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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Associated Newspapers Ltd v Revenue & Customs (VAT - INPUT TAX : Other) [2015] UKFTT 409 (TC) (13 August 2015) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2015/TC04586.html Cite as: [2015] UKFTT 409 (TC) |
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[2015] UKFTT 409 (TC)
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TC04586
Appeal number: TC/2014/06561
TC/2015/00081
TC/2015/02402
TC/2015/02967
TC/2015/03546
|
FIRST-TIER TRIBUNAL
TAX CHAMBER
|
ASSOCIATED NEWSPAPERS LIMITED |
Appellant |
-and-
|
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS |
Respondents |
TRIBUNAL: |
JUDGE KEVIN POOLE
|
Sitting in public in The Royal Courts of Justice, London on 7, 8 & 9 July 2015
John Walters QC, instructed by KPMG LLP for the Appellant
Kieron Beal QC and Simon Pritchard of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2015
DECISION
1. This appeal is closely related to an earlier appeal between the same parties, in respect of which a decision of this Tribunal was issued on 24 January 2014 under reference [2014] UKFTT 116 (TC).
2.
Both appeals concern the VAT
treatment of
certain retailer
vouchers
distributed by the appellant as part of its sales
promotion efforts for its newspapers. The earlier appeal (“ANL(1)”) was
concerned with the output tax liability of the appellant in respect of its
distribution of the
vouchers
to its customers. This appeal is concerned with
its recovery of input tax on its purchase of the
vouchers.
3. I received witness statements from James Welsh, Finance and Operations Director of DMG Media Limited (of which the appellant is a subsidiary) and Philip Ross, Indirect Tax Compliance Manager of the appellant. Both also gave live evidence to supplement their witness statements.
4. The parties had also agreed a “Statement of Facts not in Dispute” as follows:
“1. The Appellant publishes the Daily Mail and the Mail on Sunday newspapers.
2. During the period from 2007 to 2010, it ran a series of promotions under an initiative which it called “SPICE” (Sales Performance Improvement by Circulation Excellence).
3. Through mailshots to addresses
where it was believed the occupiers already took home delivery of competitor
newspapers (and later through other methods), the Appellant made a special
introductory offer of its own titles. The basic offer involved a 50% reduction
on the cover price of the Daily Mail and the Mail on Sunday if the customer
took them by newsagent daily delivery for a period of 12 or 13 weeks. The
customer was supplied with half price coupons which were redeemable at the
newsagent. The customer thus paid the newsagent in cash for the other 50% of
the price of the newspapers and also paid the delivery charge in full. At the
end of the 12 or 13 week promotional period, the customer was legally entitled,
if he had continued to take the newspapers throughout that period, to a voucher
from a high street retailer (typically Marks & Spencer, ASDA or
Sainsbury’s, at the customer’s election) to a set
value.
At different times,
the
value
of the
voucher
offered was
various
amounts between £10 and £100. The
customer was contractually entitled to the
voucher
if he fulfilled his
commitment to purchase the paper, seven days a week, by home delivery for the
length of the promotional period. In addition, the participating newsagents
were also provided with a similar
voucher
(typically £5 for each customer who
continued throughout the promotional period).
4. The vouchers
had to be claimed
within one month of the offer letter. There was no separate or additional
payment for the retailer
vouchers.
5. Under the SPICE promotion as it
operated in the period from 2007 to 2010, the vouchers
were issued direct to
the Appellant by Marks & Spencer and other retailers (“Retailers”). The
Appellant was actually able to negotiate a purchase price for the
vouchers
which represented a discount to the face
value.
Subsequently, the Appellant has
also purchased
vouchers
from an intermediary supplier of
vouchers
called Hut
com Limited, trading as The Hut.
6. The Retailers charged what
purported to be VAT
to the Appellant on its issue of the
vouchers.
The
intermediate supplier Hut com Limited has charged
VAT
on the sale of
vouchers
to the Appellant. In the case of supplies from Hut com Limited, the Respondents
do not dispute that the Appellant has incurred input tax on the purchase of the
voucher.
7. The Appellant wrote to the
Respondents on 7 August 2007 with respect to the VAT
treatment of the
vouchers.
After setting out the background and a summary of the promotions under the
SPICE initiative, it explained that it was reclaiming the input
VAT
charged to
it by Marks & Spencer and it was not accounting for any output
VAT
on the
delivery of
vouchers
to its customers. It gave a justification for this
approach and sought the Respondents’ confirmation that they agreed with it.
8. By letter dated 5 November 2007, the Respondents replied. Their letter included the following text:
“I have been
advised by our Policy team that the VAT
charged on the purchase of face
value
vouchers
can be recovered as if it were input tax subject to the normal rules,
in line with the
VAT
Information Sheet 12/03. We will not apply the Supply of
Services Order to these transactions and there is therefore no output tax due.”
9. In addition, the letter made it clear that this ruling was only temporary as the whole area was under review. The outcome was expected by the end of 2007.
10. On 27
July 2009 the Respondents wrote again to the Appellant, stating that they were
now revising their earlier ruling. From that date on, they said, the “published
policy” would apply. They quoted that policy as follows (by reference to
paragraph 14 of VAT
Information Sheet 12/2003):
“Where face
value
vouchers
are purchased by businesses for the purpose of giving them away
for no consideration (e.g. to employees as ‘perks’ or under a promotion scheme)
the
VAT
incurred is claimable as input tax subject to the normal rules. Output
tax is due under the
Value
Added Tax (Supply of Services) Order 1993. Therefore
all
vouchers
given away for no consideration will be liable to output tax to
the extent of the input tax claimed.”
11. In
consequence of this, they went on to require the Appellant to “account for
output tax on all face value
vouchers
given away for no consideration to the
extent that you have incurred input tax.”
12. The
Appellant immediately wrote to the Respondents on 10 August 2009 to object to
the change of treatment. They pointed out that nothing had changed since the
2007 ruling, so they could not see why the Respondents’ view
should have
changed.
13. This resulted in further activity (both correspondence and meetings) over the next 2 years, before the Respondents wrote a formal decision letter dated 18 October 2011.
14. In that
decision letter, after explaining why they rejected any suggestion that (a) the
vouchers
amounted to a retrospective discount for the sale of the newspapers or
(b) the customers had given consideration for the
vouchers
(neither of which
arguments has been persisted with by the Appellant), they went on to say:
“I believe
that the vouchers
should be treated as supplied for free in line with
VAT
Act
1994, Schedule 10A, para 7(b). As such output tax is due to the extent that
input tax has been claimed as per the
VAT
(Supply of Services) Order 1993.
HMRC decision
I consider
that the customer does not pay anything extra for the provision of the M&S
vouchers.
On that basis there is no monetary or non-monetary amount that it
could be said that the customer pays to receive the
voucher.
They do have to
purchase the paper and they pay a discounted amount for that, but that amount
is the consideration for the supply of the newspaper, not the
voucher.
ANL also
pay M&S a discounted amount for the
vouchers,
but that is for the supply of
the
vouchers
between those two parties, the amounts that ANL pay to M&S
cannot also represent consideration for the supply of the
voucher
by ANL to the
customer. As the
vouchers
are provided for no consideration they cannot be
considered to be part of the supply of a zero rated newspaper. The provision of
the
vouchers
for no consideration is deemed to be a supply of services under
the terms of the SoSO, and Sched 10, para 2.
In giving
away these vouchers
for no consideration, ANL are deemed to be making a supply
of services for
VAT
purposes under the terms of the Supply of Services Order
1993. Under para 5 of that Order, they are also required to account for output
tax on the basis of the cost to them of the M&S
vouchers.
