On November 23, 1988, the ECJ issued its decision in the case C-230/87 (Naturally Yours Cosmetics).
Context: Tax provisions — Harmonization of laws — Turnover taxes — Common system of value-added tax — Taxable amount — Supply of goods — Consideration directly linked to the supply, capable of being expressed in monetary terms and constituting a subjective value — Reduction of sale price by way of reward for a service provided by the purchaser (Council Directive 77/388, Art. 11 A 1 (a))
Article in the EU VAT Directive
Article 11(A)(1)(a) of the Sixth Council Directive (Article 73 of the EU VAT Directive 2006/112/EC)
Article 11 A 1 (Taxable amount)
‘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;
Facts
- NYC is a company which carries on business as a wholesaler of cosmetic products for resale by retailers (‘beauty consultants’) who approach friends and acquaintances (‘hostesses’) for the purpose of organizing private parties at which NYC’s products are offered for sale.
- The beauty consultants purchase the products from NYC at wholesale prices and sell them at the parties at a retail price recommended by the company; the difference between those two prices constitutes the profit to which the beauty consultants are entitled. It is apparent from the documents before the Court that the beauty consultants are exempted from the payment of VAT under Article 24 of the Sixth Directive because their turnover falls short of the threshold fixed by the United Kingdom legislation.
- To reward the hostesses for organizing the parties, the beauty consultant gives them one of the products on sale there (‘Natural oasis rejuvenating cream’) as a ‘dating gift’. When the pot of cream is used for that purpose, NYC supplies it to the beauty consultant for UKL 1.50 instead of its normal wholesale price of UKL 10.14.
- The Commissioners assessed VAT for 1984 on the basis of the normal wholesale price of UKL 10.14 for each pot of cream, including those intended to be used as gifts; in so doing, they relied upon the relevant United Kingdom legislation, namely Section 10 (3) of the Value-Added Tax Act 1983, which provides that: ‘If the supply is not for a consideration or is for a consideration not consisting or not wholly consisting of money, the value of the supply shall be taken to be its open market value’. NYC considers that that provision is contrary to Article 11 A 1 (a) of the Sixth Directive and that the taxable amount should be the price of UKL 1.50 actually paid by the beauty consultant for the pots of cream to be used as gifts.
Questions
For the purposes of Article 11 A of the Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes (Directive
77/388/EEC of 17 May 1987), where a supplier (“the wholesaler”) supplies goods (“the inducement”) to another (“the retailer”) for a monetary consideration
(namely a sum of money) which is less than that at which he supplies identical goods to the retailer for resale to the public on an undertaking by the retailer to
apply the inducement in procuring another person to arrange, or in rewarding another for arranging, a gathering at which further goods of the wholesaler can be sold by the retailer to the public for their mutual benefit, is the taxable amount
(a) only the monetary consideration received by the wholesaler for the inducement, or
(b) the monetary consideration at which the wholesaler supplies the identical goods to the retailer for resale to the public, or
(c) such amount as is to be determined in accordance with such criteria which may be determined by the Member State concerned, or
(d) the monetary consideration together with the value of the undertaking by the retailer to apply the inducement in so procuring or rewarding the other person and, if so, how the value of the undertaking is to be determined, or
(e) some other, and if so, what other, amount?
AG Opinion
Where a supplier (wholesaler) supplies certain goods (gifts) to another (retailer) for a price considerably lower than that at which it supplies identical goods to the same retailer for resale to the public, against an undertaking given by the retailer to use that gift as a reward to another person for organizing a party during which the wholesaler’s products are offered for sale to the public by the retailer, failing which the gift is returned to the supplier or must be paid for at its wholesale price — the taxable amount comprises, pursuant to Article 11 A 1 (a) of the Sixth Directive, the sum of the price paid to the wholesaler and the value of the service provided by the retailer, consisting in the procuring of another person to organize the party, and the value of that service may be regarded as being equal to the difference between the price paid by the retailer for resale to the public and the price which the retailer actually paid.
Decision
Article 11 A 1 (a) of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted as meaning that where a supplier (‘the wholesaler’) supplies goods (‘the inducement’) to another (‘the retailer’) for a monetary consideration (namely a sum of money) which is less than that at which he supplies identical goods to the retailer for resale to the public on an undertaking by the retailer to apply the inducement in procuring another person to arrange, or in rewarding another for arranging, a gathering at which further goods of the wholesaler can be sold by the retailer to the public for their mutual benefit, on the understanding that if no such gathering is held the inducement must be returned to the supplier or paid for at its wholesale price, the taxable amount is the sum of the monetary consideration and of the value of the service provided by the retailer which consists in applying the inducement in procuring the services of another person or in rewarding that person for those services; the value of that service must be regarded as being equal to the difference between the price actually paid for that product and its normal wholesale price.
Summary
Where a supplier (“wholesaler”) supplies goods (“the bait”) to another (“reseller”) for a consideration (i.e. a sum of money) which is lower than that at which he supplies the same goods to the reseller for sale to the public, where the reseller undertakes to use the bait to persuade a third party to organise – or reward that third party for doing so – a party at which other goods belonging to the wholesaler may be sold by the reseller to the public at a profit to both parties, it being understood that if no party takes place the bait must be returned to the wholesaler or purchased at his wholesale price, the taxable amount shall be the sum of the monetary consideration and the value of the service provided by the reseller consisting of the use of the bait to secure or reward the services of the third party; the value of that service shall be deemed to be the difference between the price actually paid for the article and the normal wholesale price.
The taxable amount is the sum of the monetary consideration and the value of the service rendered by the reseller, consisting in the use of the bait article to secure or reward the services of the third party; the value of that service should be considered equal to the difference between the price actually paid for the item and the normal wholesale price.
Source
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See also Arm’s Length Principle and Taxable Amount in the VAT Directive
