When it comes to VAT
Every entrepreneur is focused on attracting and retaining (new) customers. In practice, many different forms of loyalty rewards are developed and applied. In many cases, new customers are enticed by welcome gifts. These “free” gifts often lead to discussions for VAT purposes. For example, whether the VAT on the purchase of welcome gifts may be deducted or whether VAT is due on the welcome gift. The latter is particularly relevant if the welcome gift falls under a different VAT rate. For example, if a new customer subscribes to a magazine (9%) and the welcome gift is taxable at the standard rate (21%). It is then often required that part of the payment received for the subscription is split and 21% must be paid on it. In fact, this means that essentially two services are provided, each at a different VAT rate.
A similar loyalty campaign was also set up by an entrepreneur in Portugal. The Court of Justice ultimately decided that the entrepreneur in this case only performs one service, namely taking out a new subscription (at the reduced VAT rate). The welcome gift is deemed to be an integral part of the subscription. This entrepreneur is therefore not obliged to make a correction, neither on the payment of VAT nor on the deduction of VAT on the purchase of the welcome gift.
This ruling represents an important development, especially because in the Netherlands it is usually mandatory to make a VAT adjustment. Based on this statement, we see good opportunities to deviate from this. The facts and circumstances of the specific case are decisive. We are happy to help you assess whether or not VAT corrections need to be made.
If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com
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