C-86/99
ECLI:EU:C:2001:13
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FREEMANS
OPINION OF ADVOCATE GENERAL MISCHO delivered on 11 January 2001 1
1. The VAT & Duties Tribunal, London 4. As an inducement, Freemans credits each (United Kingdom) has to decide on a agent, in her account with Freemans, with dispute between the United Kingdom tax an amount equal to 10% of each payment authority, the Commissioners of Customs she has made. and Excise ('the Commissioners'), and a mail order company, Freemans pic ('Free- mans'). It relates to the manner in which the taxable amount is to be determined in respect of part of Freemans' sales. That taxable amount is the basis on which Freemans' liability to value added tax ('VAT') must be calculated. 5. The amount credited constitutes com- mission in the case of a purchase made for a third party and a discount in the case of the agent's own purchases.
2. Freemans' sales system is based on the use of more than 900 000 agents to whom 6. At any time the agent may use the it sends its catalogue. amount credited to her account. She can have it paid by cheque or post office giro or in the form of national lottery vouchers; it may also be used to reduce the outstanding balance which she owes to Freemans.
3. The agents order products illustrated in the catalogue, either for third parties or for their own account. They pay for the purchases in instalments over several weeks 7. Each time an agent uses an amount under a self-financed credit scheme estab- credited to her as payment for the purchase lished by Freemans. of an article from the Freemans catalogue that payment in turn gives rise to a 10% discount on the purchase price, which is 1 — Original language: French. credited to the agent's account.
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8. Pursuant to Article 27 of the Sixth 11. The dispute between Freemans and the Council Directive 77/388/EEC of 17 May Commissioners relates solely to the 1977 on the harmonisation of the laws of amounts credited by Freemans to its agents the Member States relating to turnover when they make purchases for their own taxes — Common system of value added account. tax; uniform basis of assessment2 the United Kingdom introduced special mea- sures for retailers which allowed them to calculate their output VAT by reference to the overall value of their supplies during each accounting period on the basis of 12. When the SMGT applied, those 'daily gross takings', rather than by refer- amounts, which for ease of reference I will ence to the value of each individual supply. refer to as the 'agent's own purchases discount' ('AOP discount'), could be deducted immediately by Freemans from its daily gross takings.
13. Since the introduction of the OMGT, Freemans should, according to the Com- 9. Until 28 February 1997 the United King- missioners, have amended its practice and dom tax authority authorised retailers to have calculated its daily gross takings calculate their daily gross takings according without deducting AOP discount unless to 'the standard method of gross takings' and until the discount was withdrawn by (hereinafter 'the SMGT'), which was based the agent in cash or used against the on payments received during an accounting purchase price of goods from Freemans. period.
14. It is common ground that Freemans did not do so. The Commissioners therefore issued a tax assessment and Freemans appealed against it to the VAT and Duties Tribunal.
10. With effect from 1 March 1997 the tax authority required the use of a new method of calculating gross takings ('the optional method of gross takings', hereinafter 'the OMGT'), which is based on the total 15. Two conflicting submissions have been amount charged by the retailer. made to the VAT and Duties Tribunal. Freemans submits that the taxable amount in respect of goods supplied to an agent for 2 — OJ 1977 L 145, p. 1. her own use is the catalogue price of those
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goods less the agent's own purchases dis- Is the taxable amount: count, as Freemans is never in a contractual position whereby it is entitled to receive the full catalogue price from the agent.
