Judgment of 5 July 2018 in Case C–544/16 (Marcandi Ltd, trading as ‘Madbid’)
Facts:
- Marcandi is a company established in the United Kingdom which operates online sales, under its trading name ‘Madbid’. The majority of the products sold by Madbid are ‘high tech’ goods, such as mobile telephones, tablets, computers and televisions. Madbid occasionally sells higher-value items such as, inter alia, cars.
- Madbid’s website allows its users to buy goods sold by Madbid either for a fixed price in the online shop, or through online auctions.
The case concerns the auction activities, and they are explained as follows:
- Users wishing to participate in the auctions are required to acquire ‘credits’ from Madbid in return for payment, which are necessary in order to bid and cannot be used for other purposes. In particular, those ‘credits’ cannot be used to purchase goods sold in the online shop. Nor can they be converted into cash.
- Each ‘credit’ is identified by a unique code and is given a monetary value corresponding to the amount paid by the user. ‘Free credits’ are sometimes awarded to users. They have a value of GBP 0.00 and simply allow users to participate in the auctions organised by Madbid. Those ‘free credits’ expire after 30 days, whereas ‘credits’ which have been paid for are valid for 180 days.
- Every auction begins with an opening price of GBP 0.00 and with the auction timer set to the allocated time limit for the auction, which is usually one minute. For each new auction, the timer starts again with the same time as initially set. For each sale, a defined number of ‘credits’ (between 1 and 8) is necessary to bid and the user, by clicking on the ‘bid’ button, uses his ‘credits’ at the level of that number. The bid thus made by the user is GBP 0.01 higher than the preceding bid, and becomes the highest bid for the sale concerned. The sale price attached to the product also increases by GBP 0.01.
- The winner of the auction has the right to purchase the product at the amount of the winning bid, plus a charge for shipping and handling. The value of ‘credits’ used to bid during that sale is exhausted and is not, therefore, credited towards the price of the product at the winning bid. So long as the product has not been sent to him, the user has the right to cancel his order. Where appropriate, he will be reimbursed the winning sale price.
- In addition, a ‘buy now’ feature allows the user to buy a product identical to the one in the auction in which he is participating for a price which, in the course of that auction, reduces to the level of the value of the ‘credits’ that he used to bid in the context of that sale. A user who purchases a product through the ‘buy now’ feature during an auction cannot place any more bids in that auction.
- Finally, the ‘earned discount’ feature allows a user who was unsuccessful in the auction, and who also did not use the ‘buy now’ feature, to obtain a discount that he might use later when purchasing a product available in Madbid’s online shop. An ‘earned discount’, whose value corresponds to the value of the ‘credits’ that allowed the user to bid in the course of the sale, expires after 365 days.
- If a user who has made a purchase using the ‘earned discount’ or the ‘buy now’ features cancels his order, he receives a reimbursement in the amount which he paid for the goods in question, with the exception of the value of the ‘credits’ that were taken into account to arrive at the final price at which the goods were sold to him.
The UK tax authorities considered that the amount paid by Madbid’s clients in exchange for ‘credits’ represented the consideration for a provision of services provided in the United Kingdom, namely the grant of the right to participate in online auctions organised by Madbid.
Madbid did not agree with this point of view, arguing that the issuing of ‘credits’ for the benefit of its clients was not a supply of services but simply a ‘preliminary transaction’. Therefore, Madbid should be liable for VAT not on the issuing of credits for the benefit of its clients, but only on the supplies of goods (after the auction has taken place). The consideration for those supplies was made up of the price paid by the client for the product that he purchased and the value of the ‘credits’ exhausted in purchasing that product.
The ECJ considers the following:
The main question is if the issue of ‘credits’ in return for a money payment, constitutes a ‘supply of services for consideration’. In this case, the ‘credits’ can only be used to place bids in the auction organised by Madbid. Consequently, a user who purchases ‘credits’ necessarily does so with the intention of being able to participate in those sales.
However, that service is, for users, an autonomous interest compared with the purchase of goods in Madbid’s online shop. Participation in the auctions organised by Madbid gives users a chance to purchase goods at a price below their market value. The credits cannot be classified as a ‘preliminary transaction’ to the supply of goods.
Consequently, the right granted to users who have acquired those ‘credits’ to participate in the auctions organised by Madbid constitutes, in itself, a supply of services which is entirely separate from, and cannot be confused with, the supply of goods that may occur upon the conclusion of those auctions.
Judgment:
The ECJ rules that:
- The issue of ‘credits’ which allow an operator’s clients to bid in the auctions that it organises, are a supply of services for consideration, for which the consideration is the amount paid in return for those ‘credits’.
- The value of ‘credits’ used in order to bid is not included in the consideration received by the taxable person in return for the supplies of goods that it makes for the benefit of users who won an auction organised by it, or users who purchased a product using the ‘buy now’ or ‘earned discount’ features.
- When interpreting the relevant provisions of EU and national law, courts of a Member State that find that the same transaction has been the object of a different tax treatment for the purposes of VAT in another Member State have the power, or even — depending on whether there is a judicial remedy under national law against its decisions — an obligation, to refer a request for a preliminary ruling to the Court.
Source: Curia
