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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Kingfisher Plc v Customs and Excise [2004] UKVAT V18668 (21 June 2004) URL: https://www.bailii.org/uk/cases/UKVAT/2004/V18668.html Cite as: [2004] UKVAT V18668 |
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18668
VALUE
ADDED TAX – consideration – gift
vouchers
- before the judgment in
Argos
a subsidiary of the parent company supplied the parent's
vouchers
to retail companies in the group who sold them to purchasers and later exchanged them at face
value
for supplies of goods – agreed that the consideration for the supply of goods by a retail company in return for a
voucher
was then the face
value
of the
voucher
– after the judgment in
Argos
and as part of a tax planning scheme the group established another subsidiary outside the
value
added tax group and the parent sold the
vouchers
to that other subsidiary at a discount of 18.52%; that subsidiary sold the
vouchers
to purchasers through the retail companies at face
value
paying the retail companies a commission of 10%; the retail companies later exchanged the
vouchers
at face
value
for supplies of goods and were re-imbursed the face
value
by the parent subject to a redemption charge of 13.7% – the rates of the commission and redemption charge were set so as to ensure that the parent made neither a gain nor a loss on the
voucher
operation - whether the consideration for the supply of goods by a retail company to a customer was the discounted amount of the
voucher
received by the parent (81.48% of face
value)
– no – or the amount paid by the purchaser of the
voucher
(100% of face
value)
– yes – alternatively whether the arrangements after
Argos
amounted to an abuse of rights – yes – appeal dismissed -
VATA
1994 s19 and Sch 6 para 5 - EC Sixth Council Directive (77/388/EEC) Article 11A.1(a)
LONDON TRIBUNAL CENTRE
KINGFISHER PLC
Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents
Tribunal: DR NUALA BRICE (Chairman)
MR J N BROWN CBE FCA ATII
MR R L JENNINGS FCA FTII
Sitting in London on 19 to 30 January 2004
Greg Sinfield, with Robert Hartley, both of Messrs Lovells Solicitors, for the Appellant
ChristopherVajda
QC with Ian Hutton of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents
PRIVATE AND CONFIDENTIAL
© CROWN COPYRIGHT 2004
DECISION
The appeal
The legislation
"1. The taxable amount shall be:
(a) in respect of supplies of goods and services … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies.
3. The taxable amount shall not include
…
(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply; … "
"(1) For the purposes of this Act thevalue
of any supply of goods or services shall … be determined in accordance with this section and Schedule 6 and for those purposes subsections (2) to (4) below shall have effect subject to that Schedule.
(2) If the supply is for a consideration in money itsvalue
shall be taken to be such amount as, with the addition of the
VAT
chargeable, is equal to the consideration.
(3) If the supply is for a consideration not consisting or not wholly consisting of money, itsvalue
shall be taken to be such amount in money as, with the addition of the
VAT
chargeable, is equivalent to the consideration."
"Where a right to receive goods or services for an amount stated on any token, stamp orvoucher
is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that is exceeds that amount."
The issues
(1) whether the consideration for the supply of goods by a retail company to a customer in exchange for avoucher
was the discounted amount of 81.48% of face
value
received by the Appellant from Flogistics (as argued by the Appellant) or the amount paid by the purchaser of the
voucher,
namely the full face
value
of
vouchers
sold to individual purchasers or face
value
less the corporate discount for
vouchers
sold to corporate purchasers (as argued by Customs and Excise); and, if the former,
(2) whether the arrangements entered into by the Appellant amounted to an abuse of rights; and
(3) whether there should be a request to the Court of Justice for a preliminary ruling.
The evidence
Three bundles of core documents (black)
Two bundles of scheme and promotional material documents (dark green)
One bundle of accounting information (yellow)
One bundle of contracts (purple)
One bundle of pleadings (red)
Ms Tracy Aslam, the national account manager for Flogistics who was responsible for the sale ofvouchers
to corporate purchasers;
Ms Kim Dinan, the general manager of Flogistics; previously Ms Dinan worked as retail development manager for Kingfisher GiftVouchers
Limited and then was responsible at Flogistics for the sale of
vouchers
to individual purchasers through the retail companies;
Mr Iain Garden who was employed by the Appellant's corporate group from November 1990 to 12 September 2003; he was the financial controller at Comet until May 2000 when he became finance director of Time Retail Finance Limited, the company in the Appellant's group responsible for the in-house credit card operation; he was also a director of Flogistics between 13 June 2000 and 18 October 2001;
Mr Alan Kellock who was the corporate development manager of Flogistics until 1 December 2003 when he became retail development manager of Flogistics; and
Mr Alexander Sutherland who was group tax manager of the Appellant from 1990 to 2001 and then became its director of tax.
