Summary
In a new tax ruling (1108/25), the Israel Tax Authority is upending long-standing norms in the gift card industry by determining that vouchers that have expired without being redeemed shall be deemed a transaction subject to VAT. This position contradicts the practice that prevailed for decades, under which VAT liability crystallized only upon redemption of the voucher and actual consumption of the service or product. The implication of this ruling is that marketing companies issuing such vouchers will be required to issue a tax invoice and pay VAT even on funds retained by them without any consumer consideration having been provided.
This article analyzes the legal and economic flaws in this ruling, emphasizing the critical distinction between income tax (which applies to profit) and VAT (which is intended to apply to consumption). The central argument is that in the absence of redemption, no "transaction" as defined by law has occurred, and therefore imposing VAT on non-redemption constitutes a distortion of fundamental tax principles. Additionally, the article highlights the problematic application of Regulation 5 (deposits) to gift card funds, which do not constitute deposits in substance.
This is an essential analysis for all professionals in the retail, marketing, and loyalty club sectors, as the ruling creates a new and unforeseen tax exposure that necessitates renewed legal and accounting preparedness in response to the Tax Authority's requirements.