I consider
that ANL is required to account for output tax to the extent that they incur
input tax on the supply of these vouchers
to them.”
15. Following a statutory review, the Respondents’ decision was confirmed in a letter dated 15 December 2011.
16. An appeal
against that decision was brought by the Appellant before the First-tier
Tribunal (‘the Output tax appeal’). In its decision in Associated Newspapers
Ltd
v.
HMRC [2014] (TC), the First-tier Tribunal allowed the appeal. That
decision is presently subject to an appeal to the Upper Tribunal, due to be
heard in October 2015.
17. From 27
July 2009, the Appellant ceased claiming recovery as input tax of the VAT
charged to it by Marks & Spencer and the other suppliers of
vouchers.
It
resumed claiming recovery of input tax with effect from
VAT
period 09/14.
18. In their Grounds of Appeal to the Upper Tribunal, the Respondents in the present appeal relied, inter alia, on Ground 3 which states:
“Alternatively,
any input tax incurred directly and immediately in respect of the supplies of
the retailer vouchers
cannot be reclaimed”.
19. The Appellant subsequently wrote to the Respondents on 1 August 2014 seeking a determination regarding protective claims for input tax that the Appellant had been submitting pending the final determination of the Output Tax Appeal.
20. The Respondents rejected the input tax claims on 12 November 2014. The Appellant appealed against the decision on 5 December 2014. This appeal was given the reference TC/2014/06561.
21. The Respondents subsequently rejected further input tax claims. The Appellant appealed against each rejection to the First-tier Tribunal. These subsequent appeals were given the references TC/2015/00081, TC/2015/02402 and TC/2015/_____.
22. The
latter two of the above appeals related to input tax incurred on vouchers
supplied to customers under the Mail Rewards promotion which was the successor
to SPICE. The Mail Rewards promotion will be the subject of evidence before the
Tribunal.”
5. I heard evidence about the “Mail Rewards” promotion referred to at paragraph [22] of the above statement, as well as another promotion known as the “Subscription Promotion”.
6.
The Subscription Promotion was a variant
on the
SPICE programme, and only ran for a short time. Instead of approaching
customers through newsagents, the appellant approached them direct. A customer
who agreed to participate would be sent coupons through the post which he could
use to “pay” for the newspapers. He might have them delivered by a newsagent,
or he might simply buy them from a shop. At the end of a set subscription
period, the customer became entitled to receive retailer
vouchers
in the same
way as in the SPICE campaign.
7. The Mail Rewards promotion was the main successor to SPICE. It started in the summer of 2011. It was the subject of a contract with The Hut.com Limited (“the Hut”) dated 25 May 2011 which had been included in the bundle before the Tribunal in ANL(1) but was not in the bundle for this appeal though it was produced to me during the course of the hearing.
8.
The basic structure of the Mail Rewards scheme
was as follows. Members of the public could register an account with the
appellant (usually done online, but it could be done by telephone). When they
bought copies of the Daily Mail or the Mail on Sunday, there were unique
reference numbers printed on them, which they could register with their account
(again, either online or by telephone) and the system
automatically credited
their account with “points”. Papers bought from Monday to Friday earned 20
points each, the Saturday paper earned 75 points and the Sunday paper earned
100 points. If a customer bought all the papers in a whole week, a bonus of 50
points was also added.
9.
The points could be redeemed for various
rewards, including some goods but also retailer
vouchers
(which were easily the
most popular rewards claimed).
10.
The website, the underlying computer system
and
the management of the Mail Rewards promotion was managed by the Hut, for which
it was paid a fee (which was subject to
VAT
on the normal basis, there being no
dispute about the appellant’s entitlement to deduct that
VAT
as input tax). As
Mr Welsh described it, the Hut “fulfilled” the promotion on behalf of the
appellant.
11.
As to the sourcing of the retailer vouchers,
the
Hut generally purchased them in batches and invoiced them on to the appellant
at cost, though the appellant actually negotiated the discounted prices direct
with the retailers. There were some exceptions to this. In relation to Tesco,
for example, the relationship was such that the appellant continued throughout
to buy the required
vouchers
direct; and over time the appellant took back
in-house the
voucher
purchase process in many cases, buying direct rather than
through the Hut – for reasons which were not explored in any detail before me,
but do not appear relevant in any event.
12.
It can readily be seen that although the detail
of the Mail Rewards promotion is substantially different, it contains the same
key elements as SPICE, in that the appellant’s customers become contractually
entitled to receive the retailer vouchers
from the appellant as a result of
their participation and the appellant sources those
vouchers
at a discount to
face
value
– though the new element in the Mail Rewards promotion is that some
vouchers
are acquired by purchase from the Hut rather than directly from the
retailers.
13.
The precise basis on which the Hut buys and
on-sells the vouchers
(i.e. whether it acts as principal or as agent) was not
explored in detail before me, but Mr Beal did not indicate that HMRC wished to
revisit their previous acceptance that such
vouchers
were the subject of
sequential supplies for
VAT
purposes (the first by the retailer to the Hut and
the second by the Hut to the appellant). The contract with the Hut appeared to
contemplate that the appellant would purchase the
vouchers
and have them
delivered to the Hut for onward delivery to customers, but in practice it
appears that
vouchers
were actually obtained from a number of retailers by the
Hut and then recharged (and re-invoiced) at cost to the appellant.
14.
Article 1(2) of Council Directive 2006/112/EC
on the Common System
of
Value
Added Tax (“the PVD”) sets out the key principle
behind the
VAT
system
as follows:
“The principle of the common system
of
VAT
entails the application to goods and services of a general tax on consumption
exactly proportional to the price of the goods and services, however many
transactions take place in the production and distribution process before the stage
at which the tax is charged.
On each transaction, VAT,
calculated on the
price of the goods or services at the rate applicable to such goods or
services, shall be chargeable after deduction of the amount of
VAT
borne
directly by the
various
cost components.
The common system
of
VAT
shall be applied
up to and including the retail trade stage.”
15.
Article 2(1)(c) of the PVD provides that “the
supply of services for consideration within the territory of a Member State by
a taxable person acting as such” is to be subject to VAT;
and Article 24
provides that a “supply of services” means “any transaction which does not
constitute a supply of goods.”
16. Article 9(1) provides that a “taxable person” for this purpose is “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”
17. Article 16 deals with private use, etc., of goods of a taxable person as follows:
“The application by a taxable person of
goods forming part of his business assets for his private use or for that of
his staff, or their disposal free of charge or, more generally, their
application for purposes other than those of his business, shall be treated as
a supply of goods for consideration, where the VAT
on those goods or the
component parts thereof was wholly or partly deductible.
However, the application of goods for
business use as samples or as gifts of small value
shall not be treated as a
supply of goods for consideration.”
18. Article 26 (which was the subject of detailed consideration in ANL(1)) deals with certain transactions which are to be treated as a supply of services for a consideration:
“(a) the use of goods forming part of the
assets of a business for the private use of a taxable person or of his staff
or, more generally, for purposes other than those of his business, where the
VAT
on such goods was wholly or partly deductible;
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.”
19. Article 62(2) provides that:
“VAT
shall become ‘chargeable’ when the tax
authority becomes entitled under the law, at a given moment, to claim the tax
from the person liable to pay, even though the time of payment may be
deferred”.
20. Finally, Articles 167 and 168 provide (in material part) that:
“Article 167
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168
Insofar as the goods and services are used
for the purposes of the taxed transactions of a taxable person, the taxable
person shall be entitled, in the Member State in which he carries out these
transactions, to deduct the following from the VAT
which he is liable to pay:
(a) the VAT
due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be
carried out by another taxable person…”
21.
