In past years the EU Council has deemed the provisions in the EU VAT Directive (Directive 2006/112/EC) as applicable to vouchers as "not clear". This directive was found not substantial enough to ensure a harmonised VAT treatment between Member States. These shortcomings prompted the Council to consider introducing new provisions for the common treatment of vouchers across the EU.

Consequently, the Council adopted a Directive (Directive 2016/1065) – the EU Vouchers Directive – which came into force on 1 January 2019. The change has affected businesses such as retailers and distributors who issue and redeem vouchers as well as those who buy and sell vouchers.

How does this change affect Retailers and Distributors?

The new rules distinguish between single purpose vouchers (SPVs) and multiple purpose vouchers (MPVs).

In the case of an SPV, the place of supply of the good or the service and the VAT amount are known at the time the voucher is issued. Therefore, it is possible to determine the VAT rate when issuing the voucher. Customers can redeem the purchased gift card only for services which the selected VAT rate applies to.

In the case of an MPV, at least one of these two elements is still unknown. Therefore, an MPV is subject to the VAT obligation only when the voucher is redeemed for services. A receipt will be printed when the gift card is used as the method of payment, and it will include particular services, instead of the gift card itself.

How can Microsoft Dynamics 365 for Retail help?

With Microsoft Dynamics 365 for Retail Gift card functionality it is possible to setup gift cards having the sales tax calculated on gift card transactions in the case of SPVs or at time of redemption as is in the case of an MPVs.

This sales tax functionality comes in addition to:

• Omni-channel usage of cards. Customers can buy a card online and use it in a brick and mortar store or vice-versa;
• Add Funds. Ability to add funds or top-up a gift card;

• Redeem in Multiple transactions. Use Gift cards in more than one transaction;

• Cross-company or cross-brand gift cards. Gift cards can be sold and accepted by retail stores across legal entities. In this scenario, one legal entity in an organization holds the liability balance for gift cards and appropriate Intercompany due from/ due to balances are posted to the entities that sell the gift cards;
• Appropriate Financial recognition of Gift Card balance. When the gift card is sold, or funds added to a gift card, the liability is accrued in the balance sheet. When payments are made with the gift card, the gift card liability is relieved for the corresponding amount;
• Card Transaction History. Full Transaction History including load, addition of funds, funds transfer, redemptions are maintained on the card and available for inquiry as shown below.

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