C-34/99

PRIMBACK

OPINION OF ADVOCATE GENERAL ALBER delivered on 18 January 2001 1

I — Introduction I I — Relevant Community law

2. The relevant provisions of the Sixth Directive are as follows:

1. In the present reference for a preliminary ruling, the House of Lords seeks from the Court an interpretation of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Article 11 Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment 2 ('the Sixth Directive') in regard to a form of purchase of goods financed by credit. Primback Ltd ('Primback') offered to its customers financing by way of interest-free 'A. Within the territory of the country credit for the purchase of furniture. The goods were indicated with the price pay- able by the purchaser in instalments, but the credit was not specifically indicated. The credit itself was provided by a third company. Primback received from this 1. The taxable amount shall be: third company only an amount reduced by the costs of the credit — in the case given as an example, this amounted to 18%. The dispute centres on the question whether Primback must pay value added tax ('VAT') on the full price of the goods as (a) in respect of supplies of goods and indicated or only on the amount which it services other than those referred to in actually received. (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the 1 — Original language: German. supplier from the purchaser, the custo- 2 — OJ 1977 L 145, p. 1, as last amended by Council Directive 2000/65/EC of 17 October 2000 amending Directive mer or a third party for such supplies 77/388/EEC as regards the determination of the person including subsidies directly linked to liable for payment of value added tax (OJ 2000 L 269, p. 441. the price of such supplies;

1. the granting and the negotiation of credit and the management of credit by the person granting it; (c)...'.

2. - 6....'. Article 13

'Exemptions within the territory of the country III — Facts of the case

3. Primback is a retail trader. It offers for A. ... sale furniture which may be financed by

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7. Customers were unaware of the contrac- payable. On the other hand, the company tual arrangements concluded between providing the credit agreed with the custo- Primback and the finance companies. mer to provide the full price of the furni- ture. Payment of the price was thus calcu- lated only inclusive of the credit costs payable by Primback. VAT was therefore payable on the full sales price.

8. The United Kingdom tax authorities took the view that VAT was due on the entire sum which the customer paid for the goods and not the amount which Primback received from the finance company, on the 11. The High Court, to which Primback basis that the entire sum was being paid for subsequently appealed, found that under the goods. The tax authorities accordingly the national implementing rules transac- concluded that Primback had underde- tions of the type in question were to be clared VAT in respect of the period from treated as cash sales to the finance house. 12 June 1989 to 31 December 1990. They Primback had to include such sales in its issued a VAT assessment on 27 February gross takings as if it had received cash for 1992 for payment by Primback of the full amount payable by the customer. GBP 16 469 (subsequently reduced to On this construction also, VAT was payable GBP 15 530). The total amount at issue is on the full purchase price. GBP 53 106.

12. The Court of Appeal, to which Prim- 9. Primback's appeal against that assess- back appealed at third instance, took the ment was unsuccessful at first and second view, according to the order for reference, instance. A subsequent appeal was, how- that: ever, upheld at third instance and the case is at present pending before the House of Lords.

(v) that would conflict with the require- ment in Article 13B(d)(l) of the Sixth Directive and in item 2 of Group 5 to Schedule 6 to the 1983 Act that the supply of credit was exempt from VAT, and 14. The House of Lords decided to refer the following questions to the Court for a preliminary ruling pursuant to Article 177 of the EC Treaty (now Article 234 EC):

(vi) the words "the full amount payable" in paragraph 14 of the Notice were to be construed as meaning the amount received by Primback from the third party finance company rather than the amount stated on the invoice. Such a construction was in conformity with Articles 13B(d)(l) and 27 of the Sixth 1. Where a retailer offers, at a single Directive.' price, goods and the option of a period of extended credit to pay that price — the credit to be provided by a person other than the retailer, and at no additional cost to the customer — what is the taxable amount for which the retailer must account in respect of 13. In his dissenting judgment, one judge the goods supplied, having regard to held that the supply of furniture, being for Articles 11 A(l)(a) and 13B(d)(l) of

