C-230/87

OPINION OF MR CRUZ VILAÇA —CASE 230/87

O P I N I O N OF MR ADVOCATE GENERAL C R U Z VILAÇA delivered on 14 July 1988 *

Mr President 4. Thus, the beauty consultants come within Members of the Court, the category of 'taxable persons', within the meaning of Article 4 (1) of the Sixth Directive, but are exempt from VAT under Article 24 of that directive since their turnover is lower than the threshold laid 1. The question submitted to the Court for down by the United Kingdom legislation. a preliminary ruling by the London value-added tax tribunal and, more so, the long and detailed order for reference provide a clear indication of the problems involved in the application of Article 5. At each party, the beauty consultant 11 A 1 (a) of the Sixth VAT Directive 1in gives the hostess, as a gift for organizing it, the circumstances to which the main a pot of beauty cream. The pot is purchased proceedings relate. by the consultant from NYC for UKL 1.50 instead of its normal selling price of UKL 10.14.

2. The company Naturally Yours Cosmetics Ltd ('NYC') carries on business as a 6. The Commissioners of Customs and wholesaler of cosmetic products which are Excise, however, assessed VAT for 1984 on sold through retailers known as 'beauty the basis of the latter value, relying for that consultants', who approach friends and purpose on Section 10 (3) of the United acquaintances ('hostesses') to organize Kingdom Value-Added Tax Act 1983, parties at which NYC's products are offered according to which 'if the supply is not for a for sale to the ladies present. 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'.

9. The essential issue is to determine what, 13. From that judgment (paragraphs 8 to pursuant to Article 11 A 1 (a) of the Sixth 14) the following interpretative criteria can Directive, is the 'consideration' received in be deduced: exchange for the pot of cream supplied by the company to the beauty consultants — is it merely the price actually paid by the consultants or does it include something else, and if so, what does that 'something (a) The term to be interpreted else' consist of? ('consideration') appears in a provision of Community law which does not refer to the law of the Member States for determination of its meaning and scope, 10. The problem arises because the concept and therefore its interpretation cannot of 'consideration' in Article 11 A 1 (a) is be left to the discretion of each Member not precisely defined and it is difficult to State; apply it to circumstances of the kind referred to in the question submitted for a ruling. (b) As is stated explicitly under point 13 of Annex A to the Second Directive (of which it forms an integral part by virtue 11. The Second VAT Directive 2 refers in of Article 20), consideration should be Article 8 (a) to the concept of understood as meaning 'everything consideration, upon which the Court had received in return for the supply of occasion to express its views in its judgment goods or the provision of services, of 5 February 1981. 3 including incidental expenses (packing, transport, insurance, etc.) that is to say not only the cash amounts charged but also, for example, the value of the goods 12. Since, in a later judgment, 4 the Court received in exchange . . . ' (emphasis made clear that, having regard to the 'same added); legislative aim' of the two directives, account must be taken, in interpreting the Sixth Directive, of the decisions of the

(d) For those conditions to be regarded as the term should be given the broadest fulfilled, there must be a direct link possible meaning. This, moreover,' reflects between the goods supplied (or the the objectives of the VAT system: a general service provided) and the consideration system of tax on consumption, which is received; neutral as regards the structure of the trans- actions, thereby ensuring that it is applied as comprehensively as possible to transactions at all stages of production and distribution (see the fifth recital in the preamble to the (e) It is apparent from the use of the terms First Directive). 6 'against payment' and 'everything received in return' — and from Article 9 of the Second Directive (Article 12 (3) of the Sixth Directive) concerning the standard rate of tax — that the 17. All transactions (supplies of goods, the consideration for the supply of goods provision of services and imports of goods) (or the provision of services) must be for which payment is made are therefore capable of being expressed as an amount subject to the tax (Article 2 of the Sixth of money; it also follows that the Directive). consideration is a 'subjective value', since the basis of assessment is the consideration actually received and not a value assessed according to objective criteria. 18. The legislature's concern to levy VAT on the taxable amount in its entirety (and, moreover, in a uniform manner throughout the Community) is also reflected in the very way in which taxable transactions are 14. How can those principles be applied to defined (Articles 5 and 6), including the fact the present case? that certain operations are treated by those articles in the same way as supplies of goods or services for consideration.

21. It is true that, in explaining the concept 26. Everything depends upon the contract of 'consideration', point 13 of Annex A to entered into. the Second Directive refers only to 'the value of the goods received in exchange' but does not mention the value of the services provided. 27. In the present case, it is apparent from the documents before the Court — in particular the order for reference — that there is such a link. 22. However, the expression is used merely by way of illustration and should not — for that very reason — be interpreted restric- tively or literally. 28. The pot of rejuvenating cream is supplied for UKL 1.50 to the beauty consultant against her undertaking to use it as a gift to induce a hostess to organize a party to promote the sale of NYC products. 23. Goods are referred to, no doubt, because it is goods that are most frequently involved; but in any event it might perhaps be conceded that the legislature's failure to 29. The pot of cream cannot be used for mention services reflects the practical diffi­ any other purpose, and in particular it culties involved in taking services into cannot be sold to the public for a price account in certain cases. 7 greater than that at which it was supplied to the consultant.

