On June 12, 2014 the Court of Justice of the European Union (“CJEU”) ruled that the discount cards sold by Granton Advertising BV (“Granton”) did not fall within the scope of ‘securities’ or of ‘other negotiable instruments’ for the purposes of the VAT exemption. The CJEU also concluded that upon acceptance of such a discount card retailers only need to remit VAT out of the amount they receive from consumers for supplied goods and services.

The case

Granton sells ‘Granton cards’ to consumers for a price ranging between EUR 15 and EUR 25. The cards are transferable but cannot be exchanged for money or goods. Furthermore, the cards do not represent a nominal value. Granton cards entitle their holder to a discount from affiliated businesses, including restaurants, cinemas, hotels or saunas. Upon presentation of the card or surrendering of a coupon, the affiliated businesses grant a discount (20%, for example) or offer two units for the price of one.

To offer such discounts, Granton concludes contracts with businesses in the retail sector. In order to provide discounts, however, these affiliated businesses do not pay any fees to Granton nor do they receive any compensation from Granton for providing the discount.

The CJEU judgement

According to the CJEU, Granton cards do not qualify as ‘securities’ or ‘other negotiable instruments’ for the purposes of the VAT exemption. Furthermore, even though they provide entitlement to price reductions, they do not constitute a payment instrument for the purposes of the VAT Directive. Unlike payments, transfers and cheques, they do not lead to a transfer of money.

Consequences

The CJEU’s ruling confirms the Dutch practice that discount cards, which entitle the holder to purchase goods and services at reduced prices, do not fall within the scope of a security for the purposes of the VAT exemption. Furthermore, in practice, upon presentation of the Granton card, retailers can remit VAT out of the amount they receive for the goods and services supplied and not on the full amount they would receive without acceptance of the discount card.

The referring Dutch court will have to decide how to settle this matter now that the VAT exemption no longer applies. Based on the view of the Dutch Ministry of Finance, the sale of the Granton card (NB: other than a gift voucher) would be VAT taxable.

KPMG Meijburg & Co’s tax advisors have extensive experience of the VAT treatment of discount cards and other vouchers. They would be happy to answer any questions you may have on this subject.