Publication date: 20/03/2020
The outbreak of the coronavirus has provoked an unprecedented surge of no-shows, postponements and cancellations in the event sector. In many cases, entrance tickets were already sold by the event-organizer or by a ticket selling intermediary. As a result, VAT on these sales has already been collected and transferred to the treasury of the competent Member State. It goes without saying that event-organizers will suffer a considerable economic hardship due to the outbreak of the covid 19 virus. In order to mitigate the economic consequences, organizers could check whether they can apply for a VAT refund of the VAT on the already sold entrance tickets.
VAT treatment of ticket sales
As a starting point, event organizers should first of all determine how the sale of entrance or admission tickets are treated from a VAT point of view in the Member State where the event takes place. After all, this is key to determine whether or not the organizer will have the possibility to ask for a VAT refund in the case of no shows, postponement or cancellation of the event.
Since national VAT legislation of the different EU Member States is based on the EU VAT Directive, one might think that ticket sales are treated in a similar way across the various EU Member States. However, that is far from the truth. In practice, we see that Member States often have different interpretations on how such sales should be treated from a VAT point of view. The main reasons for these differing interpretations can be found in (i) the different interpretations of the respective EU case law and (ii) the rather complicated rules with regard to the VAT treatment of vouchers.
As regards the EU case law, specific reference should be made to the judgements of the CJEU in the Société thermale d’Eugénie-les-bains case (C-277/05), the joined cases Air France-KLM (C-250/14) and Hop!-Brit Air (C-289/14) and to the most recent Meo case (C-295/17). In summary, the Court held in the Eugénie-les-bains case that the sum paid by the customer as a deposit for the booking of a hotel room can be considered as outside the scope of VAT when the client doesn’t show up and the sum is retained by the hotelier as a compensation for the suffered loss. In the later cases of Air France-KLM and Hop!-Brit Air however, the Court took the view that VAT remains due on the sale of airplane tickets even when the passengers don’t show up. Finally, in the Meo case, the Court took the view that the early termination fee due by the customer is deemed VAT taxable when the fee corresponds to the amount that the supplier would have received in the absence of such termination by the customer.
While each of the above mentioned cases should be read in the light of their very specific circumstances, Member States often rely on these cases in order to determine their position on the VAT treatment of ticket sales and hence on the VAT refund possibilities for the organizer in case of no shows or cancellation of the event. Since the CJEU does not hold a clear line in its judgements on cancellation fees, this seemingly contradictory EU case law definitely does not contribute to a uniform interpretation on the VAT treatment of ticket sales.
Another important reason for the differing VAT treatment of ticket sales across the Member States can be found in the complex rules on the VAT treatment of vouchers. While some Member States qualify a ticket for an event as a single purposes voucher, others take the view that event tickets are not in scope of the voucher Directive (Council Directive 2016/1065 d.d. 27.06.2016). Reason for this ambiguity can be found in the preamble of the very same Directive where it is stated that the provisions regarding vouchers should not trigger any change in the VAT treatment of admission tickets. There is discussion on how this sentence should be interpreted especially since there was not even a uniform interpretation on the VAT treatment of admission tickets before the introduction of this Directive in the first place.
In the Member States where event tickets are deemed single purpose vouchers, the service is deemed to take place when the ticket is sold to the customer. In other words, from a VAT point of view one has been granted admission to the event on the date on which the ticket was sold irrespective of whether or not the buyer goes to the event or whether or not the event takes place. As a result, this will limit significantly the VAT refund possibilities of the organizer.
According to our information, however, in most Member States the sale of entrance tickets for events is not deemed a single purposes voucher but is considered an advance payment for the admission of the entrance to the event. As with the sale of a single purpose voucher, VAT will also become due before the event takes place, namely upon the moment on which the advance payment is received (art. 65 of the EU VAT Directive). In such scenario, the organizer will have more refund possibilities in the case of no shows or when the event is cancelled.
