Is output VAT due on retail vouchers given to employees under an employee award scheme?

The company GE Aircraft Engine Services Ltd set up a programme, under which, any employee could nominate a colleague for acts which he or she considered to be deserving of reward, in accordance with that programme’s rules and conditions.

As an award, the nominated employees were offered retail vouchers, which they could redeem from referenced retailers.

The issue concerned was whether the supply of retail vouchers to the company's employees, as part of this programme, is a supply of services for private use of their staff, and thus should be treated as a supply of service for consideration subject to VAT within the meaning of Article 26 (1) (b) of the EU VAT Directive.

The Court of Justice of the EU argued that award of the vouchers was not for private use of the company's staff because:

• The award of those retail vouchers does not take place for the employees’ private use, since they have no means of ensuring with certainty that they will receive them. The initiative for awarding them lies with other employees of the company and is made on the basis of strictly professional criteria.
• That supply of services gives the company an advantage in the form of the prospect of increasing its turnover as a result of the greater motivation of its employees and, as a result, an improvement in their performance.
• The personal advantage which employees derive from such a supply appears to be merely incidental to the requirements of the business.
• The supplies had been made for business purposes, since the purpose of those supplies was to increase the volume of sales of the company in question (comparison with judgment C‑48/97 Kuwait Petroleum).
• The retailers declare output VAT on the value of the retail vouchers at issue. In so far as VAT is not applied on the supply of retail vouchers to the employees within the respective programme, the principle of fiscal neutrality is not infringed.

CJEU concluded that a supply of services consisting, for a business, in offering retail vouchers to its employees, in the context of a set up programme, designed to recognize and reward the most deserving and high-performing employees, does not fall within the scope of Article 26(1)(b) of the EU VAT Directive, i.e. is not treated as a supply of services for consideration subject to VAT.

The reward programme was however specific due to the set up rules and conditions and was related to a situation before introduction of harmonized rules for VAT treatment of transactions involving vouchers. Assessment of VAT implications of programmes for rewarding employees should be subject to careful analysis considering their individual features.