(1) the full catalogue price of the goods sold to the customer less the AOP 16. The Commissioners contend that, on a discount on that price; or proper construction of the agreement between Freemans and its agent, the con- sideration, within the meaning of Arti- cle 11A(1)(a) of the Sixth Directive, is the full purchase price of the goods, as set out in the catalogue, which the agent is con- tractually required to pay to Freemans. (2) the full catalogue price of the goods sold to the customer with a reduction as and when the AOP discount is credited to a customer; or
17. In order to reach a decision on the issue, the VAT and Duties Tribunal has referred the following question to the Court of Justice for a preliminary ruling: (3) the full catalogue price of the goods sold to the customer with a reduction as and when the AOP discount is withdrawn or used by a customer; or 'What, on a proper construction of Arti- cle 11A and 11C of the Sixth Directive, is the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use where the supplier in operating self- financed credit terms allows a discount (4) some other, and if so what, amount?' from the catalogue price to the customer ("AOP discount") with the AOP discount being credited to the customer as and when instalment payments are made to the sup- plier (or use made of AOP discount in reducing or discharging an instalment pay- ment) but where the AOP discount which 18. The VAT and Duties Tribunal correctly has accrued on payments made is available considers that the answer to the dispute is for immediate withdrawal or use by the to be found in Article 11 of the Sixth customer even though future instalment Directive, which deals solely with determi- payments will be due from that customer? nation of the taxable amount.
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19. Let me therefore set out the provisions 3. The taxable amount shall not include: of Article 11 over which Freemans and the Commissioners take issue.
Article 11 provides that: (b) price discounts and rebates allowed to the customer and accounted for at the time of the supply;
'A. Within the territory of the country
1. The taxable amount shall be: C. Miscellaneous provisions
1. In the case of cancellation, refusal or total or partial non-payment, or where the (a) in respect of supplies of goods and price is reduced after the supply takes services other than those referred to in place, the taxable amount shall be reduced (b), (c) and (d) below, everything which accordingly under conditions which shall constitutes the consideration which has be determined by the Member States. been or is to be obtained by the supplier from the purchaser, the custo- mer or a third party for such supplies including subsidies directly linked to the price of such supplies; ...'
20. The first and third of the answers envisaged by the VAT and Duties Tribunal
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correspond to the positions of Freemans underlying the Community VAT scheme and the Commissioners respectively, and from Article HA(1)(a) of the Sixth whereas the second, which neither of the Directive, the principles which apply in all parties defends but which Freemans would circumstances to the determination of the wish to see adopted if the Court of Justice taxable amount. were to reject the first answer, seems to be favoured by the VAT and Duties Tribunal.
24. Thus it follows from the judgment in Elida Gibbs v Commissioners of Customs and Excise 3 that 'the taxable amount serving as a basis for the VAT to be 21. The VAT and Duties Tribunal also collected by the tax authorities cannot envisages that none of the three answers exceed the consideration actually paid by may be correct in the light of the require- the final consumer which is the basis for ments of Article 11 of the Sixth Directive calculating the VAT ultimately borne by and that it may be necessary for the Court him' and that 'according to the Court's to adopt another approach rather than settled case-law, that consideration is the choose one of the specific answers sug- "subjective" value, that is to say, the value gested to it. actually received in each specific case, and not a value estimated according to objec- tive criteria (... Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365, para- graph 16, and Case C-126/88 Boots Com- pany v Commissioners of Customs and Excise [1990] ECR I-1235, paragraph 19).' 22. However, the latter course will be necessary only if, after examining the three different methods of determining the tax- able amount envisaged by the VAT and Duties Tribunal, it were to be concluded 25. Those principles have never been called that none of them is authorised by the in question in the written and oral submis- provisions of Article 11. sions to the Court. At issue is solely the question of how those principles should be applied in the present case.
23. I must therefore first examine the three 2 6 . Freemans submits t h a t Arti- approaches proposed by the VAT and cle HA(1)(a) itself can supply the answer Duties Tribunal. However, before begin- to the national court's question, since the ning my examination, I should point out consideration obtained by it when it sup- that the Court of Justice has already had to consider the problem of determining the taxable amount in the case of the supply of 3 — Case C-317/94 Gibbs v Commissioners of Customs and goods. It has extracted, both from the logic Excise [1996] LCR I-5339, paragraphs 19 and 27.