24. It should also be stated that, for the purpose of determining the taxable amount, 30. That price may be regarded as only part any advantage which the supplier may of the payment for the pot of cream; if the obtain from the transaction is immaterial, company supplies it to the consultant for except an advantage obtained by him in such a low price the reason is that, in return for his part in the operation, which return, it also receives from the beauty renders irrelevant the example put forward consultant the service of finding a hostess by NYC of the sale of products at a reduced and arranging for a party to be held. price to dispose of old stocks.

consultant provides in her own interests. or paid for at its normal wholesale price, a If the party is not held, the beauty fact which provides the required support for consultant — who has paid the wholesaler the statement that the consideration is not, for the products — is left with unsold items therefore, merely the UKL 1.50. or, at least, falls behind schedule with her sales, whilst NYC has. already received the payment from the consultant (the retailer), with the result that it is a matter of indif- 36. To illustrate its contention that the ference to it whether or not she recovers the position which I have just described is not sums paid. correct, NYC gave the example of the sale of a particular item of goods for a price well below the normal price (possibly merely a token price), where the purchaser gives an undertaking to buy larger quantities of the 32. That is not the position. goods concerned in the future. In NYC's view, that undertaking constitutes — as in the case at issue in these proceedings — merely one element in the overall agreement 33. NYC has an interest in the holding of entered into between the two parties, which, the party because, since that method — it notwithstanding the value which it might would appear — is its sole method of actually prove to have for the supplier, selling, the regular disposal of its products should not be included in the consideration depends upon the holding of numerous for the purpose of determining the basis of parties and, therefore, upon the action assessment of VAT. At the hearing, the taken by the consultants to organize them. Agent for the Portuguese Government referred to that same example, and expressed the view that it was not comparable with the situation in the present proceedings since there was no direct 34. It is for that reason — and, without relationship between the reduction in price doubt, for that reason alone — that NYC and the promise to purchase additional agrees to supply the pot of cream intended quantities later at the normal price. as a gift for such a low price. If the only interest at stake were that of the beauty consultant, it would be logical for the wholesaler to charge her the normal price 37. It seems to me that no decisive for the product, so that she would bear the argument can be developed from that total cost of the free gift (possibly with a example. discount) which would have to be recovered from the profit represented by the difference between the wholesale and retail prices. 38. Of the two possibilites, one must prevail: either the two situations compared are, as the Portuguese Government main- 35. As is apparent from the documents tained, entirely different because, in the before the Court, if the beauty consultant example given by NYC, the taxable oper- does not provide the agreed service to the ations are carried out under different wholesaler — that is to say, if she fails to conditions and at separate times without a find a housewife to organize the party for sufficient relationship between them; or else her—-the pot of cream has to be returned there are objective factors which enable

39. In the case at issue in these proceedings, 42. As regards the service which the the existence of a specific link between the hostess, for her part, provides by making supply of the pot of cream to the beauty her house available and cooperating in consultant (for less than the normal price) organizing the party, it falls outside the and her undertaking to arrange for a scope of the relations between the beauty particular party to be organized enables this consultant and the wholesaler, NYC, and situation to be distinguished from one does not therefore have to be taken into where one or more pots of cream are account in defining the consideration in the supplied for that price against an under­ sale by NYC to the consultant. The taking, not given expressly, to organize, on a relations between the consultant and the general basis, parties for the sale of NYC hostess therefore represent another phase in products. In the latter case it would the process of product distribution. certainly be much more difficult to speak of a specific consideration for the supply of the product at less than the normal price.

43. In that phase, in the event of the consultants' being subject to tax, the free gift of cream to the housewife would 40. In either case, the portion of the cost of itself — regardless of the consideration the pots of cream not covered by a cash given for the service provided by the payment from the retailer will, naturally, be hostess — in principle be taxable. As was taken into account by the company as one pointed out at the hearing by the Agent for of its general operating expenses and, as the the Portuguese Government, Article 5 (6)

50. The fact that the price is reduced only if 45. The cost price, for the purposes of the party actually takes place, whereupon determining the taxable amount in the pot of cream will be given to the accordance with Article 11 A 1 (b), would hostess, shows that the parties subjectively in fact be UKL 10.14, corresponding to the assigned to the service provided a value normal wholesale price of the product, the corresponding to that price reduction. Since basis of assessment at the preceding stage of the portion of the price of the goods which the distribution chain. was not paid initially must be paid subsequently if the party is not in fact held, it is clear that, as regards that portion, the goods are paid for either by provision of the 46. It is this fact which, in the final analysis, service or by a specific sum of money in lieu makes it possible to state that the hostess of that service. receives, for organizing the party, an article which is worth UKL 10.14 (or UKL 12.95, the retail sale price of the product) and not merely UKL 1.50, as it would be logical to 51. It is therefore legitimate, in my opinion, conclude if the view were taken that that to apply the tax to that value, in so far as it amount was the only consideration received also forms part of the consideration in a by NYC, being subject as such to tax. bilateral contract under which one of the parties delivers goods and the other pays for them partially in money and partially by means of a service which it undertakes to 47. Before it can be said that the service provide. provided must be regarded as part of the consideration for the goods supplied and must therefore be included in the basis of assessment for VAT, it must—and this is 52. Where the transaction is an exchange, the third condition to be fulfilled — be the value of what is supplied by one party capable of being evaluated and being represents, in the final analysis, the expressed in pecuniary terms. As the Court consideration for what is supplied by the also stated, this 'consideration' must be a other.

