The company managed a card loyalty scheme for retailers. The Revenue appealed against a decision that the company could reclaim VAT input tax on the goods purchased on the customers redeeming their points. The ECJ had decided that the service charges amounted, at least in part, to third party consideration paid by LMUK to the redeemers for the supply of goods and services to collectors, but had declined to give a concluded answer in the absence of more detail.
Held: The ECJ judgment must be considered incomplete, and the Court had to make its own assessment. The Commissioners appeal was dismissed (Wilson and Carnwath LL dissenting). Though no payment had been made as between the company and the consumer rights had been created and those were properly reflected in the invoices on which the VAT reclaims were based.
Decisions about the application of the VAT system are highly dependent upon the factual situations involved. A small modification of the facts can render the legal solution in one case inapplicable to another
Lord Reed explained: ‘The speeches in Redrow should not be interpreted in a manner which would conflict with the principle, stated by the Court of Justice in the present case, that consideration of economic realities is a fundamental criterion for the application of VAT. . [The judgments in Redrow cannot have been intended to suggest otherwise. On the contrary, the emphasis placed upon the fact that the estate agents were instructed and paid by Redrow, and had no authority to go beyond Redrow’s instructions, and upon the fact that the object of the scheme was to promote Redrow’s sales, indicates that the House had the economic reality of the scheme clearly in mind. When, therefore, . . Lord Millett asked, ‘Did he obtain anything – anything at all – used or to be used for the purposes of his business in return for that payment?’, [that question] should be understood as being concerned with a realistic appreciation of the transactions in question.
Reflecting the point just made, it is also necessary to bear in mind that consideration paid in respect of the provision of a supply of goods or services to a third party may sometimes constitute third party consideration for that supply, either in whole or in part. The speeches in Redrow should not be understood as excluding that possibility. Economic reality being what it is, commercial businesses do not usually pay suppliers unless they themselves are the recipient of the supply for which they are paying (even if it may involve the provision of goods or services to a third party), but that possibility cannot be excluded a priori. A business may, for example, meet the cost of a supply of which it cannot realistically be regarded as the recipient in order to discharge an obligation owed to the recipient or to a third party. In such a situation, the correct analysis is likely to be that the payment constitutes third party consideration for the supply.’
Lord Hope said: ‘I think that Lord Millett went too far [above] when he said that the question to be asked is whether the taxpayer obtained ‘anything – anything at all’ used or to be used for the purposes of his business in return for that payment. Payment for the mere discharge of an obligation owed to a third party will not, as he may be taken to have suggested, give rise to the right to claim a deduction. A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole.’
Judges:
Lord Hope, Deputy President, Lord Walker, Lord Wilson, Lord Reed, Lord Carnwath
Citations:
UKSC 2009/0154, [2013] UKSC 15, [2013] STI 591, [2013] 2 CMLR 51, [2013] 2 All ER 719, [2013] BVC 67, UKSC 2009/0154
Links:
Bailii Summary, SC Summary, SC, Bailii
Statutes:
Council Directive 77/388/EEC 17
Jurisdiction:
England and Wales
Citing:
At VDT – Loyalty Management UK Ltd v Customs and Excise VDT 6-Apr-2005
VDT VALUE ADDED TAX – input tax – the Appellant operates the Nectar programme under which customers who purchase goods (called primary goods) from certain retailers receive points which they may use to acquire . .
At ChD – Revenue and Customs v Loyalty Management UK Ltd ChD 22-Jun-2006
The taxpayer operated a substantial loyalty reward scheme (Nectar) for assorted companies. The Revenue appealed against an order allowing the company to reclaim input VAT. The court was asked now: ‘what is the proper characteristic, for VAT . .
Cited – Auto Lease Holland BV v Bundesamt fur Finanzen ECJ 6-Feb-2003
The court identified the need to give an autonomous meaning to the phrase ‘supply of goods’ in article 5(1) of the Sixth Directive as follows: ‘ . . .. it is clear from the wording of that provision that ‘supply of goods’ does not refer to the . .
Cited – Commissioners of Customs and Excise v Redrow Group Plc HL 11-Feb-1999
Where house builders had paid the estate agents’ fees for exchanged property on sales, the supply had been, at least in part, to the builder, and the builder could accordingly recover the agents’ VAT as input tax. A supplier could be treated as . .
Cited – Commissioners of Customs and Excise v Plantiflor Limited HL 25-Jul-2002
The company charged no VAT on its postage and packaging charged to mail order customers. The company had described it as an advance of the sums to be charged by Parcelforce.
Held: There was no separate contract between the end customer and . .
Cited – Kuwait Petroleum (GB) Ltd v Commissioners of Customs and Excise ECJ 27-Apr-1999
‘Items’ described as gifts’ which Kuwait Petroleum exchanged under a petrol promotion scheme for vouchers received by customers purchasing petrol were issued ‘free of charge’. The purchase of petrol and the exchange of vouchers for gifts were . .
ECJ Preliminary Ruling – Loyalty Management UK (Taxation) ECJ 7-Oct-2010
ECJ (prelimiary ruling) Sixth VAT Directive – Taxable amount – Sales promotion scheme – Loyalty rewards scheme allowing customers to earn points from traders and to redeem them for loyalty rewards – Payments made . .
Cited – AC-ATEL Electronics v Hauptzollamt Munchen-Mitte ECJ 2-Jun-1994
ECJ 1. Preliminary rulings – Jurisdiction of the Court – Limits – Jurisdiction of the national court – Determination and assessment of the facts of the dispute – Need for a preliminary ruling and relevance of the . .
ECJ – Loyalty Management UK (Taxation) ECJ 7-Oct-2010
ECJ Sixth VAT Directive – Taxable amount – Sales promotion scheme – Loyalty rewards scheme allowing customers to earn points from traders and to redeem them for loyalty rewards – Payments made by the operator of . .
Cited by:
See Also – Revenue and Customs v Aimia Coalition Loyalty UK Ltd SC 20-Jun-2013
Decisions about the application of the VAT system are highly dependent upon the factual situations involved. The case-law of the Court of Justice indicates that, when determining the relevant supply in which a taxable person engages, regard must be . .
Cited – Airtours Holidays Transport Ltd v Revenue and Customs SC 11-May-2016
The court was asked whether the appellant, Airtours Holidays Transport Ltd (formerly MyTravel Group plc), was entitled to recover, by way of input tax VAT charged by PricewaterhouseCoopers LLP in respect of services provided by PwC and paid for by . .
Cited – Revenue and Customs v Secret Hotels2 Ltd SC 5-Mar-2014
The Court was asked as to: ‘the liability for Value Added Tax of a company which markets and arranges holiday accommodation through an on-line website. The outcome turns on the appropriate characterisation of the relationship between the company, . .
Cited – Amoena (UK) Ltd v Revenue and Customs SC 13-Jul-2016
The court considered the proper classification under customs codes for a mastectomy bra. The First Tier Tribunal had found no evidence that it had an medical purpose beyond the containment of the breast from.
Held: The appeal succeeded.
Cited – Newby Foods Ltd, Regina (on The Application of) v Food Standards Agency SC 3-Apr-2019
The parties disputed the classification and labelling of mechanically separated meats (‘MSM’) under EU law. The ECJ had imposed a moratorium on certain products. Newby challenged that unsuccessfully, but now Newby appealed to the Supreme Court on . .
Lists of cited by and citing cases may be incomplete.
VAT, European
Updated: 29 January 2022; Ref: scu.471644