Opinion of Advocate General Van Gerven
Mr President,
Members of the Court,
1. By a decision of 14 January 1993 the Manchester Tribunal Centre of the Value Added Tax Tribunals (hereinafter the national court) referred to the Court under Article 177 of the EC Treaty a question concerning the interpretation of the Sixth VAT Directive (hereinafterthe directive). The question has arisen in connection with two appeals by Empire Stores Ltd against VAT assessments issued by the Commissioners of Customs and Excise (hereinafter the Commissioners) in respect of the accounting periods from 1 February 1987 to 12 November 1988 and 13 November 1988 to 22 July 1989 respectively. Both appeals concern the VAT due on goods supplied as special offers to persons who introduce themselves or others as potential clients.
Background
2. Empire Stores carries on a mail order business and sells goods by means of a catalogue which it sends to its present and future customers. According to the national court, nearly all customers are women. The goods can be paid for immediately or by instalments. In practice very many of them are paid for by instalments. Whereas Empire Stores sells its goods to any person who pays for them immediately, it sells on credit only to persons whom it has approved as customers. According to the provisional judgment delivered by the national court on 17 August 1992, Empire Stores used two methods to attract customers during the period covered by the disputed assessments.
3. Under both schemes Empire Stores accounted for the VAT element of the price which it had paid for the article. The Commissioners, on the other hand, considered that it ought to have accounted for VAT on the tax-exclusive cost price of the article plus 50%, being the Commissioners' estimate of the price which it would have charged for the article if it had been included in the catalogue. The Commissioners issued the disputed VAT assessments on that basis.
4. Empire Stores appealed against the VAT assessments to the national court, which referred the following questions:
The admissibility of the questions
5. The Commission has doubts concerning the admissibility of the questions. Under the second paragraph of Article 177 of the EC Treaty a national court has the right to refer to the Court for a preliminary ruling a question concerning the interpretation or validity of a Community rule only if it considers that a decision on the question is necessary to enable it to give judgment. The Commission points out that the national court in its judgment of 17 August 1992 had allowed both appeals by Empire Stores and discharged the assessments. The decision states that it will become definitive if neither of the parties has sought a direction within two months that a question be put to the Court. Accordingly, the Commission has doubts as to whether an answer by the Court is actually necessary to enable judgment to be given in the main proceedings. None the less it does not formally put forward any objection of inadmissibility.
6. In my view, the Commission's doubts are based on an incorrect reading of the judgment of 17 August 1992. The national court expressly stated in that judgment that it was merely a provisional decision. Although it was of the view that Empire Stores had accounted for VAT on the correct basis and that the appeals ought to be allowed and the assessments discharged (my emphasis), it decided to give the parties two months to apply for a direction that one or more questions be put to the Court for a preliminary ruling. Empire Stores made such an application on 14 October 1992, and after a hearing on 14 January 1993 the national court proceeded to make a reference. In his order for reference of the same day the referring judge states expressly that the questions set forth in the Schedule hereto [are] questions on which this tribunal ... considers that a decision is necessary in order to enable it to give judgment in these appeals. Since therefore the final decision of the national court depends on the answer to be given by the Court and since it has been consistently held that it is for the national court alone to decide whether a preliminary ruling is necessary in order for it to give judgment, I see no reason to declare the reference inadmissible.
Is there consideration within the meaning of the directive?
Provisions of the directive
7. Article 2(1) of the directive subjects to VAT
The views expressed by the interveners before the Court
8. Different reasoning has been put forward by each of the interveners.
9. The United Kingdom Government considers that the question whether the consideration obtained by the supplier for the gift is separate from the price paid for the goods ordered is a question of fact which falls to be decided by the national court. However, if it falls to be decided by the Court of Justice, it should be answered in the affirmative. Both schemes give rise to two transactions, each with its own consideration: first, the supply of the gift, the consideration for which is a supply of services, namely the introduction of a new and acceptable customer (herself or someone else) together with personal information about that customer; secondly, the supply of the ordered catalogue goods, the consideration for which is a monetary payment. It follows from the Naturally Yours Cosmetics judgment that the consideration for a supply of goods may consist in a supply of services if there is a direct link between the two and if the value of the service is capable of being expressed in monetary terms. According to the United Kingdom Government, both conditions are fulfilled.
10. The Commission considers that, in determining the taxable amount for an additional article offered by a trader in connection with the purchase of a main article, a distinction must be drawn according to whether the additional article is of the same nature as the main article. If the additional article is of the same nature, the consideration for the purposes of Article 11A(1)(a) of the directive is the sum paid by the consumer for all the articles supplied. If the additional article is not of the same nature, then the consumer receives two separate articles for which it is necessary to determine separately the taxable amount according to the rules of the directive.
