EU compliant single purpose vouchers

[koljam]

Single purpose vouchers for gift cards in the EU are subject to VAT at the time of purchase if the tax rate of the final purchase is known, while multi-purpose vouchers are only subject to VAT when used to purchase taxable goods or services.

I wrote a "small essay" on this topic in this issue over here. Quoting from there:

Multi-purpose vouchers should work with the current implementation. They are similar to how gift cards used to be handled: a form of (down-)payment. Single-Purpose vouchers on the other hand come with more problems:

There is a really lengthy discussion over at Shopify regarding this issue. They don't seem to handle single-Purpose vouchers yet.

When using gift cards as a payment method, the total tax amount doesn't get reduced. And since we already paid tax when the customer bought the gift card, we end up paying tax twice.

I think the best option would be to handle gift cards by adding them as a special line item, which has a tax rate (the same tax rate, that has been used for buying the gift card). By setting the tax rate for the gift card you decide between single-purpose vouchers and multi-purpose vouchers. Multi-purpose would probably be the way to go for people outside the EU.

Another benefit of using lines: This should work with any payment plugin, invoices, bookkeeping etc. without the need of additional customisation since they all use lines.

[michaelbromley]

Hi Kolja,
Thanks for the research you have done on this topic! Unbelievable that a platform the size of Shopify still doesn't get this right.

So that I understand this right: your suggestion is to implement gift card payment as a negative OrderLine, rather than a payment method as it currently is?

If so we could perhaps use the existing Surcharge mechanism.

[koljam]

Yea it boggles my mind...

Yes, using surcharges should work. The most important thing is, that the gift card needs to reduce the taxable amount - like a discount.

The easiest way would probably be to add a surcharge with the same tax rate which was used when buying the gift card. I will write out a quick calculation, also for myself because I still find it difficult to wrap my head around this stuff:

Single Purpose Voucher

Transaction 1
Product: Gift Card
Value: 100€
Taxrate: 19%
VAT: 19€

Transaction 2
Product: Bike
Value: 150€
Taxrate: 19%
VAT: 28.5€

Surcharge: Giftcard
Value: -100€
Taxrate: 19%
VAT: -19€

Total: 50€
Including: 9.50€ VAT
Total amount of tax paid by seller: 9.50€ + 19€ = 150€ * 19% = 28.50€

Multi Purpose Voucher

Transaction 1
Product: Gift Card
Value: 100€
Taxrate: 0%
VAT: 0€

Transaction 2
Product: Bike
Value: 150€
Taxrate: 19%
VAT: 28.5€

Surcharge: Giftcard
Value: -100€
Taxrate: 0%
VAT: 0€

Total: 50€
Including: 28.50€ VAT
Total amount of tax paid by seller: 28.50€ = 150€ * 19%

---

Does this calculation check out with the current price calculation strategy and with the tax line strategy? If yes, using negative surcharges should work for both kinds of vouchers.

[michaelbromley]

I think your tax calculations might be off. Some examples of correct calculation:

VAT rate	price ex VAT	price inc VAT	note
20%	100	120	price inc VAT = 100 * 1.2
20%	83.33	100	price ex VAT = 100 / 1.2
19%	84.03	100	price ex VAT = 100 / 1.19

So in your example transaction 1, if the gift card value is EUR 100 @ 19% VAT, then the ex-VAT price is 84.03 and the VAT part is EUR 15.97.

[koljam]

Oh no, yes, I did it the wrong way around 🤦‍♂️

Gift Cards	VAT rate	price ex VAT	price inc VAT	VAT
Gift Card (Single Purpose)	20%	100	120	20
Gift Card (Multi Purpose)	0%	120	120	0

Transaction 1	VAT rate	price ex VAT	price inc VAT	VAT
Bike	20%	300	360	60
Surcharge Gift Card (SP)	20%	-100	-120	-20
Total	--	--	240	40

or

Transaction 2	VAT rate	price ex VAT	price inc VAT	VAT
Bike	20%	300	360	60
Surcharge Gift Card (MP)	0%	-120	-120	0
Total	--	--	240	60

Using the (hopefully) right numbers I come to the same conclusion.

[michaelbromley]

I'll need to spend some time to explore how it could work to implement the gift card payment as a negative surcharge - there will possibly be some unforeseen edge-cases this creates which need to be investigated.

In the mean time, did you ever consider the "just sell a book" hack to make it so that you can legally offer multi-use vouchers?

[koljam]

Hey Michael, yes I will probably do that. Also I will probably wait with my launch until 2.0.0 is out so I get a fresh new start.