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Council Directive 77/388/EEC? In par- (a) the supply of goods to the custo- ticular, is the taxable amount mer is described as being on "inter- est free" credit terms;

(a) the full amount payable by the (b) the customer signs a loan agree- customer; ment with a finance house at the time of the sale transaction, the terms of which include

V — Arguments of the parties

15. Pursuant to Article 20 of the EC Sta- tute of the Court of Justice, written obser- 18. This ruling was based on the Court's vations were submitted by the Federal finding that in the case of credit card Republic of Germany, Ireland, the United purchases there is a purchase transaction Kingdom, the Commission and Primback. relating to the full purchase price, in which These parties, with the exception of Ger- the VAT on that amount is included, and many, took part in the oral procedure. also a service provided by the credit card company, which receives its commission exempt from VAT. In that situation the VAT on the full purchase price to be borne by the final consumer must also be paid in 16. Germany, Ireland, the United Kingdom full. 4 The commission received by the and the Commission conclude that VAT is credit card company does not represent chargeable on the full indicated purchase consideration for a service rendered by the price. customer to the credit card company by means of the purchase price, but is con- sideration provided by the seller for a service provided to it by the credit card company. 5Effecting payment through the credit card company also cannot alter the 17. All of them invoke in this regard the fact that the purchase price indicated to the judgment in Bally. 3 The Court ruled in that customer is central in determining the case that: taxable amount. 6

'Article 11A(1)(a) of the Sixth Directive must be interpreted as meaning that where, in the context of a transaction of sale, the price of the goods is met by the purchaser 19. Germany submits that in the present by means of a credit card and paid to the case the payment by the credit company to supplier by the organisation which has Primback is based even more clearly than in issued the card, after deduction of a 4 — Baily, cited in footnote 3, paragraph 14. 5 — Bally, cited in footnote 3, paragraph 16. 3 — Case C-18/92 Bally v Belgian Slate [1993] ECR I-2871. 6 — Bally, cited in footnote 3, paragraph 17.

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can and must be clearly distinguished one to the non-taxable transaction, which from the other. makes it particularly important that the transactions be transparent, does not exist if a third party provides the credit. More- over, the United Kingdom has precisely not set appropriate requirements for rendering the individual transactions in this triangu- lar relationship more open. 26. Referring to Advocate General Léger's Opinion in Madgett and Baldwin,8 Prim- back concludes that the value of the supply of credit must be regarded as a substantial share of the total price. The provision of credit is, it argues, physically and econom- ically dissociable. 9 The supply of credit is not intended solely to enhance enjoyment 28. Even if one were to proceed on the or performance of the supply of goods. 10 assumption that the credit supplier receives The typical consumer is also aware of the the costs of the credit from Primback (and distinction between purchase and credit, not from the customer), the price agreed with the result that the total price taken between Primback and the customer con- into account does not affect the conclu- tains one component in the amount of the sion. 11 costs of the credit supplier, which Primback receives for arrangement of the credit. The costs of providing credit, however, are also exempt from VAT.

27. Primback takes the view that the pro- vision of credit is exempt from VAT. Nor does any other result follow from the Opinion of Advocate General Jacobs and 29. The basis of assessment for the VAT the judgment in Muys' en De Winter. 12 payable by Primback must, on the basis of These suggest that an advance payment is the Court's case-law, be calculated with also in principle exempt from tax, in reference to the amount actually received particular if it is financed not by the by Primback. supplier but by a third party. The risk of the value being transferred from the taxable

