Flashback on ECJ Cases – C-310/11 (Grattan) – Mail-order agent’s credit does not lead to a reduction in tax base

On Dec 19, 2012, the ECJ issued its decision in the case C-310/11 (Grattan).

Context: Taxation – VAT – Second Directive 67/228/EEC – Article 8(a) – Sixth Directive 77/388/EEC − Supply of goods – Basis of assessment – Commission paid by a mail order company to its agent – Purchases by third-party customers – Price reduction after the chargeable event – Direct effect

Article in the EU VAT Directive

Article 8(a) of Second Council Directive 67/228/EEC (Article 11(A) & 11(C)(1) of the Sixth VAT Directive – Article 73 & 90 of the EU VAT Directive 2006/112/EC)

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 90
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under
conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Facts

Grattan is the representative member of a VAT group composed of companies which, during the period at issue in the main proceedings, were mail order retailers (‘the companies’). The companies used the services of agents who earned commission, inter alia in relation to purchases made by third parties (‘third party purchases’) to whom the agents would send company catalogues and who were the final consumers (‘the sub-customers’). The agent would place the sub-customers’ orders by telephoning the call-centre of the company concerned or by sending off an order form. Typically, the goods ordered would be delivered to the agent for onward distribution to the sub-customers. Payment for the goods would be collected by the agent from the sub-customers and periodically remitted to the mail order company.
The agents received commission of 10% on the amounts which they remitted to the company concerned, both in relation to their own purchases of goods from the mail order catalogue and in relation to third party purchases. The commission would be credited to an account in the company’s books and the agents could then obtain it in various ways:
- they could claim it as a cheque payment;
- they could apply the credit against the balance of their account so as to reduce their outstanding debt to the company for goods that they had bought from it;
- they could apply the credit as full or part payment for the purchase of further goods.
When taken as a cheque payment or as credit against the agent’s outstanding balance the commission was referred to as being taken ‘in cash’. When used for the purchase of further goods, the commission was referred to as taken ‘in goods’. The dispute in the proceedings before the referring tribunal concerns only situations in which the commission was taken ‘in cash’.
The companies accounted for VAT on the full catalogue price of the goods, including the amount of the commission paid to the agents. Grattan claimed repayment from the Commissioners of the amounts paid by way of VAT corresponding to the commission on the ground that the commission constituted a discount reducing the consideration for, or taxable amount of, supplies of goods by the companies to the agents. The Commissioners repaid the VAT relating to the commission with the exception of commission taken in cash in respect of third-party-purchase transactions in the period from 1973 up to 1 January 1978.
Before the referring tribunal, Grattan contended that the commission for third party purchases taken in cash was a discount on the price paid by the agent for the goods which the agent purchased from the relevant company (when the commission was received at the time of supply) or a rebate (when it was received after the supply). Therefore, in its submission, the consideration, or taxable amount, had to be reduced. This followed from Article 11C(1) of the Sixth Directive and, prior to 1978, from Article 8(a) of, and paragraph 13 of Annex A to, the Second Directive and, in any event, from the principle of fiscal neutrality which existed before 1978.
The Commissioners submitted that the Second Directive did not require the Member States to put in place measures providing for a retrospective reduction of the basis of assessment after the supply had taken place, as provided for by Article 11C(1) of the Sixth Directive. Furthermore, Article 8(a) of the Second Directive was not sufficiently precise to have direct effect. The Commissioners considered that there were relevant distinctions between commission for third party purchases and commission for agents’ own purchases of goods from the mail order catalogue.

Questions

In relation to the period before 1 January 1978, does a taxable person have a directly effective right under Article 8(a) of the [Second Directive], and/or the principles of fiscal neutrality and of equal treatment, to treat the basis of assessment of a supply of goods as retrospectively reduced where, after the time of that supply of goods, the recipient of the supply received a credit from the supplier which the recipient then elected either to take as a payment of money, or as a credit against amounts owed to the supplier in respect of supplies of goods to the recipient that had already taken place?

AG Opinion

Article 8(a) of Second Directive 67/228/EEC is to be interpreted as meaning that a taxable person does not have a directly effective right to treat the basis of assessment of a supply of goods as retrospectively reduced where, after the time of that supply of goods, the recipient of the supply received a credit from the supplier which the recipient then elected either to take as a payment of money, or as a credit against amounts owed to the supplier in respect of supplies of goods to the recipient that had already taken place.

Decision

Article 8(a) of Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes – Structure and procedures for application of the common system of value added tax must be interpreted as not conferring upon a taxable person the right to treat the basis of assessment of a supply of goods as retrospectively reduced where, after the time of that supply of goods, an agent received a credit from the supplier which the agent elected to take either as a payment of money or as a credit against amounts owed to the supplier in respect of supplies of goods that had already taken place.

Summary

A taxable person shall not be entitled to a retroactive reduction of the tax base for a supply of goods if, after delivery of the goods, an agent was granted by the supplier a credit which he could, at his discretion, withdraw in cash or settle against amounts owed to the supplier for goods already delivered.

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