Gabelle Tax Analysis: VAT liability on the supply of phone cards
The European Court of Justice has decided in the case of Lebara  ECJ-520/10 that the supply of phone cards by Lebara to distributors in other member states who then on-sold the cards to customers involved a single supply of telecommunication services by Lebara.
HMRC contended that there were two supplies by Lebara, being the issue of the card and the redemption of the card by the end user, both of which were subject to VAT. However, the Court found that only a single supply of telecommunication services was made. Lebara only received a single actual payment in the course of supplying its telecommunication services. Further, that payment could not be treated as a payment made to Lebara by the end user, even if the resale of the phone card by the distributor ultimately leads to the burden of making that payment being passed on to the end user.
Lebara sold phone cards to distributors for an amount lower than the face value of the cards. The distributors, acting in their own name and not as agents of Lebara, resold the cards at their face value. The phone cards were activated by Lebara following a request by the distributor, provided that the distributor had paid for them. Lebara did not know the identity of the user, but had systems in place which enabled it to track each card sold, whether the card was still valid, the amount of unused credit and the numbers called – the distributors did not have access to that system.
Lebara did not account for VAT on the sale of phone cards to distributors on the basis that the transaction was a supply of telecommunication services in the Member State in which the distributor was established and that, in consequence, it was the distributor which had to pay the VAT in that Member State in accordance with the reverse charge mechanism.
Lebara contended that the actual use of the card did not entail the supply by Lebara, for consideration, of services to the end user. The Court agreed that there was a single supply of telecommunication services subject to VAT in the distributors’ member states under the reverse charge.
Revenue & Customs Brief 12/2012 VAT: Changes to the treatment of single purpose face value vouchers published on 10 May has confirmed that a new clause will be introduced in the Finance Bill to amend VAT ACT 1994 Sch10A so that single-purpose face value vouchers will be subject to VAT when they are issued rather than on redemption. A single-purpose face value voucher is one that carries the right to receive only one type of goods or services all subject to a single rate of VAT. The new accounting procedure will be effective from Royal Assent; however, VAT repayment claims may be possible for transactions before that date which have been incorrectly taxed.