The dispute relates to an assessment for undeclared output tax in relation to a reward programme that GEAES operated for its employees called the “Above & Beyond” programme, which involved the issue of retail vouchers to employees. The vouchers could be exchanged for goods or services at well-known retailers.
Article in the EU VAT Directive
Article 26 of the Principal VAT Directive (under Title IV Taxable Transactions, Chapter 3 Supply of services) provides:
1. Each of the following transactions shall be treated as a supply of services for consideration:
(a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.
2. Member States may derogate from paragraph 1, provided that such derogation does not lead to distortion of competition.
At all relevant times, GEAES (in common with other companies within the GE group) operated a programme called “Above & Beyond”, which was an employee recognition programme. Under the programme, any employee of GEAES (at any level) could nominate any other employee for acts which she or he considered deserved special recognition, in accordance with the requirements of the programme. The Above & Beyond programme was designed and implemented in order to encourage and reward excellent work and better behaviours by GEAES’s employees.
There were different levels of award that could be made under the programme. A person making a nomination was required to select the appropriate level and provide information as to why the nominee had merited the award. The nomination would be subject to review and approval by the nominee’s line manager. A sample of awards is audited by GE’s Human Resources Department to ensure that awards are made in compliance with the requirements of the programme and reward employees fairly.
At the highest level of award, the nominee would be eligible for a cash payment. At the lowest level, the nominee would be given a non-financial reward in the form of a certificate. This appeal relates solely to awards at the intermediate levels, where the nominee is awarded a retail voucher.
The Above & Beyond programme was also used as a vehicle for delivering a reward to an employee at service anniversaries and other circumstances.
If an award is approved, then the nominee is notified of her or his award. In the case of awards comprising retail vouchers, the nominee is sent a link to a website managed by Globoforce Limited (“Globoforce”). Although Globoforce is unrelated to GE, the website is “branded” with the GE brands.
The employee can select a retail voucher on the website from a range of listed retailers. Once selected, the voucher can only be redeemed at the selected retailer. The employee is sent an email confirmation of the voucher. Although Globoforce administer the provision of the vouchers, the vouchers are not issued by Globoforce.
The following steps were undertaken in the supply of the vouchers to the employee:
(1) Globoforce purchased the vouchers directly from the relevant retailers and sold them to GE in the USA (“GE USA”).
(2) GE USA then sold them to another GE entity based in the USA (“GE HQ”).
(3) GE HQ would then make a cross-border supply of the vouchers to GE entities in the UK.
(4) Each GE entity, such as GEAES, in its capacity as employer, provided the voucher to the nominated employee under the “Above and Beyond” programme.
(5) GEAES (and the other GE UK entities) accounted for VAT in respect of the supply of the vouchers from GE HQ on the reverse charge basis and for the recovery of the corresponding input tax.
When the employee used the voucher to purchase goods or services, the retailer would have accounted for output tax on the value of the voucher.
HMRC contend that GEAES should also have accounted for output tax on the value of the voucher.
The First Tier Tribunal decided to stay the proceedings and refer questions to the CJEU for a preliminary ruling on the issues of the meaning and effect of Article 26(1)(b) of the Principal VAT Directive and the construction of the term “for his private use or for that of his staff or more generally for purposes other than those of his business”. The First Tier Tribunal does not consider that the appropriate construction of these provisions is acte clair.
The issue in this appeal is whether the three conditions are satisfied for a supply to be treated as a supply of services for consideration under Article 26(1)(b) of the Principal VAT Directive, so that GEAES is subject to output tax in respect of it.
(a) Whether there is a supply of services;
(b) Whether these services are supplied free of charge; and
(c) Whether these services are supplied for the private use of the taxable person or its staff or more generally for purposes other than those of its business.
It is common ground between the parties (and the Tribunal agrees) that conditions (a) and (b) above are satisfied, leaving only condition (c) in dispute in this appeal. GEAES argues that the supply of vouchers is solely for the purpose of its business and therefore Article 26(1)(b) does not apply.HMRC take the opposite view.
The First Tier Tribunal considers that there is real doubt as to the correct construction and application of the term “for his private use or for that of his staff or, more generally, for purposes other than those of his business” within the meaning of Article 26(1)(b) of the Principal VAT Directive in the circumstances of this appeal.
Similar ECJ cases
The parties distinguish between the purpose of the employer in providing vouchers to the
employees, and the use to which the employee puts the voucher. These divergent approaches
to the interpretation of Article 26(1)(b) do not appear to have been resolved by the decisions
of the CJEU in
- Julius Fillibeck Sohne GmbH&Co. KG v Finanzamt Neustadt (C-258/95)  STC 513 (“Fillibeck’),
- Danfoss AIS and another v Skatteministeriet (C-371/07)  STC 701 (“Danfoss”), and
- Astra Zeneca UK Ltd v HMRC (Case C-40/09)  STC 2298 (“Astra Zeneca”) in circumstances such as those that pertain in this appeal.