54. The application of that concept to the present case is misconceived. 59. I should not in any event like it to be concluded from the foregoing reasoning — a conclusion that would be preferred by NYC and, as is evident from 55. In fact, the aim in view is to determine its written observations, by the the value actually assigned by the parties to Commission — that it is completely the consideration, so that tax can be impossible to determine the consideration, assessed upon it. for the purposes of Article 11 A 1 (a) of the Sixth Directive, by reference to the concept of normal value or open market value. 56. It is true that the calculation of that value involves, in the circumstances of this case, a reference to the wholesale price normally charged for goods of that kind when supplied for sale to the public. 60. In fact, in certain circumstances, that will be the only effective way of calculating the value of the consideration and levying 57. But the way in which the Commis­ tax on it, so as to prevent fiscal distortions sioners have applied the United Kingdom or avoidance of tax which would necessarily provision does not, strictly speaking, involve occur if the part of the consideration not reliance, for the purpose of evaluating the represented by the transfer of a given sum consideration, upon the concept of open of money had to be disregarded. market value in the strict sense of that term, as a fictitious concept dissociated from the terms of the transaction in question and from the synallagmatic relationship estab­ 61. As I emphasized at the hearing, it lished between the two parties to the would not be appropriate to accord contract. different tax treatment to two contracts for the sale of a particular product under which payment is made partly in money and partly 58. In a case such as this one, the in the form of goods or services merely relationship between the consideration given because, in one of the contracts, the parties by one contracting party and that given by fixed the value of the items supplied or the the other is such that it is possible to service provided in exchange and, in the discover what value they attributed to the other, did not do so. Only reference to the service which constituted part of the normal value or open market value can consideration. That value is calculated, in­ avoid the distortion which would derive directly, by reference to the normal whole­ from different treatment being accorded to sale price of the product; there too, transactions which were virtually identical however, it is not a question of an abstract from the economic point of view.

63. Nor is it undermined by the fact that the reference to that concept contained in the first draft was eliminated from the final 66. In certain cases, reliance upon the version of the directive. 8If the elimination concept of open market value will, as stated of that reference has any meaning (and it earlier, be the only way of evaluating the certainly does), it is that, in the part with consideration and avoiding the unjustified which we are concerned, it was intended to tax distortions or advantages which would replace — as the taxable amount for this otherwise result. type of transaction — the reference to the normal value of the transaction in question (taken as the normal value of the goods or services supplied) by a reference to the 67. This appears to have been accepted by consideration, the value of which must be the Commission in its observations in Case determined in a manner which the directive 154/80 10 and was conceded at the hearing left unclear. in this case by Counsel for NYC and by the Agent for the Commission.

NATURALLY YOURS COSMETICS LTD ν COMMISSIONERS OF CUSTOMS AND EXCISE

excessively difficult) to attribute to the 71. In the present case an approximation of consideration, by some other means, its true that kind is possible in so far as a value value for the purposes of the transaction, or, can be accurately (although indirectly) at least, its real market value. At this point it attributed, within the relationship between must be stated that the expression used in the parties, to the service provided as the United Kingdom legislation and in the consideration for the goods supplied, English version of the Sixth Directive — without its even being necessary — contrary 'open market value', which we could as­ to what might be suggested by the terms of similate to Ordinary market value' — the domestic provision (and particularly by seems to me to be more felicitous than the the normal translation thereof into the expression 'normal value' used in the various Romance languages) pursuant to Romance-language versions of the directive. which the Commissioners took their It is only where there is no market that it is decision — to refer to the concept of necessary to have recourse to a value other normal value or open market value. than the real value, or to a deemed value.

72. Since the compatibility of that provision 69. In any event, being a tax on with Community law is not at issue here, it consumption, VAT must be levied as is pointless to make judgments of a general precisely as possible upon the actual amount nature concerning the terms in which it is spent by the consumer and accordingly drafted. Accordingly in the reply which I reference to open market values rather than shall suggest shortly I shall confine myself to real values should be permitted only to indicating what seem to me to be the (otherwise than in cases where that principles to be followed in interpreting approach is expressly provided for) where it Article 11 A 1 (a) of the Sixth Directive, is impossible to follow some other for the purpose of deciding the present case. procedure which comes closer to determi­ nation of what the Court has called the 'subjective value' of the consideration.

74. On the basis of the foregoing considerations, I propose that the Court should rule .that, in circumstances like those described by the London value-added tax tribunal — 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.