The provisions of Schedule 10A (Face-value
Vouchers)
of
Value
Added Tax Act 1994 (“
VATA”)
are set out in Appendix 1 to
this decision.
22.
For reasons which are touched on below, I do
not consider it necessary or appropriate to summarise the voluminous
case law
to which I was referred on the question of the deductibility of the appellant’s
input tax incurred in connection with its purchases of
vouchers.
23.
I do consider it appropriate however to
summarise the key cases to which I was referred in relation to the VAT
issues
arising in respect of
vouchers.
24.
First, there was the ECJ decision in Argos
Distsributors Limited
v
Customs & Excise Commissioners (ECJ) [1996] STC 1359. This case was concerned with establishing
the correct taxable amount received by
Argos
on its supplies of goods which
were partly or wholly paid for by retailer
vouchers
which
Argos
had itself
previously issued at a discount to their face
value.
The ECJ held that “the
consideration represented by the
voucher
is the sum actually received by the
supplier upon the sale of the
voucher”
and not its (higher) face
value,
even if
the customer who presented the
voucher
had no knowledge of the original issue
price of the
voucher.
This case therefore has nothing to say about the
VAT
treatment of supplies of the
vouchers
themselves.
25.
The next case I was referred to was the ECJ
case of Elida Gibbs Limited v
Customs & Excise Commissioners (ECJ)
[1996] STC 1389. Again, the case was concerned with the taxable amount for
which a supplier of goods was accountable. Elida Gibbs was a manufacturer of
toiletries, some sold direct to retailers and some to wholesalers. Elida Gibbs
operated two promotion schemes involving coupons or
vouchers.
In the first, it
distributed “money off” coupons
via
newspapers and magazines; customers were
entitled to deliver these to retailers in part payment for the company’s
products and Elida Gibbs reimbursed the discount direct to the retailers. In
the second, it printed “cash back” coupons or
vouchers
on product packaging,
which entitled ultimate consumers to obtain a price rebate direct from Elida
Gibbs. It claimed to deduct the payments it made under both schemes in
calculating the taxable amount for which it was liable on its sales of the
toiletries. The ECJ held it was entitled to do so, on the basis that “… it
would not… be in conformity with the directive for the taxable amount used to
calculate the
VAT
chargeable to the manufacturer as a taxable person, to exceed
the sum finally received by him.”
26.
It was pointed out that this might “upset the
functioning of the VAT
machinery” because it would potentially require every
supplier in the chain, retroactively, to adjust the price paid (and
corresponding
VAT
amount). The ECJ disagreed, saying (at [33]) that:
“there is no need to readjust the taxable
amount for the intermediate transactions. On the contrary, that amount remains
unchanged, since, for those transactions, observance of the principle of
neutrality is ensured by application of the conditions for deduction set out in
Title XI of the Sixth Directive. Under those conditions, the intermediate
links in the distribution chains, such as wholesalers and retailers, may deduct
from their own taxable amount the sums paid by each to his own supplier in
respect of VAT
on the corresponding transaction and thus pass on to the tax
authorities the part of the
VAT
representing the difference between the price
paid by each to his supplier and the price at which he supplied the goods to
his purchaser.”
27.
In other words, as the intermediaries all accounted
for net VAT
on the basis of their profit margin and that margin was in each
case unaffected as a result of the adjustment to Elida Gibbs’ taxable amount,
no
VAT
adjustments were required in the chain of supply.
28.
The next case to which I was referred was the
ECJ case of Kuwait Petroleum (GB) Limited v
Customs and Excise Commissioners
(ECJ) Case C-48/97; [1999] All ER (EC) 450. This case was concerned with the
taxpayer’s output
VAT
liabilities in connection with a business promotion
scheme. Customers who bought its fuel (whether from the taxpayer direct or
from participating retailers) were offered
vouchers,
issued by the taxpayer,
which they could exchange with the taxpayer for goods. The taxpayer deducted
input tax on its purchase of the redemption goods (which was not questioned).
The court held that the redemption goods were not being supplied at a “rebate”
or “discount” and accordingly it could not be said that the taxable amount it
received for them was (as a result of such rebate or discount) nil. The
crucial question was whether the taxpayer made a “disposal… free of charge” of
the redemption goods, thus triggering an output tax liability by
virtue
of what
was then Article 5(6) of the Sixth
VAT
Directive (now Article 16 PVD). The
Court held that it did, and it was immaterial that it was doing so for business
purposes. In reaching this conclusion, it effectively dismissed the taxpayer’s
argument that the goods were disposed of for a consideration (rather than free
of charge), that consideration being an identifiable fraction of the price paid
when the original fuel was purchased. The Court held that goods were only
supplied “for a consideration” in this sense “if there is a legal relationship
between the supplier and the purchaser entailing reciprocal performance, the
price received by the supplier constituting the
value
actually given in return
for the goods supplied.” This was a matter for the domestic courts to resolve,
but it appeared unlikely in that case, because (a) the goods were described as
“gifts” and (b) the price paid for the fuel by the customer was the same,
whether or not he took the offered
vouchers.
29.
The next case to which I was referred was Revenue
& Customs Commissioners v
IDT Card Services Ireland Limited (Court of
Appeal) [2006] EWCA Civ 29; [2006] STC 1252. As a preliminary point, it is
important to note that this case concerned “credit
vouchers”
and not “retailer
vouchers”.
The UK provisions governing the two situations are similar, but not
exactly parallel in some important respects.
30.
In that case, the Court of Appeal was
considering a situation in which multifunction phone cards were issued by an
Irish company to distributors and retailers in the UK. The cards entitled the
ultimate users to access telecommunications services provided by another Irish
company. Under Irish VAT
law, the supply of such cards within Ireland was subject to
VAT
and their subsequent use to obtain telecommunications services
was outside the scope of Irish
VAT.
Where the cards were supplied to UK users or distributors, no Irish
VAT
was charged on either the supply of the card or of
the telecommunications services on its redemption. Under UK law, the cards
were treated as credit
vouchers,
and in principle the consideration given for
such supplies was disregarded for
VAT
purposes under paragraph 3(2) of Schedule
10A (see Appendix 1); when the cards were redeemed, in principle the resulting
supply of telecommunications services was subject to
VAT.
However, where (as
in that case) the telecommunications services were supplied from Ireland to UK
consumers by an Irish
VAT
registered trader, the place of supply of the
telecommunications services was fixed under Article 9 of the Sixth
VAT
Directive as being in Ireland, and therefore falling outside the scope of UK
VAT.
The result was that no
VAT
was charged, either in Ireland or in the UK, on the issue or distribution of cards or their subsequent use by UK consumers.
31.
HMRC sought to get around this loophole by
seeking to apply paragraph 3(3) of Schedule 10A to recover what they considered
to be the unpaid UK VAT
from the UK suppliers of the cards by arguing that the
telecommunications supplier in Ireland had “fail[ed] to account for… the
VAT
due on the supply” of telecommunications services when the cards were used.
The difficulty facing them was that under Irish
VAT
law, no
VAT
was due on that
supply, for the reasons summarised above.
32.
Applying the Marleasing rule of
interpretation, however (see the ECJ case of Marleasing SA v
la Commercial
Internacional de Alimentacion SA [1990] C-106/89), the Court of Appeal had
no difficulty in finding that it was “under an obligation to interpret para 3
[of Schedule 10A] as far as possible in the light of the wording and purpose of
the Sixth Directive and specifically to prevent the non-taxation of the
supplies to the UK distributors of ICSIL’s phonecards, or other taxpayers in
the same position” (para [121]).