31. Primback submits in the alternative that the present payment of goods in the form of an interest-free instalment credit amounts to a rebate. Since this too is exempt from VAT, it must be deducted in the amount of the credit costs actually arising. 34. According to settled case-law, the con- sideration is the subjective value of what the person providing the goods or service has actually received, and not a 'normal' value estimated according to objective criteria. 14 Reference to the consideration actually received appears prima facie to support the contention that only the amount paid by the credit supplier to VI — Analysis Primback can be construed as considera- tion. However, the Court focuses on the subjective value of a service only in order to decline any subsequent estimation of the taxable amount on the basis of objective 32. Under Article 11A(1)(a) of the Sixth criteria. The conclusive factor in this regard Directive VAT is assessed in terms of the appears not to be the contrast between consideration obtained by the taxable per- objective and subjective assessments but son. The wording of the Sixth Directive rather the reflection that the subsequent does not indicate directly how this con- application of purely objective criteria sideration is to be determined in the present would fail to do justice to both parties' case. agreement on the monetary value of the service. This agreed value is subjective only in so far as it is based on the declarations of

37. This manner of considering the trans- action in economic terms is challenged in particular by the judgment in Bally. 16 The issue for determination in Bally was whe- ther, in the case of purchase by credit card, 36. There is, however, at the same time a VAT was chargeable on the full price or further (subjective) agreement between whether the commission payable to the Primback and the finance company which credit card company could first of all be makes it possible to determine precisely the deducted. The Court ruled in that case that actual value of the interest-free credit at the the taxable amount had to be the full price. time when the furniture was sold and to However, the judgment in Bally is not deduct that amount from the total price directly transposable to the present case. agreed between Primback and the person Bally involved a model transaction which, purchasing the furniture. For the purpose even if considered in economic terms, does of considering this second agreement in not contain any potentially VAT-exempt regard to determination of the taxable components in the form of a credit transac- amount of the transaction between Prim- tion, but rather a service provided by credit back and the person acquiring the furni- card companies in the context of payment, ture, Primback presents an economic ana- in connection with which any limited credit lysis of the transaction in question. The effect would at most arise as an indirect acquisition of the furniture in this case is consequence of delayed settlement. Rejec- characterised by two components — on tion of the economic method of considering the one hand, the transaction involving the transaction in the present case can thus the goods and, second, that relating to the find support in the Bally judgment only to financing. The end customer pays only the extent to which general principles can 82% of the amount proffered for the goods be derived from that judgment. In addition which he acquires, but pays 18% for the to the Bally judgment, account should also financing of their purchase. As counsel for the United Kingdom and Ireland acknowl- edged during the hearing, the resultant 15 — See Mays' en De Winter, cited in footnote 7, paragraph 13 et seq. financing costs would in principle be 16 — Cited in footnote 3.

39. In both Kuwait Petroleum and Bally the party liable to VAT regularly carried out two types of transaction, in which it 41. The Court also pointed out in Bally charged the same price to customers. In that the retailer liable to VAT expressly the credit card transaction — as formed indicated on the sales invoice the VAT for the basis of the case in Bally — 19 the same the full amount paid by the customer. 22 prices are typically charged between vendor That in principle does not occur in the and purchaser as in a cash transaction. The present case, since Primback does not form of payment alone takes a different indicate any VAT whatever on the invoice. form. It is therefore consistent if VAT is There was, however, a dispute during the charged in the same way as for a cash transaction. The Court stressed in Kuwait Petroleum that the price of the purchased 20 — Cited in footnote 17, paragraph 31. 21 — Section 8 of the Consumer Credit (Advertisements) fuel remained the same irrespective of Regulations 1989, SI 1989/1125: 'A credit advertisement shall not include — ... (c) the expression "interest free" or any expression to the like effect indicating that a customer is liable to pay no greater amount in respect of a transaction financed by credit than he would be liable to 17 — Case C-48/97 Kuwait Petroleum v Commissioners of pay as a cash purchaser in relation to the like transaction, Customs & Excise [1999] ECR 1-2323, paragraph 31. except where the total amount payable by the debtor does not exceed the cash price.' 18 — Cited in footnote 17, paragraph 30. 19 — Cited in footnote 3. 22 — Bally, cited in footnote 3, paragraph 14.