In any case, it follows from the above that the VAT treatment of admission tickets is far from crystal clear and that this complexity might complicate the VAT refund application of the organizer.
VAT refund possibilities
If VAT has been applied on the entrance ticket, the VAT refund possibilities of an event organizer very much depend on the specific situation and should thus be analyzed on a case by case basis. Having said that, the outbreak of the covid 19 virus has shown that three main situations can be distinguished: no shows, postponements and cancellations.
In the earlier stage of the virus outbreak, many events continued anyway but organizers were confronted with an increasing number of no-shows. If the entrance fee for the event was already paid in advance and hence VAT was already declared and transferred by the organizer or intermediary to the treasury of the competent Member State, these no-shows can give rise to a refund of the already declared VAT.
There should in principle be no discussion as regards the possibility to reclaim the declared VAT if the purchase price of the ticket is entirely reimbursed to the customer. Of course, one should always take into account the specific rules and formalities of the competent Member State.
Note that even in the case where the customers are not partially or entirely reimbursed, there might be a possibility to ask for a VAT refund. This could in particular be argued if the general terms and conditions with regard to the sale of the entrance ticket determine that the price paid will be considered as a cancellation charge for the compensation of the loss suffered by the organizer in case of a no show. Again, this depends on how the above mentioned EU case law (in particular the Eugénie-les-bains case) is interpreted in the respective Member State and on whether or not ticket sales are deemed single purpose vouchers in this Member State.
Postponement of the event
If the event is postponed to a later date, there is in principle no possibility to recover the already declared VAT since there is no cancellation. The price paid will continue to be deemed an advance payment for the event. The only difference is that the event is postponed to a later moment in time. However, if customers can either choose to keep their entrance ticket or to obtain reimbursement of the entire purchase price, a VAT refund could of course be possible in the latter case (reimbursement of the client).
Cancellation of the event
If an event is cancelled and customers are allowed reimbursement, the event organizer should in principle be able to apply for a VAT refund in the Member State where the event takes place.
However, discussions might arise in those Member States where the ticket is deemed a single purpose voucher since the transfer of such a voucher is regarded as a supply of the (admission) service to which the voucher relates (art. 30 (b) (1) of the EU VAT Directive). In other words, admission to the event was granted from a VAT point of view on the moment the ticket was sold irrespective of whether or not the event actually takes place.
If customers are not allowed reimbursement of the purchase price, it will most likely be more difficult to reclaim the declared VAT back. However, in those Member States where the sale of a ticket to an event is considered an advance payment to the admission of the event, there might still be possibilities to apply for a VAT refund. After all, where an event is cancelled, no admission will be granted and hence no taxable supply will take place. The EU VAT Directive confirms in this respect that the taxable amount shall be reduced in the case of cancellation but leaves it up to the Member States to determine the conditions (art. 90.1 of the EU VAT Directive). In many Member States, VAT refund will probably only be granted if this VAT amount is actually reimbursed to the customers. This reconfirms that a case by case analysis should be made thereby taking into account the VAT legislation and refund conditions of the Member State in which the event takes place.
Making terms and conditions future proof
Event-organizers and ticket selling intermediaries will most likely review their terms and conditions as a result of the outbreak of the covid 19 virus in order to make them virus proof for the future. In this respect, it is recommendable to also take into account the VAT consequences of no-shows, postponement or cancellation of the event in order to safeguard as much as possible the VAT refund possibilities.
It is beyond any doubt that the outbreak of the covid 19 virus will have huge consequences for the event sector. Event organizers should therefore check whether they have VAT refund possibilities in order to partially mitigate the economic impact of this crisis and make sure that they don’t end up paying the VAT twice. At the same time, it is highly recommendable to safeguard VAT refund possibilities in the case of no-shows, postponements and cancellations when making the terms and conditions virus proof for the future.
Of course, given the unprecedented current situation, it could be that individual Member States grant individual VAT relief or refund possibilities for event organizers, outside the scope of the current VAT rules and referred case law. Our firm monitors these evolutions all over the EU.