C-33/93

EMPIRE STORES v COMMISSIONERS OF CUSTOMS AND EXCISE

OPINION OF ADVOCATE GENERAL VAN GERVEN delivered on 16 March 1994 *

Mr President, logue which it sends to its present and future Members of the Court, customers. According to the national court, nearly all customers are women. The goods can be paid for immediately or by instal­ ments. In practice very many of them are paid for by instalments. Whereas Empire Stores sells its goods to any person who pays 1. By a decision of 14 January 1993 the for them immediately, it sells on credit only Manchester Tribunal Centre of the Value to persons whom it has approved as custom­ Added Tax Tribunals (hereinafter 'the ers. According to the provisional judgment national court') referred to the Court under delivered by the national court Article 177 of the EC Treaty a question con­ on 17 August 1992, Empire Stores used two cerning the interpretation of the Sixth VAT methods to attract customers during the Directive (hereinafter'the directive' 1). The period covered by the disputed assessments. 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 Com­ missioners') in respect of the accounting periods from 1 February 1987 to 12 Novem­ ber 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.

The second scheme was known as the 'introduce-a-friend scheme'. Under that scheme existing customers were induced by means of a gift of their choice to recommend one or more friends as future customers. They were required to fill in the relevant forms with their friends, indicate the gift of their choice and return the forms to Empire Stores. Under this scheme also the credit­ worthiness of the prospective customer was first of all examined. If this was found to be 4. Empire Stores appealed against the VAT satisfactory, and as soon as the new customer assessments to the national court, which had made her first payment, Empire Stores referred the following questions: sent the gift to the existing client. According to the provisional judgment a gift could be chosen from the following articles: an or­ ganizer bag (a cassette player in a first leaflet), a toaster, a jug kettle, a steam iron, a disk camera and a £15 voucher. The voucher gave the right to a £15 reduction on any item worth £15 or more in Empire Stores' catalogue. According to the national court, neither of the parties to the main proceedings suggested that the cost price of the free gifts to Empire Stores was more than £10 each. 'For the purposes of Article 11A(1)(a) of the Sixth Council Directive on the harmonisa­ tion of the laws of the Member States relat­ 2 — The national court states in its provisional judgment that (i) until 8 August 1988 the gift was sent to the customer when ing to turnover taxes (Directive 77/388/EEC 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 of 17 May 1977), where a supplier of goods her when Empire Stores had received the order; and (iii) after 23 February 1989 the gift was sent to the customer after ordered by mail order from a catalogue she had made her first payment. ("catalogue goods") operates schemes, full

and the articles not so available ("non- catalogue goods") supplied as aforesaid are not otherwise the subject of supplies by the (iii) some other and if so what amount?'

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The admissibility of the questions tions be put to the Court for a preliminary ruling. Empire Stores made such an applica­ tion on 14 October 1992, and after a hearing on 14 January 1993 the national court pro­ ceeded 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 deci­ 5. The Commission has doubts concerning sion is necessary in order to enable it to give the admissibility of the questions. Under the judgment in these appeals.' Since therefore second paragraph of Article 177 of the EC the final decision of the national court Treaty a national court has the right to refer depends on the answer to be given by the to the Court for a preliminary ruling a ques­ Court and since it has been consistently held tion concerning the interpretation or validity that it is for the national court alone to of a Community rule only if it considers that decide whether a preliminary ruling is neces­ a decision on the question is necessary to 3 sary in order for it to give judgment, I see enable it to give judgment. The Commission no reason to declare the reference inadmis­ points out that the national court in its judg­ sible. ment 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, Is there consideration within the meaning the Commission has doubts as to whether an of the directive? answer by the Court is actually necessary to enable judgment to be given in the main pro­ ceedings. None the less it does not formally put forward any objection of inadmissibility. Provisions of the directive

Finally, Article 11 of the directive governs the taxable amount. The following provi­ 2. (...) sions of Article 11 A, which concerns sup­ plies of goods or services within the territory of the country, are relevant here:

3. The taxable amount shall not include:

'1 . The taxable amount shall be:

(a) (...)

