ECJ in phone card VAT ruling

THE EUROPEAN COURT OF JUSTICE has made a key ruling on when value added tax (VAT) is chargeable on telephone cards and vouchers.

The case was between mobile phone network Lebara and HMRC, with the ECJ finding that VAT should be paid when telecommunications service operators sell phone cards to their distributors, but not again when the customer purchases it.

The ruling has significant consequences for e-retailers and voucher businesses – such as Groupon – as well as any other shops selling vouchers.

The case will affect all vouchers and other coupons that hold a face value entitling the customer to acquire goods or services. Given that the case found  HMRC’s interpretation of the voucher rules was incorrect, a change of law or practice will follow which may have wide-ranging consequences for all businesses providing vouchers.

It will also make it crucial for distribution contracts to be made abundantly clear.

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