33. The appropriate interpretation of paragraph 3 of Schedule 10A was, in the circumstances:
“… to read in words to widen the disapplication in para 3(3) of the disregard in para 3(2) so that the disapplication applies where the disregard would result in the non-taxation, contrary to the objectives of the Sixth Directive…, of a taxable supply of goods or services in the United Kingdom”.
34.
Whilst the case said a great deal about the
application of the Marleasing principle, it said much less about the
general scheme of taxation of vouchers.
Arden LJ did however observe that
Schedule 10A had been introduced in response to the
Argos
decision, and
represented a choice from the
various
policy options available in response to that
decision. She also observed, in passing (at [13]) that:
“Schedule 10A also makes provision for the
treatment for VAT
purposes of the issue of non-credit
vouchers.
The scheme of
the charging provisions is on the face of it similar, but it is only the first
issue and not the subsequent supply of the
voucher
that is disregarded for the
purposes of the application of
VATA
1994 (and then only to the same extent as
credit
vouchers
under para 3(3) of Sch 10A). If the phone cards issued by ICSIL
were non-credit
vouchers,
no question could have arisen of the supply of
phonecards by United Kingdom distributors to members of the public in the UK without charging
VAT.”
35. She did not explore the implications of this brief statement (which was, obviously, obiter) in any way which casts light on its relevance to the facts arising in this case.
36.
The next case to which I was referred with
direct relevance to vouchers
was Astra Zeneca UK Limited
v
Revenue &
Customs Commissioners (ECJ) [2010] STC 2298. That case involved a taxpayer
which bought retailer
vouchers
and offered them to its employees in part
satisfaction of their remuneration. When an employee elected to take a
voucher
(typically to a face
value
of slightly more than the remuneration foregone),
the employer was making a supply of services (i.e. a supply of the
voucher
and
not of the goods or services for which it could be redeemed) and that supply
was being made for a consideration, namely the amount of remuneration foregone
by the employee. The employer was therefore chargeable to output
VAT
on the
consideration it received (and was also entitled to deduct the input
VAT
it had
incurred on acquiring the
vouchers
in the first place).
37.
The case casts little wider light on the issue,
though the Court noted (with approval) that the effect of its ruling was that
the employee, as consumer, ended up bearing the cost of the VAT
on the goods or
services ultimately supplied on redemption of the
voucher.
38.
Finally, I was referred to the case of Lebara
Limited v
Revenue and Customs Commissioners [2012] STC 1536. That case was
again concerned with sales of phone cards (followed by the use of such cards to
obtain international telecommunications services). The cards themselves
contained “all the information necessary for making international telephone
calls”. The question referred to the ECJ in that case was, broadly, whether
this amounted to two separate supplies by the telecommunications service
operator (first a supply of the card to its distributors and subsequently a
separate supply of telecommunications services to the end user of the card) or
just a single supply. The ECJ’s answer was that in this case there was just a
single supply of telecommunications services to the distributors and no second
supply of those services by the operator on use of the card. Effectively, as
the nature and extent of the ultimate supply could be identified with clarity
from the outset, and the operator entered into no contractual relationship with
the end user of the telecommunications services, it was making just a single
supply of telecommunications services to the distributor (and the distributor
would therefore have been making a subsequent supply of such services to the
end user).
39.
Whilst Lebara is not directly relevant
to the present appeal (as there is obviously no clarity, at the time of issue
of the retailer vouchers
in this appeal, what goods or services they will be
redeemed for), it is instructive to note that the ECJ explicitly relied upon
some of the basic principles of
VAT
in reaching its conclusion, including that
“
VAT
is intended to tax only the final consumer and to be completely neutral as
regards the taxable persons involved in the production and distribution process
prior to the stage of final taxation…” and that “it is supplies of goods or
services which are subject to
VAT,
rather than payments made by way of
consideration for such supplies”.
40.
It was in response to the Lebara
decision that paragraph 7A of Schedule 10A was introduced (taking “single
purpose vouchers”
outside the special
voucher
rules altogether, thus resulting
in immediate taxation of the goods or services intended to be paid for by the
voucher
in accordance with the Lebara decision).
41. In an attempt to assist the parties by issuing this decision quickly so that it may be possible for the expected appeal against it to be heard at the same time as the pending appeal against the Tribunal’s decision in ANL(1), I set out below only an outline summary of the arguments put to me.
42. Both parties structured their submissions around what they considered to be two key issues:
(1) Whether
or not the appellant is correctly to be treated as incurring no input VAT
on
its purchase of
vouchers
direct from retailers by
virtue
of paragraph 4(2) of
Schedule 10A; and
(2) If
the appellant does in fact incur input VAT
on such purchases, whether it is
entitled to set that input
VAT
(and the input
VAT
which HMRC accept it has
incurred on purchases of
vouchers
from the intermediary) against its output tax
liabilities.
43.
In developing their submissions on these
points, they unavoidably moved on to a consideration of the wider VAT
treatment
of the supply of
vouchers,
mainly to demonstrate the overall coherence of their
preferred answers to these questions when set in the wider context.
44.
Both parties agreed that the PVD is silent on
the treatment of vouchers
and therefore it is necessary to pick one’s way
through the ECJ and UK jurisprudence on such treatment which has built up
piecemeal, issue by issue. In addition, they both agreed that the UK
legislation as it stood did not provide a coherent overall code which provided
a wholly satisfactory answer to the questions arising in this appeal (or indeed
to the taxation of
vouchers
generally). The differences between them
essentially arose around the issue of how the existing UK legislation needed to
be either supplemented, re-interpreted (by which I mean interpreted differently
from the conventional interpretation prevailing hitherto) or overridden in
order to provide an answer to the questions arising on this appeal which would
be consistent with the general principles of EU law as emerging from the
decided ECJ cases. This process is made all the more difficult because the EU
itself clearly acknowledges the legislative framework in the PVD (even after
the ECJ’s interpretation in the decided cases) is deficient – hence the draft
amending Directive that was issued by the Commission in May 2012, for which its
covering press release included the following bald statement:
“Currently there are no EU VAT
rules on how
transactions involving
vouchers
should be dealt with. In the absence of common
rules, Member States have developed their own practices. These are not
coordinated and frequently cause problems for businesses and
VAT
collection.”
45.
In essence, Mr Beal argued that there was
nothing in the existing UK legislation, when interpreted and supplemented by
concession as HMRC did, that was inconsistent with the PVD and the case law.
In contrast, Mr Walters argued that there were certain crucial aspects of
HMRC’s interpretation and operation of the legislation which flew directly in
the face of various
fundamental principles of
VAT
and accordingly the UK
legislation either needed to be re-interpreted to conform with those principles
under the Marleasing approach or, if that were not possible, it needed
to be overridden altogether by allowing the appellant to rely directly on the
right to deduct input tax enshrined in the PVD.
46.
Before summarising the arguments advanced by
the parties, it is appropriate to summarise the historical VAT
treatment of
retailer
vouchers
as operated in accordance with HMRC’s published guidance (
VAT
Notice 700/7), which forms the background to this appeal:
(1)
HMRC do not require the retailer to account for VAT
on the issue of
vouchers,
relying on paragraph 4(2) of Schedule 10A.
(2)
If a retailer voucher
is bought from the retailer by a private consumer
who then uses it to buy goods or services from the retailer, the only
VAT
issue
that arises is that the retailer ultimately has to account for
VAT
(at the
appropriate rate) on the supply of goods or services which it makes on
redemption, the
value
of that supply calculated on the basis of the amount the
retailer originally received on issue of the
voucher
(and not on its “face
value”,
which would typically be greater) – in accordance with
Argos.