The facts
The Appellant and its business
1993 to 2000 - the original arrangements
- First, a small percentage of all
vouchers
sold are never redeemed.
- Secondly, interest is earned from the date the cash is received from the purchaser of the
voucher
to the date on which the
voucher
is redeemed by the customer.
- Thirdly, the sale of a
voucher
has the potential effect of increasing the market share of the group as a whole because the recipient of the
voucher
must redeem it at a retail company within the group thus locking sales into the group that would otherwise have gone elsewhere; "locked in" sales generate a margin on those sales for the retail companies.
- Finally, a customer redeeming a
voucher
usually spends more than the face
value
of the
voucher
and this is referred to as incremental sales; incremental sales also generate a margin on those sales for the retail companies. In evidence which we accept Ms Dinan estimated that people would usually spend about 30 – 40% over the
value
of a
voucher
when they redeemed it.
January 2000 to April 2000 - the development of the new arrangements
May 2000 –June 2000 - the implementation of the arrangements
June 2000 – the contractual arrangements
- two contracts betweenVouchers
and the Appellant for the sale by
Vouchers
to the Appellant of (a) unsold
vouchers,
greeting cards and display stands held at the retail companies and (b) unsold
vouchers
held by the printers;
- a contract between the Appellant and Flogistics under which the Appellant agreed to sell the unsoldvouchers
to Flogistics at a discount of 18.52% together with the greetings card and display stands;
- a contract between the Appellant and Flogistics under which the Appellant agreed to sellvouchers
to Flogistics in the future at a price of the face
value
less a discount of 18.52%; the Appellant would ensure that the printer maintained sufficient stocks and would release the quantity requested by Flogistics when title would pass; and the Appellant would invoice Flogistics and payment would be due within sixty days. The contract also contained the following clause:
"5.2 Kingfisher shall not try to interfere in or influence the liberty of Flogistics to conduct its business in relation to Kingfisher GiftVouchers."
![]()
- a contract between the Appellant and Flogistics under which Flogistics undertook to providevoucher
counting services for the Appellant and to provide the Appellant with monthly reports about redemptions made by each retailer;
- five identical contracts between Flogistics and each retail company under which each retail company agreed to act as the disclosed agent of Flogistics in selling thevouchers
to purchasers in return for a commission of 10% of the
value
of the
vouchers
sold; the
vouchers
had to be sold at face
value
and the retail companies had to inform Flogistics of the number of
vouchers
sold; the retail companies also had to send the proceeds of sale of the
vouchers
to Flogistics;
- five identical contracts between the Appellant and each retail company; these agreements contained a clause 2.1 which provided that the Appellant would pay the retail company at every period end the full facevalue
of the
vouchers
redeemed by the retail companies less the scheme charge; the scheme charge was defined in clause 1.5 as the sum of 13.7% of the full face
value
of the
vouchers;
the agreements also contained a clause 2.3 which provided that the scheme [redemption] charges could be
varied
at the Appellant's sole discretion; the agreements also provided that the retail companies should send redeemed
vouchers
on a weekly basis to the counting house;
- a contract between Woolworths and Flogistics under which Woolworths agreed to supply shared office space to Flogistics in return for a monthly licence fee and under which Flogistics agreed to reimburse Woolworths for utilities, telephones and insurance. (There was no written agreement governing the continued supply of employees by Woolworths to Flogistics.)
July – August 2000 – implications of implementation
September 2000 - discussions with Customs and Excise
January 2001 – the year end accounting adjustments
January 2001 – Flogistics' budget for 2001/2002
June 2001 – The disputed decision
28 August 2001 – the demerger
2001-2002 – Board meetings of Flogistics
January 2002 – the year end adjustments
2003 – the change in the law
The point of sale material
Reasons for decision
"43(1) Where … any bodies corporate are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member, and-
(a) any supply of goods or services by a member of the group to another member of the group shall be disregarded; and
(b) any supply to which paragraph (a) does not apply and is a supply of goods or services by or to a member of the group shall be treated as a supply by or to the representative member. … ."
Issue (1) - What is the consideration for the supply?