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plies goods to an agent for the agent's own 30. That line of argument, however inter- use is equal to the catalogue price less the esting, does not seem to me to be the one AOP discount which it allows to the agent. which should be followed in the present case.
27. It observes that 'consideration' should 31. In its judgment in Boots Company, not be confused with the sum paid by the cited above, 5the Court held that 'each time purchaser. It refers to the judgment in the question of classifying a specific item Glawe, 4in which the Court held that 'in arises, it is first necessary to examine the case of gaming machines offering the whether the item falls within one of the possibility of winning, the taxable amount categories referred to in paragraphs 2 and 3 does not include the statutorily prescribed and it is only when the answer to that proportion of the total stakes inserted question is in the negative that reference which corresponds to the winnings paid must be made to the general concept in out to the players.' paragraph 1(a)' (paragraph 16).
32. In other words, before considering the lex generalis it must be examined whether 28. Just as the taxable amount for an the lex specialis may apply. operator of gaming machines does not include the whole of the sums inserted by players into the machines, the taxable amount in respect of Freemans' sales should not include the part of the payments made by its agents which Freemans credits to 33. The sums in discussion in the present them as and when they make those pay- case are characterised by the VAT and ments. Duties Tribunal as an agent's 'own pur- chases discount'. Contrary to Freemans' suggestion, but as the Commission pro- poses, it is therefore necessary to begin by examining whether that discount is to be regarded as a discount which Arti- cle 11A(3)(b) expressly excludes from the 29. The consideration for the supply of taxable amount or, possibly, as a price goods to an agent can only be the amount reduction after the supply takes place, which Freemans is legally entitled to retain within the meaning of Article 11C(1), in the light of its agreement to allow AOP which authorises only a reduction of the discount equal to 10% of the catalogue taxable amount 'accordingly' under condi- price. tions determined by the Member States. In
4 — Case C-38/93 Glaive [1994] ECR I-1679, paragraph 13. 5 — See point 24 above.
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the case of the provisions adopted by the 38. The United Kingdom Government and United Kingdom, that reduction is to be the Greek Government submit that this is made ex post facto, at the moment when not the case, since the AOP discount is the AOP discount is remitted to the agent credited to the agent only as and when she or used by her. makes the payments which she has agreed to make; the sales price, when the sale is concluded, is the catalogue price.
34. Does the AOP discount scheme applied by Freemans therefore fall within the scope of Article HA(3)(b) or Article HC(l)?The 39. In support of that contention, reliance latter possibility must be ruled out imme- is placed on the judgment in Boots Com- diately in the light of the judgment in Elida pany, cited above, in which the Court held Gibbs, cited above. that:
35. In Elida Gibbs the Court held that '"Discounts and rebates" which, according Article 11C(1) is to be applied only where to Article HA(3)(b) of the Sixth Directive, the price is reduced 'after the supply takes are not to be included in the taxable place' (paragraph 30). amount, constitute a reduction of the price at which an article is lawfully offered to the customer, since the seller agrees to forgo the sum represented by the rebate in order precisely to induce the customer to buy the article (paragraph 18).' 36. Under the Freemans sales scheme, although the AOP discount is credited to the agent only as and when she makes her payments, the grant of that discount is agreed from the moment when the goods 40. Those governments argue that under are delivered. It is part of the sales terms the Freemans sales system there is no offered by Freemans and accepted by the question of a waiver of the right to collect agent when contractual relations are part of the sales price, since it is specifically entered into. the receipt of those payments which is the condition of the grant of the AOP discount.
37. Is it therefore a discount accounted for at the time of the supply, with the result 41. If the amounts which Freemans credits that Article HA(3)(b) is applicable? to her account as and when she makes her
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payments are not immediately used by the 45. The term 'accounted for' should be agent in order to reduce her subsequent interpreted in the sense of 'acquisition of a payments, Freemans will in fact receive the legal entitlement'. A discount must be full catalogue price. considered to have been accounted for from the moment when the person to whom it has been allowed has a legal right to receive it.