(3)
Complications only arise if vouchers
are issued to someone who is not a
private consumer – an “intermediary”, in their terminology. A private consumer
who buys a
voucher
and uses it to obtain goods or services is indifferent as to
whether or not he is suffering a
VAT
charge on his purchase of the
voucher,
as
all
VAT
liabilities will “stick” with him anyway. But where an intermediary
(who is assumed to be a taxable person) buys a
voucher
from a retailer and then
sells it on (perhaps at a profit), HMRC say the total consideration on that onward
sale ought properly to be charged to
VAT
under general principles. However, if
the intermediary accounts for output tax on the total sale price, it will
suffer inappropriate taxation unless it is also allowed to claim input tax on its
purchase of the
voucher.
(4)
In order to square this circle, HMRC allow the intermediary “by
concession” to deduct some notional input tax on its purchase of the voucher.
There is agreed to be no direct authority for this in the legislation, beyond
HMRC’s general “care and management” powers.
(5)
In practice, the notional input tax which they allow it to deduct is
calculated at a rate equal to the rate at which the issuing retailer is
expected to have to account for the supplies of goods or services it ultimately
makes on redemption of the voucher
(“redemption supplies”).
(6)
Where (as is the case for most retailers whose vouchers
are involved in
this appeal) the retailer is in the business of making
various
supplies which
are taxable at different rates, the retailer’s “blended rate” of somewhere
between 0% and 20% is typically used.[1]
It is “suggested” by HMRC’s guidance that the retailer should make the
following statement on its invoice to an intermediary: “The issuer of the
voucher
will account for output tax under the face
value
voucher
provisions in
Schedule 10A
VT
Act 1994”, but there is no requirement to state the relevant
rate or amount of notional input
VAT
which the intermediary can reclaim (though
in practice the retailers in fact do so – or at least they have done so on all
the invoices which were before me in evidence). The rate so stated becomes the
rate of
VAT
applicable to all supplies of the same
voucher,
by
virtue
of
paragraph 6(5) of Schedule 10A.
(7)
Thus the intermediary is essentially put back in a position of
neutrality in terms of its input and output VAT,
except to the extent of any
profit it makes on the onward supply. HMRC accept that any such profit will
therefore effectively be subject to
VAT
at the retailer’s blended rate, rather
than the standard rate.
(8)
When the voucher
is ultimately presented and redeemed by a supply of
goods or services, the retailer will in fact account for output tax on the
consideration attributable to the
voucher
(in the amount originally received
for it, not its face
value)
at the rate appropriate to the relevant supply.
Thus conformity with the
Argos
decision is achieved so far as the
retailer is concerned; and so far as the intermediaries are concerned,
apparently by concession HMRC do not require (though they would permit) any
recalculation of the
VAT
inputs and outputs, as any such recalculations would
largely cancel each other out in any event.[2]
47.
HMRC maintain that this somewhat elaborate
process conforms as closely as possible to the legislation which Parliament has
seen fit to enact, whilst also complying with all the general principles of VAT.
An example of its working, using basic numbers, is set out at Appendix 2 to
this decision. It is acknowledged that this represents an imperfect approach,
but it is submitted that it achieves a fair and reasonable result through
practical means.
48.
The existing structure may have been sufficiently
fair and workable in practice (in spite of its obvious technical flaws) to
avoid any challenge up to now from retailers, intermediaries or private
consumers. However, questions about its technical robustness are brought into
sharp focus when (as here) a taxable person buys retailer vouchers
and claims
to be using them in the course of its taxable business.
49.
Matters came to something of a head on that
issue in ANL(1). Whilst that appeal was concerned with a decision about
the appellant’s liability to account for output tax on its delivery of the
vouchers
to its customers, there had been no indication from HMRC up to that
time that they had any dispute with the appellant’s ability to recover the
input tax charged to it, whether it be the charge on purchases of
vouchers
from
an intermediary or the “notional” input tax on the initial issue of
vouchers
directly by the retailers. It was only in response to the questions I raised
after the hearing in ANL(1) that HMRC argued for the first time that the
appellant should not be permitted to recover the output tax “noted” by
retailers on their invoices to it for the directly issued
vouchers,
citing
paragraph 4(2) of Schedule 10A. That is the position they take in this appeal,
whilst accepting that no such objection applies in relation to input tax
incurred on the purchase of
vouchers
from an intermediary (though they dispute,
on other grounds, the recoverability of all input tax on the purchase of
vouchers,
whether direct from the retailer or from an intermediary).
50.
Following the decision in ANL(1), the
appellant has sought to recover the input VAT
supposedly charged to it on its
purchases of retailer
vouchers
both from the retailers and from its
intermediary. Having had their claim for output tax from the appellant
rejected by the Tribunal in ANL(1), HMRC (whilst appealing that
decision) have sought to deny the appellant its input tax in case that
rejection was correct.
51.
Mr Beal submitted that there was clear warrant
in paragraph 4(2) of Schedule 10A for the denial of any input tax to the
appellant in a situation where it bought vouchers
direct from retailers which
it intended to use in its own business. Under that paragraph, the taxable
consideration for the supply to it was nil and therefore either (a) it was not
a taxable supply at all (he referred to Article 2(1)(c) PVD and section 5(2)(b)
VATA)
or (b) if it was such a supply, its taxable amount (and therefore the
appellant’s input tax) was nil. In
view
of the appellant’s intended use of the
vouchers,
it was entirely appropriate for HMRC to deny it the concessionary
benefit of the notional input tax that would be allowed to a normal
intermediary.
52.
That disposed of any claim arising from the
directly-issued vouchers.
53.
So far as the vouchers
purchased from the
intermediary were concerned, it was correct that output tax liabilities arose
on the supply of those
vouchers
to the appellant, and in the normal course it
would have been entitled to a corresponding input tax credit. However, in a
situation where the appellant’s intended use of the
vouchers
was to give them
away free of charge to its customers, it was not correct to treat the input tax
as recoverable; the purchase of the
vouchers
had a direct and immediate link
with those transactions and therefore no right to deduction of input
VAT
arose. In their statement of case, HMRC characterised the appellant as being
“effectively… the final consumer [of the
vouchers],
since it has not accounted
for output tax on the supply of [them] to its customer”.
54.
Mr Walters, on behalf of the appellant, submitted
that in relation to paragraph 4(2) of Schedule 10A, it could be interpreted,
pursuant to the Marleasing decision, as a provision “relieving Issuers
from the obligation of accounting for the VAT
included in the consideration for
which FVV’s are sold on issue, until such time as the FVV’s are redeemed (when
the actual amount of
VAT
which must be accounted for will be known).” As such,
it did not prevent the
VAT
included in the consideration given on issue of the
vouchers
from counting as input tax in the hands of the persons to whom they
were issued. This prevented distortions by eliminating inappropriate
differences in the
VAT
treatment of supplies which were essentially the same
(i.e. by original issuers and by intermediaries of the same
vouchers).
55. In the alternative, he submitted that if paragraph 4(2) could not be interpreted in this way, it should be disregarded altogether as being inconsistent with Article 168 PVD, which gave directly-effective rights to deduct input tax on supplies made to it in these circumstances.
56.
As to HMRC’s wider argument about the ability
to deduct any input tax incurred on the acquisition of vouchers,
given their
intended use, he submitted that there was a direct and immediate link between
the appellant’s purchase of the
vouchers
and its taxable activity of selling
newspapers and advertising; the expenditure on the
vouchers
was simply part of
the appellant’s overall marketing budget, incurred purely in order to enhance
its circulation. Any suggestion that it should lose its right to deduct simply
because it did not charge for the
vouchers
was inconsistent with the clear
position in the PVD (as accepted by HMRC up to the decision in ANL(1))
to the effect that any such dealings were dealt with as matters potentially
giving rise to output tax, it being acknowledged that input tax deduction was
available. In effect, it was an attempt by HMRC to re-litigate the issues that
had already gone against them in ANL(1).
