Uplatneni DPH u darku pro nove zakazniky

Applying VAT to gifts for new customers

The Court of Justice of the EU ("CJEU") has published its judgment in Case C-505/22 Deco Proteste - Editores Lda, which deals with the (non-)application of VAT on "gifts" offered by a Portuguese magazine publisher to new subscribers.

The new subscriber received a smartphone or tablet and was not bound by a minimum subscription period - i.e. he could keep the gift even if he cancelled his subscription after the first monthly payment. The company considered that it was a "gift of small value" (up to a limit of CZK 500 in the Czech Republic, more complicated rules apply in Portugal) and therefore did not have to pay tax. The company taxed the whole package at the reduced VAT rate of 6% applicable to magazines.

The Portuguese tax authorities disagreed with the company's approach, stating that the conditions of the local definition of a "small value gift" were not met, and charged the company VAT at 23% on the purchase price of the phones and tablets.

In the end, the CJEU did not consider whether the definition of a small-value gift was met at all and concluded that it was not a free transfer of property but a supply of goods for consideration, which in this case was not a separate supply but ancillary to the subscription service. In simple terms, therefore, the CJEU confirmed that the gift is part of the subscription to the magazines.

Interestingly, the text of the judgment mentions that the price of the subscription was much higher if it included the gift. However, the CJEU does not state whether this information was relevant to its decision. Similarly, it is not entirely clear how much its conclusions were influenced by the fact that tablets and mobile phones allow subscribers to view digital versions of magazines (and therefore make better use of their subscriptions).

The judgment is consistent with the conclusions of the earlier Coordination Committee 115/29.03.06 - Rate of tax on supply of periodicals with CDs or DVDs. At that time, the Czech Ministry of Finance confirmed that in most cases the same VAT rate would apply to CDs and DVDs accompanying magazines as to the magazines themselves.

This judgment sheds a little more light on the issue of marketing promotions and various incentive schemes. However, it is still not easy to find a a clear-cut solution and determine the correct tax regime. It always depends very much on the specific set-up of the incentive schemes. At the same time, there is no indication that the CJEU intends to revisit its previous (rather strict) decisions on other forms of customer incentive schemes. We therefore recommend paying attention to the appropriate setting of their terms and conditions.

If you have any questions, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

David Kužela

Jevgenija Bajzíková