CJEU on awarding free-of-charge vouchers to employees

GE Aircraft Engine Services Ltd is engaged in the production of aircraft jet engines. To reward its best performing employees, the company introduced an employee programme under which nominated employees received a voucher for the purchase of selected goods from unrelated retailers.

The company purchased the vouchers from another company within the corporate group and claimed the right to deduct VAT on the purchases but did not pay output VAT. The tax administrators maintained that this was a gratuitous provision of services by a taxable person for the use of its employees (i.e., for purposes unrelated to its business), and, on these grounds, demanded the payment of output VAT.

According to the CJEU, employee motivation is related to the business purpose.

To the CJEU, the British court therefore referred the preliminary question whether awarding vouchers to employees of a company for purchases from retailers constitutes the provision of a service for the use of its employees for purposes other than those of its business.

According to the CJEU, it is necessary to assess all circumstances under which a programme takes place, in particular its nature and objective. In the present case, the CJEU believed the aim of the rewarding was to motivate employees, increase their performance, and thus contribute to the entire company’s higher profitability. The CJEU thus concluded that in this case, this was the gratuitous provision of a service for the purpose of increasing the company’s performance, therefore a provision of a service for the purpose of the company's business activity. It is therefore not necessary to pay output VAT on the given supply (provision of vouchers free-of-charge).