57. I considered the papers at some length before the hearing, and asked the parties, in a pre-hearing note, to address their submissions at the hearing in part to a possible alternative approach to the disputed matters.
58.
This alternative approach was premised on the
hypothesis that paragraph 4(2) of Schedule 10A might be interpreted so as to take
entirely out of account the consideration given on issue of the voucher
when
calculating the
VAT
due on any supply of the
voucher
(i.e. including its issue
and any subsequent supply, but not its redemption).
59.
A summary of the effect of that approach is set
out in Appendix 3. In broad terms, it can be seen that it results in the
ultimate consumption of the goods or services being taxed at the rate
appropriate to them (as in HMRC’s structure set out in Appendix 2), and in any
profit on the voucher
as it passes through the hands of any intermediaries
being taxed in full at the standard rate (as opposed to HMRC’s structure, which
taxes any such profit at the retailer’s blended rate). It avoids artificial
distinctions between the tax treatment of
vouchers
acquired directly from
retailers and those acquired through intermediaries.
60. In broad terms, neither party was attracted to this approach.
61.
Mr Beal’s criticism of it was that although it
appeared to achieve largely the same end result as HMRC’s treatment as
summarised at [46] above, it
was conceptually wrong because it effectively amounted to applying a margin
scheme to vouchers
without any authority from the PVD to do so, and it was also
not the way that Parliament had chosen to deal with
vouchers
(as paragraph 4(4)
of Schedule 10A expressly provides that any “post-issue” supply of a retailer
voucher
should be treated in the same way as any other
voucher,
thus subjecting
the full
value
of such supply to
VAT).
62.
Both of them submitted that VAT
is meant to be
a tax on turnover and whilst (in Mr Beal’s submission) there was authority in
paragraph 4(2) of Schedule 10A for disregarding the consideration given on
issue of the
vouchers,
they both submitted there was no warrant for
disregarding an important part of the underlying turnover represented by the
value
constituted in the
vouchers.
63. For reasons which will become apparent, I propose to take the two issues identified by the parties in reverse order.
64. This was effectively “issue 2” referred to at [42(2)] above.
65.
I can dispose of this point briefly, in spite
of the voluminous
authorities to which I was referred in relation to it (as
listed in Appendix 4).
66. It seems to me that the thrust of Mr Beal’s argument is inconsistent with the structure for dealing with such matters which has been adopted in the PVD (where the approach of both Article 16 (goods) and Article 26 (services) is to impose an output tax liability in the appropriate circumstances, rather than to deny input tax).
67.
We are clearly involved here with a series of
business promotion schemes structured along normal commercial lines. The
appellant’s clear purpose in all three schemes was to increase newspaper sales,
and HMRC have not suggested otherwise. Whilst the Kuwait case was
concerned with supplies of promotional goods rather than vouchers
(and
therefore services), that distinction is, in my
view,
irrelevant for the
purposes of considering the allowability of input tax. As was said by the ECJ
in Kuwait at [19]:
“The first point to note is that, in the
present case, the exchange of goods for Q8 vouchers
was effected for business
purposes, since – as the national court found – the object of the promotion
scheme was, both for Kuwait Petroleum and for the independent retailers taking
part, to increase fuel sales. For that reason, a taxable person in the same
situation as Kuwait petroleum is authorised to deduct, in accordance with
article 17 (2) (a) of the Sixth Directive, the amount of input
VAT
paid for the
purchase of those goods.” [emphasis added]
68.
If taken to its logical conclusion, Mr Beal’s
argument would deny input tax recovery on purchases of goods for business
promotion schemes, in direct contravention of this clearly expressed view
of
the ECJ.
69.
I also note that in Astra Zeneca, the
ECJ focused solely on the output tax liability, it being taken for granted that
if an output tax liability arose, the input tax incurred on acquisition of the
vouchers
would be available to set against it.
70.
I therefore consider that, to the extent input
tax actually arises on the appellant’s purchases of vouchers
for the purposes
of the three promotion schemes, that tax is recoverable as input tax by the
appellant, subject to the normal rules.
71.
This is effectively “issue 1” as referred to at
[42(1)] above. In summary,
HMRC accept that where the appellant has purchased the vouchers
from an
intermediary, input tax arises at the retailer’s blended rate on the whole
consideration paid by the appellant for the
voucher;
but where the appellant
has purchased the
vouchers
direct from the retailers, they claim that no input
tax arises, by
virtue
of paragraph 4(2) of Schedule 10A.
72.
This difference of treatment, depending on the
historical accident of whether the appellant sourced the vouchers
itself or
through its intermediary, appears (at the
very
least) odd. It also sits
very
uneasily with the principle of fiscal neutrality as propounded by the ECJ in Rank
Group plc
v
Revenue & Customs Commissioners (ECJ) [2012] STC 23 (at
[36]):
“The principle of fiscal neutrality must be
interpreted as meaning that a difference in treatment for the purposes of VAT
of two supplies of services which are identical or similar from the point of
view
of the consumer and meet the same needs of the consumer is sufficient to
establish an infringement of that principle.”
73.
It is also integral to HMRC’s argument that
their allowance of input tax to an intermediary (on what is effectively a
discretionary basis, outwith any express statutory authority) when a retailer
supplies vouchers
to that intermediary (even though no corresponding output tax
arises at that stage) is appropriate to preserve the integrity of the
VAT
system.
It seems to me that, on the contrary, such an approach undermines
rather than preserves its integrity. It interposes HMRC’s discretion into a
fundamental area which ought to be clearly governed by law and also appears to
depend upon the state of mind of the recipient of the supply when it is made to
him – i.e. whether or not he intends at that time to on-supply as an
intermediary (and, as Mr Walters pointed out, there is no clarity about what
amounts to an intermediary for these purposes).
74.
Then again, HMRC’s interpretation and operation
of the provisions necessarily reflects a degree of uncertainty about the rate
of VAT
to be applied on any supply of
vouchers
issued by a “blended rate”
retailer at their time of supply (as paragraph 6(5) of Schedule 10A provides
that the applicable rate is only determined when the
voucher
is redeemed).
This does not sit easily with the fundamental EU law principle of legal
certainty, and it is a somewhat unattractive argument to say that this does not
in practice matter because of the way in which HMRC require
vouchers
to be
dealt with as a matter of mixed law and concession.
75.
But if HMRC’s position involves some
difficulties, so does the appellant’s. In particular, it requires either a
very
broad application of the Marleasing principle (which Mr Beal would
criticise as going beyond interpretation and into the realm of judicial
legislation) or a straightforward disapplication of apparently clear statutory
words on the basis of direct applicability of the right to deduct input tax enshrined
as a central feature of the PVD.
76.
We are, to borrow the words of Lord Sumption at
[23] in Commissioners for Her Majesty’s Revenue and Customs v
Pendragon plc
and others [2015] UKSC 37, here dealing (as both parties acknowledge) with
an “imperfect legislative scheme” and my
view
of the applicable law, in the
light of my above comments, is as follows.
77.
The right of a taxable person to deduct input
VAT
is a fundamental feature of the
VAT
system.
It is what ensures that the
ultimate burden of the tax falls entirely on the end consumer. Requiring a
taxable person to account for output tax without giving him the right to deduct
input tax will ultimately result in double taxation.
78.
In legislating to fill the admitted lacuna on
vouchers
left by the PVD, it cannot be open to national legislatures to deny
that core right.
