On 10 July 2010, the European Court of Justice decided the case C-40/09 Article 6(2)(b) [now Article 26(1)(b)] (Astra Zeneca) related to Article 2(1) of Sixth VAT Directive– Concept of the supply of services effected for consideration – Retail vouchers provided by an undertaking to its employees as part of their remuneration.
Articles in the EU VAT Directive
- Article 2(1) of the Sixth Council Directive 77/388/EEC [now Article 2(1)(c) of the Directive 2006/112/EC]
- Article 6(2)(b) of the Sixth Council Directive 77/388/EEC [now Article 26(1)(b) of the Directive 2006/112/EC]
- Article 17(2) f the Sixth Council Directive 77/388/EEC [now Article 168 of the Directive 2006/112/EC]
Astra Zeneca is a company which carries on business in the pharmaceutical industry. It offers its employees a remuneration package consisting of a fixed annual remuneration, known as the ‘Advantage Fund’ (‘the Fund’), consisting of an amount in cash and, as appropriate, benefits chosen beforehand by the employees, it being understood that each benefit chosen by an employee gives rise to a specific deduction from that employee’s Fund.
Among those benefits, Astra Zeneca offers its employees retail vouchers to be used in certain shops. The vouchers are of a nominal value of GBP 10, but give rise to a deduction of a discounted amount (between GBP 9.25 and GBP 9.55) from the employees’ Fund.
Astra Zeneca completed its VAT returns on the basis that it was not required to charge output VAT on the provision of the vouchers to its employees and that it was not entitled to deduct as input tax the VAT which it had paid in purchasing those vouchers. However, Astra Zeneca subsequently claimed that, as the cost of acquiring those vouchers was a business overhead, it ought to be entitled to deduct the VAT resulting from that acquisition and not to charge output VAT on the provision of the vouchers at issue to its employees, on the ground that they were not provided for consideration.
The tax authorities denied the deduction of input VAT on the purchase of the vouchers, arguing that Astra Zeneca did not use them for the purposes of any taxable transactions. However, even if the VAT was deductible, it should also account for output VAT on the provision of those vouchers to its employees on the ground that either those vouchers are provided for consideration, since a deduction is made from the employee’s Fund, or the vouchers in question are made available to the employees for purposes other than business purposes. In that latter case, since the value of the supply of services corresponds to the cost of providing the retail vouchers, Astra Zeneca is required to account for the output VAT on that amount.
1. In the circumstances of this case, where an employee is entitled under the terms of his or her contract of employment to opt to take part of his or her remuneration as a face value voucher, is Article 2(1) of the [Sixth Directive] … to be interpreted such that the provision of that voucher by the employer to the employee constitutes a supply of services for consideration?
2. If the answer to question 1 is no, is Article 6(2)(b) [of the Sixth Directive] to be interpreted as requiring the provision of the voucher by the employer to the employee in accordance with the contract of employment to be treated as a supply of services, in circumstances where the voucher is to be used by the employee for his or her private purposes?
3. If the provision of the voucher is neither a supply of services for consideration within the meaning of Article 2(1) [of the Sixth Directive] nor is to be treated as a supply of services under Article 6(2)(b) [thereof], is Article 17(2) [thereof] to be interpreted so as to permit the employer to recover the [VAT] it has incurred in purchasing and providing the voucher to the employee in accordance with the contract of employment in circumstances where the voucher is to be used by the employee for his or her private purposes?
In the light of the foregoing considerations, I propose that the Court’s answer to the questions submitted by the VAT and Duties Tribunal, Manchester, should be that the payment of a salary or part of a salary in retail vouchers, in accordance with the arrangements described in the main proceedings, constitutes a transaction that is subject to VAT within the meaning of Sixth Council Directive 77/388/EEC 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, and within the meaning of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
Article 2(1) of the Sixth Council Directive 77/388/EEC 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, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted as meaning that the provision of a retail voucher by a company, which acquired that voucher at a price including value added tax, to its employees in exchange for their giving up part of their cash remuneration constitutes a supply of services effected for consideration within the meaning of that provision.
In other words: Astra Zeneca had to charge output VAT on the provision of the vouchers to its employees.
Similar ECJ Cases
- C-126/88 (Boots) – Concept of “price discounts and rebates”. Price discount on surrender of a voucher obtained free of charge by the customer with a previous purchase
- C-288/94 (Argos Distributors) – Taxable amount of a voucher is the sum actually received by the supplier upon the sale of the voucher
- C-258/95 (Julius Fillibeck Söhne GmbH & Co. KG) – Transport for employees free of charge from their homes to the workplace is not a supply of services
- C-48/97 (Kuwait Petroleum (GB) Ltd) – The concepts of ‘price discounts’ and ‘price rebates’ cannot include a price reduction that relates to the full cost of a supply of goods
- C-412/03 (Hotel Scandic Gåsabäck) – Provision of meals in company canteen at a lower price than cost
- C-371/07 (Danfoss and AstraZeneca) – VAT deduction for free meals provided in professional context
- C-607/20 (GE Aircraft Engine Services) – Issue of retail vouchers to employees
- Arm’s Length Principle and Taxable Amount in the VAT Directive
- HMRC – Consideration: Payments that are Consideration: Salary sacrifice: Payments deduction from salary cases
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