A summary of the arguments
The detailed arguments for the Appellant
The detailed arguments for Customs and Excise
Our conclusions
"19. According to the terms of the transaction which involves the initial purchase of thevoucher,
that
voucher,
by its nature, is no more than a document evidencing the obligation assumed by
Argos
to accept the
voucher,
instead of money, at its face
value
…
- In order to ascertain the actual money equivalent accruing to
Argos
when it takes a
voucher
in payment, regard must be had only to the transaction which is relevant in that regard, namely the initial transaction comprising the sale of the
voucher,
at a discount or otherwise. In
view
of the nature of that transaction, the actual money equivalent which the
voucher
represents for
Argos,
when the latter accepts it in payment, is the sum of money which it received on the sale of the
voucher,
namely its face
value
less any discount allowed.
- The fact that a buyer of
Argos
goods does not know the real money equivalent of the
voucher
used by him is irrelevant; the important issue in this case is to determine the actual money equivalent received by
Argos
when it accepts
vouchers
in payment for its goods, since only that actual equivalent can constitute the taxable amount. …
- The answer to the third question must therefore be that Article 11(A)(1)(a) of the Sixth Directive is to be interpreted as meaning that, when a supplier has sold a
voucher
to a buyer at a discount and promised subsequently to accept that
voucher
at its face
value
in full or part payment of the price of goods purchased by a customer who was not a buyer of the
voucher,
and who does not normally know the actual price at which the
voucher
was sold by the supplier, the consideration represented by the
voucher
is the sum actually received by the supplier upon the sale of the
voucher."
![]()
"In many situations, of course, the contract will on the facts conclude theVAT
issue, as where there is a simple agreement for the supply of goods or services with no third party involved. … There may be cases, generally (perhaps always) where three or more parties are concerned, in which the contracts' definition (however exhaustive) of the parties' private law obligations nevertheless neither caters for nor concludes the statutory question, what supplies are made by whom to whom."
"I accept that the matter is not automatically concluded just by considering the contractual position. It is necessary to examine what the evidence shows and ask whether the evidence requires a departure from what would otherwise be the result of the apparent contractual position."
Did Flogistics act independently of the Appellant?
Who did the purchasers of the vouchers
think made the supply of the
vouchers?
Issue (2) – Was there an abuse of rights?
The arguments of the Appellant
The arguments for Customs and Excise
Our conclusions
"A finding of abuse requires, first, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the Community rules, the purpose of those rules has not been achieved. It requires, second, a subjective element consisting in the intention to obtain an advantage from the Community rules by creating artificially the conditions laid down for obtaining it. The existence of that subjective element can be established inter alia by evidence of collusion between the Community exporter receiving the refunds and the importer of the goods in the non-member country."
- whether the sole purpose of the new arrangements was to avoid tax ;
- whether the new arrangements were artificial;
- whether the new arrangements gave incentives to the retail companies;
- whether the internal discount was fixed at a commercial rate;
- whether Flogistics was run commercially;
- whether Flogistics achieved anything which could not have been achieved by
Vouchers;
![]()
- whether the existence of Flogistics assisted in the demerger; and
- whether the arrangements resulted in the distortion of competition.
Was the sole purpose of the new arrangements to avoid tax?
Were the new arrangements artificial?
Did the new arrangements give incentives to the retail companies?
Was the internal discount fixed at a commercial rate?
Was Flogistics run commercially?
Did Flogistics achieve anything which could not have been achieved by Vouchers?
Did the existence of Flogistics assist in the demerger?
Did the arrangements result in the distortion of competition?
Issue (3) – Should there be a request for a preliminary ruling from the Court of Justice?
Decision
(1) that the consideration for the supply of goods by a retail company to a customer in exchange for avoucher
is the amount paid by the purchaser of the
voucher
namely the full face
value
of
vouchers
sold to individual purchasers and the face
value
less the corporate discount of
vouchers
sold to corporate purchasers; that decision means that the appeal must be dismissed but in case we are wrong we express our
views
on the second issue which are:
(2) that the arrangements entered into by the Appellant amounted to an abuse of rights; and
(3) that we will not request a preliminary ruling from the Court of Justice.
Costs
decision by the Taxing Master on the detailed assessment.
DR NUALA BRICE
CHAIRMAN
RELEASE DATE: 6 April 2004
LON/2003/1275
31.03.04
This Decision was released to the parties on 6 April 2004. This is a redactedversion which removes some matters of commercial sensitivity.
DR NUALA BRICE
CHAIRMAN
RELEASE DATE: 21/06/2004
LON/2003/1275
18.06.04