79.
When a retailer (or indeed any other taxable
person) issues a voucher,
Lebara tells us that if there is sufficient
certainty about the goods or services which are to be supplied on redemption of
the
voucher,
then the supply is a supply of those services (and taxed
accordingly at the time of issue of the
voucher).
80.
However, where there is insufficient certainty
about the redemption goods or services (as will generally be the case for
retailer vouchers),
the supply of a
voucher
(including on issue) is the
creation or transfer of a bundle of intangible rights amounting to a supply of
services entirely separate and distinct from any ultimate supply that might be
made on redemption – the UK legislation acknowledges that (see paragraph 2 of
Schedule 10A) and it was confirmed in Astra Zeneca (at [26]).
81.
Nothing in the PVD permits such a supply of
services (whether on original issue of the voucher
or subsequently) to be
outside the scope of
VAT,
and it must therefore be a taxable supply. The buyer
of the
voucher
has paid for it, and there is no basis in the PVD for allocating
any other consideration to that supply than the subjective consideration
received by the person making it. On the basis of the PVD as it currently
stands, therefore[3], there is a taxable supply of the
voucher
by the retailer, for
which the consideration received by the retailer is the taxable amount, including
VAT.
82.
But if a retailer has to account for output VAT
on its supply of a
voucher
and is also subsequently required to account for
output
VAT
on the supply of goods or services which it makes on redemption of
the
voucher,
there will clearly be double taxation. This would be in breach of
the general principles of
VAT
as set out in the PVD, and must be avoided.
83.
There are different ways of doing so. The most
obvious would be to exclude the consideration originally given for the voucher
on issue in calculating the taxable amount on any supply of the
voucher
(including on its initial issue) but instead to bring that consideration into
account when the
voucher
is redeemed, otherwise maintaining the strict position
as set out above (i.e. effectively the structure mooted in my pre-hearing note).
This would have the benefit of charging any profit on second and subsequent
supplies of the
voucher
to
VAT
at the standard rate (reflecting the distinct
character of the supply of services comprised in the “
voucher
rights” from the
character of the ultimate redemption goods or services), irrespective of the
rate properly applying to the ultimate redemption supply. It would leave the
original issue consideration to be taxed at the rate appropriate to the
redemption goods/services, in accordance with the
Argos
decision, when
the
voucher
is redeemed. It would also reflect the economic reality that a
voucher
is essentially a means to enjoyment of potentially taxable goods and
services, not an end in itself, and where
vouchers
are not redeemed it would
avoid taxation of consumption which, in substance, never actually takes place.[4]
84.
However, Parliament appears (on HMRC’s
interpretation) to have adopted what might charitably be called a “modified”
version
of this structure, by simply relieving the original issuer of any
obligation to account for
VAT
on issue whilst leaving in place the requirement
to charge
VAT
on all subsequent supplies of the
voucher
(and, by remaining
silent on the point, requiring the original issuer to account for output
VAT
only when it redeems the
voucher
for goods or services). This gives rise to
obvious double taxation in the hands of the first onward supplier of a
newly-issued
voucher
(which will be required to account for output
VAT
without
having any input
VAT
to set against it) and this defect is supposedly remedied
by HMRC allowing that first onward supplier to claim an entirely notional (and,
indeed, generally approximate) amount of
VAT
included in its purchase price of
the
voucher
– except where they do not consider it appropriate to allow it.
85. In the light of the wording and purpose of the PVD, I do not consider this interpretation of Schedule 10A can be allowed to apply. But how should it be modified?
86. It would be tempting to adopt the approach set out in my pre-hearing note. However, I am persuaded by the arguments of both learned counsel that, whilst it might be an appropriate way of dealing with matters if one were starting with a clean sheet of paper unencumbered by Schedule 10A, there is a less radical approach which achieves the objectives of the PVD whilst respecting the underlying principles of the structure of Schedule 10A.
87.
The “underlying thrust” or “grain” of Schedule
10A is, it seems to me, to resolve the potential double taxation problem by
essentially treating the ultimate redemption supply of goods or services as the
crucial taxable supply, applying the VAT
rate proper to that supply as the
VAT
rate also applicable to any supply of the retailer
voucher,
and merging the
retailer’s supply of the
voucher
(when issued) with the ultimate redemption
supply, thus effectively resulting in a single taxable supply (so far as the
retailer is concerned) which is completed when the
voucher
is redeemed. At
that point (to borrow the words of Advocate-General Mengozzi in Astra Zeneca
at [46]), the retailer “‘completes the circle’ and pays over to tax
authorities… the
VAT
collected in supplying the
voucher
to the intermediary.”
88.
It is inherent in this view
of matters that the
retailer does still make a taxable supply of the
voucher
when issued, and the
true effect of paragraph 4(2) is simply to relieve the retailer of accounting
for the tax on that supply on the basis that it will ultimately account for the
correct amount of tax when the
voucher
is redeemed and the original supply of
the
voucher
is effectively subsumed into the redemption supply (i.e. the supply
of goods or services made in exchange for redemption of the
voucher).
89.
It follows that, in the light of the wording
and purpose of the PVD, paragraph 4(2) should be interpreted as not preventing
from arising the input tax which the PVD requires to arise for the original
recipient of the voucher
when issued. Whilst the rate of tax would, under
normal rules, be the standard rate (absent any provision in the PVD permitting
a lower rate), given the mechanism adopted in Schedule 10A for eliminating the
potential double taxation – i.e. the effective subsuming of the
voucher
supply
within the redemption supply (and given the comments in Elida Gibbs
referred to at [26] above),
it is appropriate for that rate to be the lower blended rate specified by the
retailer which applies to the redemption supply.
90.
It follows that I consider the appellant does
incur input tax, at the rate inherent in the vouchers,
on its acquisition of
the
vouchers,
whether by direct purchase from the retailers or by purchase from
an intermediate taxable supplier.
91. I have already found (see [70] above) that the appellant should be entitled to recover this input tax.
92.
This does of course mean that the appellant is
entitled to recover input VAT
on what is, ultimately, private consumption of
the redemption goods or services. This does not cast doubt on the conclusion I
have reached, for the simple reason that that point is addressed in the context
of the appellant’s output tax liability (if any) under PVD Article 26 – with
which ANL(1) is concerned. In short, as originally thought, that is
(or should be) the crucial point of disagreement between the parties.
93. It follows that I allow the appeal in principle.
94. As I was informed this is a complex category case in which there has been no request to opt out of the costs shifting regime, the appellant is entitle in principle to its costs of this appeal. I direct, however, that no further steps need be taken to enforce that entitlement, pending resolution of the appeal in ANL(1) and any appeal in this case. Specifically, time for delivery of a formal application for costs and any associated schedule of costs claimed is extended generally until further order on the application of either party.
95. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.
Appendix 1
Schedule 10A VATA
94
Meaning of
“face-value
vouchers”
etc
1 (1) In this
Schedule, “face-value
voucher”
means a token, stamp or
voucher
(whether in
physical or electronic form) that represents a right to receive goods or
services to the
value
of an amount stated on it or recorded in it.
(2) References in this
Schedule to the “face value”
of a
voucher
are to the amount referred to in
sub-paragraph (1) above.
Nature of supply
2 The issue of a
face-value
voucher,
or any subsequent supply of it, is a supply of services for
the purposes of this Act.
Treatment of
credit vouchers
3 (1) This paragraph
applies to a face-value
voucher
issued by a person who –
(a) is
not a person from whom goods or services may be obtained by the use of the
voucher,
and
(b) undertakes to give complete or partial reimbursement to any such person from whom goods or services are so obtained.