43. Primback is, admittedly, correct when it argues that a separation of the two transactions in the present case is at odds 42. The Court went on in Bally to construe with an economic assessment. Primback's the arrangements of the transaction as assumption of the credit costs is based only meaning that the percentage retained by formally on a discrete framework agree- the credit card company corresponded to ment with the finance company, but is the value of a service provided to the directly occasioned by the sale of the goods. supplier. In regard to this transaction the In economic terms, therefore, the distinc- purchaser was a third party. 23 Advocate tion makes no sense. General Gulmann elaborated on this by stating that the purchaser was entirely unaware of the agreement between the credit card company and the supplier. 24 These considerations also appear applic- able to the present case. The purchaser is unaware of the agreements between Prim- back and the finance company. Counsel for the United Kingdom Government and the 44. However, the Court's case-law set out Commission stated during the hearing that above 25 leads ultimately to the conclusion the commercial relations between Prim- that it is not the objective criterion of an back and the finance company fall to be economic assessment which is determinant strictly distinguished from the purchase but rather the (subjective) agreement transaction between Primback and the between the parties to the transaction purchaser, which is subject to turnover subject to VAT. That case-law guarantees tax. Under the credit agreement associated that the parties to that transaction will be with the contract of purchase the finance in no doubt as to the taxable amount. This company is obliged to pay the full purchase secures, on the one hand, legal certainty and, on the other, a degree of control for

46. Furthermore, the danger of abuse mili- 45. That said, the judgment in Argos 26 tates against allowing any reduction in the appears to argue against drawing any legal VAT burden on the basis of non-transpar- consequences from the lack of knowledge ent arrangements such as those in casu. The on the purchaser's part. That case con- general introduction of VAT exemptions cerned VAT chargeable in the context of under Article 13B of the Sixth Directive purchases in exchange for vouchers. These requires Member States, when implement- vouchers had a specified face value and the ing exemption provisions, expressly to goods on offer were indicated as having adopt rules for the purpose of 'ensuring fixed prices. Customers could pay using the correct and straightforward application vouchers or cash. Argos had, however, of the exemptions and of preventing any previously sold the vouchers to third par- possible evasion, avoidance or abuse'. ties — principally the employers of its Account must therefore be taken of this customers — and granted discounts objective in interpreting the Sixth Directive according to the quantities of vouchers with regard to VAT exemptions. purchased. Those third parties in turn gave the vouchers mainly as incentives or similar gifts to Argos' customers. In that judgment, the fact that persons purchasing goods were unaware or even mistaken as to the actual amount of the purchase price did not stand

47. In the present case, there is admittedly 26 — Cited in footnote 14, paragraphs 21 and 22. none of the risk, identified by Advocate

50. This consideration also stands in the way of the alternative argument put for- 48. In conclusion, it ought to be pointed ward by Primback, to the effect that the out that extending VAT liability to the full provision of interest-free credit constitutes indicated price — notwithstanding the fact a rebate which, pursuant to Article 11A(3) that tax law takes no account of the of the Sixth Directive, is deductible. In this evaluations in other areas of law 28 — is regard also what is required is a subjective in keeping with the consumer-law principle meeting of minds between the parties to the of transparency — Article 129a of the purchase transaction in regard to a subse- EC Treaty (now, after amendment, Arti- quent reduction in the price or the credit cle 153 EC). While application of the con- costs; that is not apparent in the present sumer-credit directive 29 would appear to case. be excluded, 30 the type of transaction

27 — Cited in footnote 7, paragraph 12 of the Opinion. 28 — Case C-283/95 Fischer v Finanzamt Donaueschingen [ 1998] ECR I-3369, paragraph 21. 29 — Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and adminis- trative provisions of the Member States concerning consumer credit (OJ 1987 L 42, p. 48), as last amended by Directive 98/7/EC of the European Parliament and of the Council of 16 February 1998 (OJ 1998 1. 101, p. 17). 30 — Article 2( 1 )(c) of the consumer-credit directive excludes its application to credit which is granted or made available 31 — See Articles 3 and 4 of the consumer-credit directive, and without payment of interest or any other charge. the eighth recital in its preamble.