42. The agent will indeed have, in Free- mans' account book, a credit equal to 10% of the amount which she has paid, but she 46. From the moment when the agent will not actually benefit in concrete terms enters into a contract with Freemans for from the discount until Freemans has paid the purchase of goods she has a right to it to her in accordance with one of the have her account at Freemans credited with methods referred to above or until she uses 10% of each sum which she pays. The AOP it to pay for a new purchase. However, such discount is credited when the payments are payment or use has an air of uncertainty, it made, but the right to obtain it comes into being common ground that a not incon- being before those payments are made. The siderable number of agents do not claim the payments trigger the crediting of the dis- discount to which their payments have count to the agent's account, but do not entitled them. create the right to the discount. The instalment payments by the agent and the inclusion of the discount, in instalments, in her account take place in the course of the performance of the sales contract as con- cluded upon delivery of the goods; there is 43. According to those governments, until no subsequent amendment of that contract. the discount has been credited and actually paid to the agent or used by her, there cannot be any question of a discount that has been accounted for. Even if the agent acts quickly, the time at which she will be able to use the discount will inevitably be 47. In the Commission's view, to regard after the time when buyer and seller 'discount accounted for' (ristourne acquise) actually enter into contractual relations. as meaning 'discount to which there is a legal entitlement', as suggested by the French language version of the Sixth Direc- tive, is not inconsistent with the other language versions, including the English version.
44. The Commission submits that, in the light of the information given in the order for reference, the AOP discount is unques- tionably a discount that has been 'accounted for' within the meaning of 48. That line of argument by the Commis- Article HA(3)(b). sion has convinced me and I endorse it all
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the more willingly because it is supported in fact at her disposal, just like an amount by other factors. First of all, there is the fact entered in her bank account. What she does that, under the system whereby Freemans with it is entirely up to her. sells to its agents, the full catalogue price may well never be received by Freemans.
52. It cannot be accepted that determina- tion of the taxable amount can depend on 49. It has been explained to us that as soon the agent's entirely discretionary decision as as the agent has made her first payment she to what she wishes to do with discount is credited with an amount equal to 10% of which she has definitely acquired. that payment and she may use that amount to reduce her next payment.
53. Thirdly and lastly, it must be noted that the conclusion which I have reached in 50. It cannot therefore be argued that the applying Article 11A(3)(b) to the AOP judgment in Boots Company, cited above, discount is wholly in keeping with the contradicts the Commission's argument. In Court's interpretation of Article 11A(1)(a), agreeing to credit its agent with AOP according to which the consideration for a discount, Freemans waives the right to sale, that is to say, the taxable amount, is collect the full catalogue price. In any the subjective value received by the seller, event, the judgment in Glaive, cited above, and not an objective value, namely, in the clearly drew a distinction between what the present case, the value indicated in the seller collects and what he in fact receives, Freemans catalogue. which alone constitutes the taxable amount.
54. Having thus reached the conclusion that, on a proper construction of Article 11 51. Secondly, there is the fact that the of the Sixth Directive, the first answer actual payment of the discount to the agent envisaged by the VAT and Duties Tribunal or her use of it are of no legal relevance, it is the correct one, I have no need to being undisputed that the discount entered consider the matter further. The correctness in the agent's account in Freemans' books is of that answer rules out any other answer.
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Conclusion
55. Having completed my reasoning, I propose that the Court should answer the question submitted to it by the VAT and Duties Tribunal, London as follows:
Article 11A and 11C of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, must be interpreted as meaning that the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use, where the supplier in operating self-financed credit terms allows a discount from the catalogue price to the customer ('AOP discount') with the discount being credited to the customer as and when instalment payments are made to the supplier (or use made of the AOP discount in reducing or discharging an instalment payment) but where the AOP discount which has accrued on payments made is available for immediate withdrawal or use by the customer even though future instalments payments will be due from that customer, is the full catalogue price of the goods sold to the customer less the AOP discount on that price.
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