On April 27, 1999, the ECJ issued its decision inthe case C-48/97 (Kuwait Petroleum (GB) Ltd). The context of this case relates to the Taxable Amount in case Sales promotion scheme – Goods supplied onredemption of vouchers – Price discounts and rebates.
Article in the EU VAT Directive
Article 11 of the Sixth Directive is concerned with the taxable amount forVAT purposes. Article 11A(1), in so far as is relevant, states:
1. The taxable amount shall be:
(a) in respect of supplies of goods and services other than those in (b), (c) and(d) below, everything which constitutes the consideration which has been oris to be obtained by the supplier from the purchaser, the customer or athird party for such supplies including subsidies directly linked to the price of such supplies;
(b) in respect of supplies referred to in Article 5(6) …, the purchase price of thegoods or of similar goods or, in the absence of a purchase price, the costprice, determined at the time of supply;
Article 11A(3)(b) provides that the taxable amount shall not include ‘pricediscounts and rebates allowed to the customer and accounted for at the time of thesupply …, while Article 11C(1) provides, inter alia, that ‘where the price isreduced after the supply takes place, the taxable amount shall be reducedaccordingly under conditions which shall be determined by the Member States.
Facts
- Kuwait Petroleum (GB) Ltd (‘Kuwait’), sells Q8 brand of fuel (the ‘premium goods’) as a retailer at 110 sites and as a wholesale supplier to independent retailers (hereinafter ‘thedealers’) at 500 other sites. The delivery at both types of site is the same. On termination in 1991 of an earlier stamp promotion, Kuwait suffered a 15% fall inits market share. It then devised its own ‘Q8 Sails Collection’ scheme (hereinafter ‘the sails scheme), which was initially applied only at Kuwait sites but soonextended to dealers who so desired. Dealers who opted to apply the schemeagreed to pay UK 0.22 pence (later, UK 0.33 pence) per litre (plus VAT) inaddition to the normal wholesale petrol price. In return Kuwait supplied all of therequired promotional literature and other necessities.
- The sails scheme operated from 1991 to 1996. One Q8 sails stamp wassupplied for each 12 litres of fuel purchased. Credit for partial stamp entitlementwas facilitated in some cases, towards the end of the promotion, by the use ofelectronic swipe cards. To fill a ‘Collector Card’ required 30 such stamps. Thenumber of complete cards needed to obtain a particular gift (the ‘redemption goods’) was set out in a gift catalogue. A high proportion, but not all, of thepurchasers of fuel collected stamps.
- To claim a gift, the customer had to complete an order form, verifyingfulfilment of the conditions of the offer. Although stamps were stated to be non-transferable, Kuwait tolerated a certain amount of ‘private pooling’ of stamps(for example by work colleagues), but excluded secondary trading in stamps. Thestamps were stated to have a face value of UK 0.001 pence, but would beredeemed for cash only when their total cash value exceeded UK 25 pence,implying purchase of an extremely large amount of petrol. Though other figureshave been suggested, Kuwait puts the redemption rate as being ‘well over 50%’.
- The sails scheme was discontinued due to changes in the market, particularlyas a result of price competition from the hypermarket petrol-retail sector. Although Q8 retail petrol prices fell by some UK 4 pence per litre, not all wasnecessarily directly attributable to the termination of the promotion. The Court isinformed that the cost of gifts redeemed under the scheme had, by February 1995alone, already reached UK £3 355 000, or UK 0.36 pence per litre of fuel sold atparticipating sites.
Questions
Where a supplier of goods operates a business promotion scheme, under which in outline:
(i) the promoter provided redemption goods for business purposes in accordance with the terms of the scheme;
(ii) for no payment in money at the point of redemption;
(iii) against the redemption of vouchers to which a purchaser of premium goods became entitled by paying the full retail price of those goods without making any identifiable monetary payment for the vouchers;
(1) Is the expression price discounts and rebates allowed to the customer and accounted for at the time of supply in Article 11A(3)(b) of the Sixth Council Directive to be interpreted to cover the whole cost of the redemption goods?
(2) Are the redemption goods to be treated as supplies made for consideration for the purposes of Article 5(6) of that Directive?
(3) If the redemption goods are provided otherwise than for consideration or free of charge, is Article 5(6) to be interpreted as requiring that the provision of the redemption goods be treated as a supply for consideration notwithstanding that such provision is for business purposes?
(4) Do any of the foregoing questions require a different answer:
(a) where all the vouchers redeemed for any item of redemption goods were obtained on purchases of premium goods from the promoter of the scheme;
(b) where those vouchers were all obtained on purchases of premium goods from a trader who was a participating dealer in the scheme; or
(c) where the vouchers redeemed were obtained partly on purchases of premium goods from the promoter and partly on purchases of premium goods from one or more participating dealers?
(5) If the answer to Question 3 is No, is the United Kingdom entitled pursuant to Article 27 of the Sixth Council Directive and under the derogation obtained by it in 1977 to impose an output tax charge on the promoter which is based on the cost to the promoter of the redemption goods in addition to the output tax included in the full retail price of the premium goods?
AG Opinion
For the purposes of the Sixth Council Directive 77/388/EEC of 17 May 1977 on theharmonisation of the laws of the Member States relating to turnover taxes Common system of value added tax: uniform basis of assessment; where asupplier of goods operates a business promotion scheme, under which, in outline:
(i) the promoter provided redemption goods for business purposes inaccordance with the terms of the scheme;
(ii) for no payment in money at the point of redemption;
(iii) against the redemption of vouchers to which a purchaser of premium goodsbecame entitled by paying the full retail price of those goods withoutmaking any identifiable monetary payment for the vouchers;
(1) There is no price discount allowed to the customer for the purposes ofArticle 11A(3)(b) of the Sixth Directive;
(2) Article 5(6) of the Sixth Directive is to be interpreted as requiring that aprovision, free of charge, of redemption goods under a sales promotionscheme such as that at issue in the present case be treated as a supply forconsideration, notwithstanding that such a provision is for business purposes;
(3) In a case where the supplier of fuel, both at its own retail outlets and atthose operated by independent retailers, operates a promotion schemeconsisting of stamps which can be collected by consumers at both types ofretail outlets and used in order to claim goods from catalogues published bythe supplier, the price paid by the consumer for fuel does not includeconsideration for the supply of those goods.
Decision
1. On a proper construction of Article 11A(3)(b) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws ofthe Member States relating to turnover taxes Common system of value added tax: uniform basis of assessment, the terms ‘rebates’ and ‘price discounts’ cannot be applied to reductions covering the whole cost of supplying redemption goods.
2. On a proper construction of Article 5(6) of the Sixth Directive 77/388, the application by an oil company of goods which are disposed of to a purchaser of fuel in exchange for vouchers which he has obtained in varying quantities, depending on the volume of fuel purchased, on payment of the full retail price for fuel from the pump under a sales promotion scheme such as that in issue in the main proceedings must, where the goods arenot of small value, be treated as a supply for consideration within themeaning of that provision.
Summary
The concepts of ‘price discounts’ and ‘price rebates’ cannot include a price reduction that relates to the full cost of a supply of goods.
The withdrawal by a petroleum company of goods from its business, which are given to a purchaser of fuel in exchange for stamps which he has, in the context of a promotional campaign such as the one at issue in the main subject, in proportion to the quantity purchased received upon payment of the full retail price of the fuel at the pump, should be assimilated to delivery for consideration, where those goods are not of low value.
Source
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