on the compensation received from the customer on behalf of the different companies. The voucher that is issued is evidence that the customer has paid the amount required to obtain a certain product, a certain service or to shop for a certain amount.  As regards the compensation that the Company obtains from the companies, the Swedish Tax Agency considers that it is a compensation for a VAT-able service. However, the Swedish Tax Agency considers that the service is to be considered as a supply by an intermediary. 9

10. VOUCHERS AND VAT  Sweedish Tax Authority’s arguments and conclusions (cont)  The Swedish Tax Agency does not consider that a sale/turnover occurs in cases where the Company retains the payments received for vouchers which have not been used. Such amounts should not be subject to VAT.  To summarise, it is the view of the Swedish Tax Agency that the companies with which the Company cooperates shall be subject to tax on the payments for the products and services. The remuneration received for the supply as an intermediary shall be taxed in the hands of the Company. 10

11. VOUCHERS AND VAT  UK Tax Authority’s arguments and conclusions  The supply of vouchers being made by the Company is a supply of credit vouchers as described in 3(1) of Sch 10A and therefore there is no VAT liability on the price paid by subscribers.  In accordance with the statement of practice set out in Information Notice 12/03 where Cooperation Partners do not, themselves, properly account for VAT then, in the absence of a tax avoidance motive or insolvency, HMRC would not approach the Company for that outstanding VAT. Further, in the event that HMRC does approach the Company for the outstanding VAT, the amount that would be sought would be limited to the Cooperation Partner’s Fee. Finally, that HMRC would not approach the Company for the outstanding VAT in respect of payment for vouchers which have not been redeemed.  That the effect of the disregard under paragraph 3 of Schedule 10A will not be to treat the supply of vouchers as exempt from VAT.  There is no VAT liability arising from the non-redemption of vouchers since this does not relate to a supply. 11

12. VOUCHERS AND VAT  UK Tax Authority’s arguments and conclusions  There is a taxable supply of intermediary services to the Cooperation Partners.  The taxable consideration for the supply of intermediary services is the Company’s Fee being the price paid for the voucher less VAT on the Company’s Fee and the Cooperation Partner’s Fee (i.e. the amount retained by the Company).  The tax point for the supply of intermediary services is when the Company is informed that the voucher is redeemed and therefore payment to the Company is due.  There is no supply of services resulting from non-redemption of vouchers. 12

13. VOUCHERS AND VAT  Portuguese Tax Authority’s arguments and conclusions  Sales of vouchers - liable to VAT  If by the time the voucher is issued/sold the services related and the tax rates are known, it is considered a service rendered within Article 4(1), subject to the objective basis of taxation, in accordance with Article 1(1). Therefore, at that moment liable to tax, as established in Article 18(1)(c) of the VAT Code;  If by the time the voucher is issued/sold the goods related and the tax rates are known, it is considered to be a transfer of goods within Article 3(1), liable to tax under Article 1(1). Therefore an operation liable to the general tax rate established in Article 18(1)(c) of the VAT Code; 13

14. VOUCHERS AND VAT  Portuguese Tax Authority’s arguments and conclusions (cont)  Sales of vouchers - VAT invoiced afterwards  a) If by the time the voucher is issued/sold the goods/services related and the tax rates are unknown, tax liability will be transferred, respectively, to the moment in which the goods are made available to the buyer or the services are rendered, in accordance with Article 7(1)(a),(b) of the VAT Code: a1) The applicable tax rate is the one related to the goods or services and will be known when the Company receives the invoice from the company which rendered the service and returns the corresponding voucher; a2) Tax is liable and due at this stage of the transaction and shall be paid by the Company. 14

15. VOUCHERS AND VAT  Portuguese Tax Authority’s arguments and conclusions (cont)  Sales of vouchers - tax-free  If the voucher is not claimed before it expires it is considered an operation outside the scope of Portuguese VAT and therefore tax is neither liable nor due.  Commission - liable to VAT  The commission invoiced to the “Cooperation Partner” is considered a service rendered under Article 4(1) because of the residual nature of this concept and therefore an operation liable to tax and not tax-free, under Article 1(1)(a), subject to the general tax rate established in Article 18(1)(c) of the VAT Code. 15

16. VOUCHERS AND VAT  European Commission’s Proposal as regards the treatment of vouchers  There is a real need to clarify the VAT treatment of Vouchers  The existence of different rules affects businesses and the development of this market  Different rules also result in distortions in competition  Any changes should take into account the necessary time for adjustments  The Commission’s proposal on the common system of value added tax, as regards the treatment of vouchers aims to overcome this problem. 16

17. VOUCHERS AND VAT THANK YOU. Fátima Gouveia COMARK, LDA. / ECOVIS COMARK, LDA. mfg.cns@comark.ptmfg.cns@comark.pt / 00351 22 619 95 24 Av. da Liberdade, 69, 3C, 1250-140 Lisboa Esplanada do Castelo, 22, 4150-196 Porto Portugal 17