11. Finally, the Portuguese Government distinguishes between the two schemes operated by Empire Stores.
My view
12. I do not consider any of the foregoing views wholly convincing. I shall first of all consider whether under the schemes in question the new or existing customer provides a consideration within the meaning of the directive for the article supplied to her. In other words, the central question is whether the supply of the article constitutes a taxable transaction within the meaning of the directive. If so, then the question arises as to how the precise taxable amount is to be determined.
13. By virtue of Article 2 of the directive, cited above at point 7, in order for there to be a taxable transaction a taxable person must supply the goods for consideration. In order to determine whether that is so in the case of the gifts in question here, reference may first be made to the judgment in Hong Kong Trade, which was delivered in relation to the Second VAT Directive. There the Court held that
14. Everything turns therefore on the precise arrangements of the gift schemes, as determined by the national court. On a closer examination of both schemes I am first of all not convinced by Empire Stores' argument that the consideration for the supply of the free gift consists in the payment which the customer makes for the goods which she orders. As the national court correctly states in its provisional judgment of 17 August 1992, the payment does not in any way constitute the consideration for the gifts.
15. What is the advantage, and hence the consideration, received by Empire Stores?
16. Under both schemes there is therefore consideration. The question none the less arises whether it constitutes consideration for the purposes of Article 11A(1) of the directive. In that connection the Court has laid down the following criteria in its judgments in Coöperatieve Aardappelenbewaarplaats, Apple and Pear Development Council and Naturally Yours Cosmetics:
17. Applying those criteria to the present case, I come to the following conclusions. As regards the requirement of a direct link, it seems to me from the information before the Court that such a link does exist in this case. The introduction and provision of information is under both schemes a conditio sine qua non for the supply of the gift. The national court also made that finding at the end of its provisional judgment: In our judgment the supply of the article under each scheme was directly linked with the introduction and with nothing else.
18. In the present case the advantages which Empire Stores obtains from the potential or existing customer can undoubtedly be expressed in money, even if as the national court states the customer only knows the value of the gift approximately and has no idea of the value of the advantage received by Empire Stores. The essential point is that the advantage received by Empire Stores had an economic value for it. Consequently, Empire Stores' subsidiary argument that the consideration could not be expressed in monetary terms and had no subjective value for it is unconvincing. As the national court observes in its provisional judgment, the value of the introduction unquestionably had a subjective value for Empire Stores, since it was prepared to give for it an article for which it had paid the cost price.
19. My conclusion is therefore that the supply of the gift by Empire Stores constitutes under both schemes a supply of goods for consideration within the meaning of the directive and that there is therefore a taxable transaction. Contrary to the view taken by the Commission, this is not a case in which a taxable person disposes of goods free of charge or more generally [applies them] for purposes other than those of his business within the meaning of the first sentence of Article 5(6) of the directive. By that phrase is meant goods which a taxable person removes from his business in order to dispose of them free of charge for purposes other than those of his business — which is not the case here. Such suppliers are moreover equated with a supply for consideration. Nor does this case concern the giving of samples or the making of gifts of small value for the purposes of the taxable person's business within the meaning of the last sentence of Article 5(6). In my view that phrase covers complimentary gifts intended generally to foster goodwill or publicize the taxable person's name, without there being any direct consideration as is the case here.
The taxable amount
20. Consequently, the question arises as to what the precise taxable amount is. The views taken by the interveners differ on this point also. According to the United Kingdom and Portuguese Governments (the latter only with respect to the introduce-a-friend scheme) the taxable amount is the retail price, that is to say, the price which would have been charged for the goods concerned if they were included in Empire Stores' catalogue. At the hearing the United Kingdom stated that the essential feature of both schemes is that the customer has the illusion that she is receiving something free for which she would otherwise have to pay the catalogue price. The subjective value must therefore be the price which the customer would have had to pay in order to purchase the goods concerned by way of retail.
21. Article 11A(1) of the directive is drafted extremely widely: the taxable amount is everything which constitutes the consideration which has been or is to be obtained by the supplier of the goods or services for the transactions. As already mentioned (point 16), it is according to the Court the consideration actually received which constitutes the taxable amount. In other words, what is decisive is the subjective value which the parties have agreed is to accrue to the supplier of the goods or services, and not an objective value unconnected with the specific transaction.
Conclusion
22. I propose that the Court reply as follows to the questions put by the national court:
1 Original language: Dutch.
2 Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of valued added tax: uniform basis of assessment, OJ 1977 L 145, p. 1.