(a) in respect of supplies of goods and ser­ vices other than those referred to in (b), (c) and (d) below, everything which con­ stitutes the consideration which has been (b) price discounts and rebates allowed to or is to be obtained by the supplier from the customer and accounted for at the the purchaser, the customer or a third time of the supply;

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(c) (...) ' waarplaats judgment that the consideration consists of everything which is received in return for the supply of goods or services. In the present case both the supply of the gift and the supply of the first catalogue goods The views expressed by the interveners are made for a single consideration, namely before the Court the monetary payment. Other than the mon­ etary payment there is no separate or addi­ tional consideration given in return for the gift. There is no direct link between the sup­ ply of the gift and the personal information 8. Different reasoning has been put forward which the new customer gives concerning by each of the interveners. herself or the introduction of a new cus­ tomer by an existing customer. The right to the gift arises only when the new customer places her first order and makes the payment relating thereto. For those reasons Empire Stores also considers that the present case Empire Stores submits primarily that the first must be distinguished from the Naturally question should be answered in the negative 7 Yours Cosmetics case. and that it is therefore unnecessary to con­ sider the second question. It argues that, whichever scheme is used, the monetary pay­ ment received from the new customer con­ stitutes the 'consideration' for the purposes of Article 11A(1)(a) of the directive both for the supply of the first order of goods and the supply of the gifts. It follows from the Court's case-law, in particular the judgments 4 in Hong Kong Trade and Apple and Pear 9. The United Kingdom Government con­ Development Council, 5 that there is a tax­ siders that the question whether the consid­ able transaction only if a direct link exists eration obtained by the supplier for the gift between the goods supplied and the consid­ is separate from the price paid for the goods eration received. Such a direct link does exist ordered is a question of fact which falls to be between the supply of the free gift and the decided by the national court. However, if it monetary payment since the gift is not sup­ falls to be decided by the Court of Justice, it plied until the monetary payment is made. 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 According to Empire Stores, it follows fur­ someone else) together with personal infor­ ther from the Coöperatieve Aardappelenbe- mation about that customer; secondly, the

According to the Commission, however, the gifts in the present case may be regarded as 'gifts of small value' within the meaning of the last sentence of Article 5(6), so that the supply of the gifts does not constitute a tax­ able transaction and there is therefore no taxable amount. If the national court takes 10. The Commission considers that, in deter­ the view that the additional article is not of mining the taxable amount for an additional small value, the taxable amount is the pur­ article offered by a trader in connection with chase price paid by the supplier of the goods, the purchase of a main article, a distinction in other words, the taxable amount contem­ must be drawn according to whether the plated by the national court at point (i) of its additional article is of the same nature as the second question. main article. If the additional article is of the same nature, the consideration for the pur­ poses 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 11. Finally, the Portuguese Government dis­ necessary to determine separately the taxable tinguishes between the two schemes oper­ amount according to the rules of the direc­ ated by Empire Stores. tive.

In the case of the 'self-introduction scheme', it contends that the gift does not constitute a The latter situation is the case here. The tax­ 'discount' for the purposes of Art­ able amounts must be taken to be the total icle 11A(3)(b) of the directive since a amount paid by the consumer. The supply of discount normally takes the form of a price a free gift must be considered a separate reduction and not the supply of goods. transaction falling under Article 5(6) of the Under this scheme Empire Stores does Sixth Directive, that is to say the disposal by not receive a service from its customer which a taxable person of goods forming part of his is rewarded with the gift in question; its

My view 'services provided free of charge are different in character from taxable transactions which,

8 — Second Council Directive (67/228/EEC) of 11 April 1967 on the harmonization of legislation of Member States concern­ ing turnover taxes — Structure and procedures for applica­ tion of the common system of value added tax (OJ, English 12. I do not consider any of the foregoing Special Edition 1967, p . 6). 9 — This does not detract from its value as a precedent for the views wholly convincing. I shall first of all present case: as the Court held in Apple and Pear Develop- consider whether under the schemes in ques­ ment Council (cited above, at point 10) and Naturally Yours Cosmetics (cited above, at point 10), the case-law concerning tion the new or existing customer provides a the Second VAT Directive may, in view of the Community aims which underlie both it and the Sixth Directive, provide consideration within the meaning of the guidance for the interpretation of the latter directive.

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EMPIRE STORES v COMMISSIONERS OF CUSTOMS AND EXCISE

within the framework of the value added tax mined by the national court. 2On a closer system, presuppose the stipulation of a price examination of both schemes I am first of all or consideration.' 10 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.

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OPINION OF MR VAN GERVEN — CASE C-33/93

15. What is the advantage, and hence the and payment for, catalogue goods by that consideration, received by Empire Stores? person does not in my view detract from its character as a reward.