Such a voucher
is referred to in
this Schedule as a “credit
voucher”.
(2) The consideration for
any supply of a credit voucher
shall be disregarded for the purposes of this
Act except to the extent (if any) that it exceeds the face
value
of the
voucher.
(3) Sub-paragraph (2)
above does not apply if any of the persons from whom goods or services are
obtained by the use of the voucher
fails to account for any of the
VAT
due on
the supply of those goods or services to the person using the
voucher
to obtain
them.
(4) The Treasury may by order specify other circumstances in which sub-paragraph (2) above does not apply.
Treatment of
retailer vouchers
4 (1) This paragraph
applies to a face-value
voucher
issued by a person who –
(a) is
a person from whom goods or services may be obtained by the use of the voucher,
and
(b) if there are other such persons, undertakes to give complete or partial reimbursement to those from whom goods or services are so obtained.
Such a voucher
is referred to in
this Schedule as a “retailer
voucher”.
(2) The consideration for
the issue of a retailer voucher
shall be disregarded for the purposes of this
Act except to the extent (if any) that it exceeds the face
value
of the
voucher.
(3) Sub-paragraph (2) above does not apply if –
(a) the
voucher
is used to obtain goods or services from a person other than the
issuer, and
(b) that
person fails to account for any of the VAT
due on the supply of those goods or
services to the person using the
voucher
to obtain them.
(4) Any supply of a
retailer voucher
subsequent to the issue of it shall be treated in the same way
as the supply of a
voucher
to which paragraph 6 below applies.
Treatment of postage stamps
5 The
consideration for the supply of a face-value
voucher
that is a postage stamp
shall be disregarded for the purposes of this Act except to the extent (if any)
that it exceeds the face
value
of the stamp.
Treatment of other
kinds of face-value
voucher
6 (1) This paragraph
applies to a face-value
voucher
that is not a credit
voucher,
a retailer
voucher
or a postage stamp.
(2) A supply of such a
voucher
is chargeable at the rate in force under section 2(1) (standard rate)
except where sub-paragraph (3), (4) or (5) below applies.
(3) Where the voucher
is
one that can only be used to obtain goods or services in one particular
non-standard rate category, the supply of the
voucher
falls in that category.
(4) Where the voucher
is
used to obtain goods or services all of which fall in one particular
non-standard rate category, the supply of the
voucher
falls in that category.
(5) Where the voucher
is
used to obtain goods or services in a number of different rate categories –
(a) the
supply of the voucher
shall be treated as that many different supplies, each
falling in the category in question, and
(b) the
value
of each of those supplies shall be determined on a just and reasonable
basis.
Vouchers
supplied
free with other goods or services
7 Where –
(a) a
face-value
voucher
(other than a postage stamp) and other goods or services are
supplied to the same person in a composite transaction, and
(b) the
total consideration for the supplies is no different, or not significantly
different, from what it would be if the voucher
were not supplied,
the supply of the voucher
shall
be treated as being made for no consideration.
Exclusion of
single purpose vouchers
href="#_ftn5" name="_ftnref5" title="">[5]
7A Paragraphs 2 to
4, 6 and 7 do not apply in relation to the issue, or any subsequent supply, of
a face-value
voucher
that represents a right to receive goods or services of
one type which are subject to a single rate of
VAT.
Interpretation
8 (1) In this Schedule –
“credit voucher”
has the meaning
given by paragraph 3(1) above;
“face value”
has the meaning
given by paragraph 1(2) above;
“face value
voucher”
has the
meaning given by paragraph 1(1) above;
“retailer voucher”
has the
meaning given by paragraph 4(1) above.
(2) For the purposes of this Schedule –
(a) the “rate categories” of supplies are –
(i) supplies chargeable at the rate in force under section 2(1) (standard rate),
(ii) supplies chargeable at the rate in force under section 29A (reduce rate),
(iii) zero-rated supplies, and
(iv) exempt supplies and other supplies that are not taxable supplies;
(b) the “non-standard rate categories” of supplies are those in sub- paragraphs (ii), (iii) and (iv) of paragraph (a) above;
(c) goods or services are in a particular rate category if a supply of those goods or services falls in that category.
(3) A reference in this
Schedule to a voucher
being used to obtain goods or services includes a
reference to the case where it is used as part-payment for those goods or
services.
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Appendix 4
Main cases on deductibility of input tax cited in argument
B.L.P. Group PLC. v
Customs
& Excise Commissioners (ECJ) [1995] Case C-4/94; [1996] 1 WLR 174
Midland Bank P.L.C. v
Customs
& Excise Commissioners (ECJ) [2000] Case C-98/98; [2000] 1 WLR 2080
Abbey National plc v
Customs
& Excise Commissioners (ECJ) [2001] STC 297
Dial-a-Phone Limited v
Customs
& Excise Commissioners (Court of Appeal) [2004] EWCA Civ 603; [2004]
STC 987
Kretztechnik AG v
Finanzamt
Linz (ECJ) [2005] STC 1118
Mayflower Theatre Trust
Limited v
Revenue & Customs Commissioners (Court of Appeal) [2006] EWCA Civ 116; [2007] STC 880
Investrand BV v
Staatssecretaris
van
Financien (ECJ) [2008] STC 518
Securenta Gottinger
Immobilienanlagen und Vermogensmanagement
AG (as legal successor of Gottinger
Vermogensanlagen
AG)
v
Finanzamt Gottingen (ECJ) [2008] STC 3473
Vereniging
Noordelijke Land- en Tuinbouw Organisatie
v
Staatssecretaris
van
Financen (ECJ)
[2009] STC 935
Skatteverket v
AB SKF
(ECJ) [2010] STC 419
Bonik EOOD v
Direktor na
Kirektsia ‘Obzhalvane I upravlenie na izpalnenieto’
Varna
pri Tsentralno
upravlenie na Satsionalnata agentsia za prihodite (ECJ) [2013] STC 773
BAA Limited v
Revenue &
Customs Commissioners (Court of Appeal) [2013] EWCA Civ 112; [2013] STC 752
Finanzamt Saarlouis v
Heinz
Maalburg (ECJ) [2014] Case C-204/13
TLLC Limited v
Revenue &
Customs Commissioners (First-tier Tribunal) [2013] UKFTT 467 (TC); [2014] SFTD 438
Nagle & Kemsley T/A Simon
Templar Business Centre v
Revenue & Customs Commissioners [2014] UKFTT 131 (TC)
Chancellor, Masters and
Scholars of the University of Cambridge v
Revenue and Customs Commissioners
(Upper Tribunal) [2015] UKUT 305 (TCC)
UAB Sveda v
Valstybine
mokesciu inspekcija prie Lietuvos Respublikos finansu ministerijos (ECJ –
Advocate General’s opinion only) [2015] Case C-126/14
[1]
Clearly at this point it is not known what supplies will be
made in exchange for the redemption of the voucher,
accordingly this can only
represent an attempted approximation to the true rate.
[2]
It will be noted that if a voucher
with an inherent “blended
rate” of, say 5% is in fact used to buy standard rated goods or services, any
profit in the chain of supply of the
voucher
will remain taxed only at the 5%
rate, the other 15% of tax on that profit therefore being foregone by
concession. This point does not appear to have been considered by the ECJ when
it made the comments at [26]
above in the Elida Gibbs case.
[3]
It is relevant, but only in passing, to note that the European Commission has
been grappling with the issue of VAT
on
vouchers
since at least 2006, and in
spite of recognising the need for amendments to the PVD to address the whole
area, the proposed amending Directive issued in 2012 still remains in draft.
[4] It is worth noting, however, that the proposed amending Directive is based on a somewhat different structure.