3 The national court states in its provisional judgment that (i) until 8 August 1988 the gift was sent to the customer when she had paid for the order or had made the first payment; (ii) from 8 August 1988 to 22 February 1989 the gift was sent to her when Empire Stores had received the order; and (iii) after 23 February 1989 the gift was sent to the customer after she had made her first payment.
4 See inter alia the judgment in Joined Cases C-297/88 and C-197/89 Dzodzi [1990] ECR I-3763, paragraph 34.
5 Judgment in Case 89/81 Hong Kong Trade Development Council [1982] ECR 1277.
6 Case 102/86 Apple and Pear Development Council [19881ECR 1443.
7 Case 154/80 Coöperatieve Aardappelenbewaarplaats [19811 ECR 445.
8 Judgment in Case 230/87 Naturally Yours Cosmetics [19881ECR 6365.
9 Second Council Directive (67/228/EEC) of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967, p. 6).
10 This does not detract from its value as a precedent for the present case: as the Court held in Apple and Pear Development Council (cited above, at point 10) and Naturally Yours Cosmetics (cited above, at point 10), the case-law concerning the Second VAT Directive may, in view of the Community aims which underlie both it and the Sixth Directive, provide guidance for the interpretation of the latter directive.
11 Judgment in Case 89/81 Hong Kong Trade [1982] ECR 1277, paragraph 10. See also the recent judgment in Tolsma(judgment of 3 March 1994 in Case C-16/93 [1994] ECR I-743, paragraph 12), where the Court held, with respect to supplies of services, that they were only made for consideration if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient (paragraph 14).
12 Hong Kong Trade judgment, paragraph 11.
13 The Court is necessarily obliged to base its answers to questions such as the present on the findings of fact made by the national court concerning the underlying transactions: see inter alia the judgment in Case C-126/88 Boots Company [1990] ECR I-1235, paragraph 11; judgment in Case C-19/92 Bally [1993] ECR I-2871, paragraph 8.
14 Judgment in Coöperatieve Aardappelenbewaarplaats, cited above, at paragraph 12; judgment m Apple and Pear Development Council, cited above, at paragraph 11; judgment in Naturally Yours Cosmetics, cited above, at paragraphs 11 and 12. The latter judgment applied the case-law, which concerned services, to the supply of goods. The Court has recently confirmed that case-law in the judgment in Tolsma, cited above, paragraph 13.
15 Judgment in Coöperatieve Aardappelenbewaarplaats, cited above, paragraph 12; judgment in Naturally Yours Cosmetics, cited above, paragraph 16.
16 Ibid.
17 Page 58 of the provisional judgment.
18 The case concerned an agricultural cooperative which stored potatoes for its members and for two years decided not to make a storage charge. According to the Netherlands tax authorities, the cooperative had none the less charged a consideration for its services consisting in the reduction in value of the shares of its members as a result of the failure to make a charge. The Court held that there was no direct link between the service supplied and the consideration received since an unascertained reduction in the value of shares could not be regarded as consideration received by the cooperative providing services: judgment in Coöperatieve Aardappelenbewaarplaats, cited above, paragraph 12.
19 This case concerned a public law body (the Apple and Pear Development Council) which was set up at the request of fruitgrowers and whose primary function was to advertise, promote and improve the quality of apples and pears produced in England and Wales. The Court gave a negative reply to the question whether that organization supplied services for consideration for the purposes of the Second VAT Directive since it imposed on its members a mandatory contribution dependent on the size of their apple and pear orchards: individual apple and pear growers received benefits from the activities of the organization only indirectly from those accruing generally to the industry as a whole; moreover there was no relationship between the level of the benefits for individual growers and the amount of the mandatory charge: judgment in Apple and Pear Development Council, cited above, paragraph 15.
20 Judgment in Naturally Yours Cosmetics, cited above, at paragraph 14 (my emphasis).
21 I would recall here the aim of that provision, as made clear by the Court in its judgment in Case C-20/91 De Jong [1992] ECR I-2847, paragraph 15, namely to ensure equal treatment as between a taxable person who applies goods forming part of the assets of his Business for private use and an ordinary consumer who buys goods of the same type. In pursuit of that objective, that provision prevents a taxable person who has been able to deduct VAT on the purchase of goods used for his business from escaping the payment of VAT when he removes those goods from his business for private purposes and from thereby enjoying advantages to which he is not entitled by comparison with an ordinary consumer who buys goods and pays VAT on them.
22 Judgment in Boots Company, cited above, at paragraph 18; see also my Opinion on the case [1990] ECR I-1256 to 57, points 11-12.
23 See the judgment in Coöperatieve Aardappelenbewaarplaats, paragraph 12, where the Court held that the taxable amount is everything which is received as consideration for a service.