Under the 'self-introduction' scheme that advantage consists in two elements: (i) the 16. Under both schemes there is therefore obtaining of personal (and partly confiden­ consideration. The question none the less tial) information concerning the customer arises whether it constitutes consideration introducing herself and the — at least for the purposes of Article 11A(1) of the implicit — permission to use the information directive. In that connection the Court has in order to investigate credit-worthiness laid down the following criteria in its judg­ (which is essential in the case of credit sales), ments in Coöperatieve Aardappelenbewaarp- in relation to which the national court states laats, Apple and Pear Development Council that such information has an economic value and Naturally Yours Cosmetics: having regard to the fact that Empire Stores could sell its lists of established customers for £65 per thousand names and addresses to third parties and did in fact do so; and (ii) the serious chance that the customer intro­ ducing herself, induced by the gift, will order — a direct link must exist between the sup­ catalogue goods from Empire Stores, thus ply of the goods and the consideration 13 enabling the latter to extend its clientele. obtained;

— the consideration must be capable of 14 being expressed in money; In the case of the 'introduce-a-friend' scheme Empire Stores receives the same advantages, except that the information given and also the chance of catalogue goods being ordered concern the person introduced and that it is not the latter who receives the gift — the consideration must have a subjective but the existing client as a reward for acting value inasmuch as the taxable amount is as an 'intermediary'. the consideration actually received and

17. Applying those criteria to the present case, I come to the following conclusions. As regards the requirement of a direct link, it That case concerned a cosmetics wholesaler seems to me from the information before the (Naturally Yours Cosmetics, 'NYC' ) which Court that such a link does exist in this case. resold through 'beauty consultants' who The introduction and provision of informa­ called on friends and acquaintances ('host­ tion is under both schemes a conditio sine esses') to organize parties at their homes at qua non for the supply of the gift. The which the products concerned were offered national court also made that finding at the for sale. The beauty consultants sold the end of its provisional judgment: 'In our products at the parties, whereas the hostess judgment the supply of the article under was offered a pot of cream from NYC's each scheme was directly linked with the range as a reward for organizing the party. If 16 introduction and with nothing else'. the pot of cream was used for that purpose, NYC merely charged the beauty consultants £1.50 instead of the normal wholesale price of £10.14. Asked what the precise taxable amount must be under Article 11A(1) of the directive, the Court held:

Moreover, it cannot be said that the value of the gift is unconnected with the economic value which the introduction has for Empire Stores. On that point this case differs consid­ 'It is apparent from the order for reference erably from the situations in the cases of that a feature of the NYC sales method is Coöperatieve Aardappelenbewaarplaats 17

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that beauty consultants operate at private observes in its provisional judgment, the parties which they organize through host­ value of the introduction unquestionably had esses. That is why, it is said, NYC agrees to a subjective value for Empire Stores, since it sell the pot of cream to be used as a gift at a was prepared to give for it an article for very low price. Moreover, it became appar­ which it had paid the cost price. ent at the hearing that where the beauty con­ sultant, being unable to find a hostess to organize a party, does not provide the envis­ aged service, the pot of cream must be returned or paid for at the normal wholesale price. If that is the case — a matter to be decided by the national court — then there is a direct link between the supply of the pot of cream at a very low price and the service 19 provided by the beauty consultant.'

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EMPIRE STORES v COMMISSIONERS OF CUSTOMS AND EXCISE

business' within the meaning of the last sen­ have been charged for the goods concerned if tence of Article 5(6). In my view that phrase they were included in Empire Stores' cata­ covers complimentary gifts intended gener­ logue. At the hearing the United Kingdom ally to foster goodwill or publicize the tax­ stated that the essential feature of both able person's name, without there being any schemes is that the customer has the illusion direct consideration as is the case here. 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.

A fortiori the gifts do not constitute 'price discounts and rebates' for the purposes of Article 11A(3)(b) of the directive. It follows from the foregoing that there is not, in this case, 'a reduction of the price at which an article is lawfully offered to the customer', On the other hand, Empire Stores argues by whereby the seller, while not receiving con­ way of subsidiary plea that, since the parties sideration from the purchaser, 'agrees to in the present situation have not agreed upon forego the sum represented by the rebate in the value of the gifts, the subjective value is order precisely to induce the customer to 21 the price which Empire Stores paid for the buy the article.' goods concerned, since this was the cost which it was prepared to incur in order to obtain the information. This is also the view taken by the national court in its provisional judgment.

Conclusion

22. I propose that the Court reply as follows to the questions put by the national court:

(1) in both schemes described by the national court the supply of a gift made by the supplier amounts to a supply of goods for consideration within the mean­ ing of the Sixth VAT Directive, such consideration being of a sufficiently direct nature;

(2) the taxable amount is the purchase price paid by the supplier for the goods supplied as a gift.

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