On March 5, 2009, the ECJ issued its decision in the case C-302/07 (J D Wetherspoon)
Context: First and Sixth VAT Directives – Principles of fiscal neutrality and proportionality – Rules on rounding of amounts of VAT – Methods and levels of rounding
Article in the EU VAT Directive
- Article 2 of the First Directive
- Articles 11A(l)(a), 12(3)(a), 22(3)(b) of the Sixth VAT Directive
Article 2 of the First Directive
The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to and including the retail trade stage.
Article11A(1)(a) of the Sixth Directive
‘The taxable amount shall be:
(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies’.
Article 12(3)(a) of the Sixth Directive
the standard rate of VAT is to be fixed by each Member State as a percentage of the taxable amount and is to be the same for the supply of goods and for the supply of services. Except where one or two reduced rates apply, that percentage may not be less than 15%.
Article 22 of the Sixth Directive
in the version resulting from Article 28h thereof (‘Article 22 of the Sixth Directive’), lays down the obligations of persons liable for payment of VAT under the internal system. The first subparagraph of Article 22(3)(a) and the first subparagraph, the tenth indent of the first subparagraph and the fourth subparagraph of Article 22(3)(b) state:
(a) Every taxable person shall ensure that an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party, in respect of goods or services which he has supplied or rendered to another taxable person or to a non-taxable legal person. …
(b) Without prejudice to the specific arrangements laid down by this Directive, only the following details are required for VAT purposes on invoices issued under the first, second and third subparagraphs of point (a):
– the VAT amount payable, except where a specific arrangement is applied for which this Directive excludes such a detail,
The amounts which appear on the invoice may be expressed in any currency, provided that the amount of tax to be paid is expressed in the national currency of the Member State where the supply of goods or services takes place …
During the period 2004 to 2006, numerous amendments were made to the Sixth Directive. Of the provisions set out above, only the wording of Article 12(3) was amended. However, that amendment has no bearing on the answers to be given to the questions referred to the Court for a preliminary ruling.
Facts
- Wetherspoon operates a chain of more than 670 pubs throughout the United Kingdom. The majority of its revenue is generated by retail sales of food and beverages to final consumers.
- Wetherspoon displays retail selling prices inclusive of VAT to its customers. It does not issue them with full VAT invoices although, in respect of orders for food or hot beverages, it routinely provides them with till receipts indicating its VAT registration number. For other beverages, including alcoholic ones, it provides a till receipt only if the consumer requests one.
- Until 2004, Wetherspoon calculated the VAT due on each transaction subject to the standard rate of VAT of 17.5% with an individual customer by multiplying the total amount of the sale by 7/47. The result was rounded up or down arithmetically, to the nearest penny.
- Since modernising its electronic point-of-sale till system in August 2004, Wetherspoon has been able to calculate the VAT at ‘line’ level, that is, on each separately identified product where the transaction involves more than one product. In order to do so, Wetherspoon calculates and rounds down the VAT to three decimal places, namely, down to the nearest tenth of a penny, at the product line level. It then aggregates those amounts of VAT and rounds down the total to the nearest whole penny, at the level of the transaction (‘basket level’).
- Between September 2004 and January 2005, Wetherspoon negotiated with HMRC with a view to agreeing a bespoke scheme for retailers. However, the scheme proposed by Wetherspoon was never approved by HMRC and Wetherspoon never implemented it.
- By letter of 23 March 2006, HMRC refused to allow Wetherspoon to round down the VAT payable on each transaction. Accordingly, on 7 April 2006, Wetherspoon lodged a notice of appeal against that refusal. On 7 September 2006, it lodged two other actions, on the same grounds, against two assessment notices issued on 8 and 17 August 2006.
- Wetherspoon claims that it is entitled to apply the method of rounding down provided for in Paragraph 17.5.1 of VAT Notice 700. HMRC contend that Wetherspoon should, on the contrary, round arithmetically at either line level or basket level.
- The national tribunal, before which those actions have been brought, states that neither Community law, on the one hand, nor the Value Added Tax Act 1994 or the Value Added Tax Regulations 1995, on the other, lay down clear rules concerning the method of rounding to be used where the application of the normal rate of VAT leads to an amount which includes a fraction of the smallest currency unit available, in this case one penny. According to that tribunal, two methods of rounding are possible. It is possible systematically to round down or to round arithmetically, by rounding down fractions of less than 0.5 penny to the nearest whole penny and by rounding up fractions equal to or greater than 0.5 to the nearest whole penny.
- The national tribunal also points out that neither the directives nor the United Kingdom legislation specify at what stage or level rounding should take place. Accordingly, where a customer purchases several products at the same time, the VAT invoiced could be rounded for each item separately or, where multiple items of the same product are purchased, for each line of goods. Likewise, rounding could occur at the level of the total transaction with the customer, at the moment of the VAT declaration at the end of the relevant accounting period or, finally, at some other level, such as that of daily gross taking per outlet or for all of the trader’s retail
Questions
AG Opinion
- (1) In the absence of specific Community legislation, it is for Member States to decide on the rules and methods of rounding amounts of VAT, provided that in doing so they observe the principles underpinning the common system of VAT, in particular those of fiscal neutrality and proportionality.
- (2) Community law neither precludes Member States from requiring taxable persons to round the amount of VAT arithmetically in all cases nor requires them to permit such persons to round the amount down in all cases.
- (3) Where sales are made at VAT-inclusive unit prices in round figures and the amount of VAT includes a fraction of the smallest available unit of currency, Community law does not require that amount to be rounded to a whole unit before the stage at which it must be expressed as a figure which does not include such a fraction, in particular in order to render it capable of payment as an independent sum.
- (4) If traders making supplies based on VAT-exclusive unit prices in round figures, to which VAT must be added, are allowed to round the amount of VAT downwards on each invoice, the principles of equal treatment and fiscal neutrality do not preclude requiring traders who make supplies based on VAT-inclusive unit prices in round figures, from which the VAT component must be calculated, to round the amount of VAT arithmetically.
Decision
1. Community law, as it currently stands, contains no specific requirement concerning the method of rounding amounts of value added tax. In the absence of specific Community legislation, it is for Member States to decide on the rules and methods for rounding amounts of value added tax, although those States must, when so deciding, observe the principles underpinning the common system of that tax, particularly the principles of fiscal neutrality and proportionality. In particular, Community law, first, does not preclude the application of a national rule which requires an amount of value added tax to be rounded up whenever the fraction of the smallest unit of currency concerned is at or above 0.50, and, second, does not require that taxable persons be allowed to round down any amount of value added tax which includes a fraction of the smallest unit of national currency.
2. In a sale at a price inclusive of value added tax, in the absence of specific Community legislation, each Member State is obliged to determine, within the limits of Community law, in particular in compliance with the principles of fiscal neutrality and proportionality, the level at which the rounding of an amount of value added tax which includes a fraction of the smallest unit of national currency may or must occur.
3. In view of the fact that traders who calculate the price of their sales of goods and services inclusive of value added tax are in a different situation to those effecting that same type of transactions at prices exclusive of value added tax, the former cannot invoke the principle of fiscal neutrality in order to claim the right also to round down, at line level and basket level, the amounts of value added tax due.
Summary
Rules on rounding of VAT amounts – Principle of fiscal neutrality and proportionality
Community law, as it stands, contains no specific provision as to the method of rounding up the amounts of VAT. In the absence of specific Community rules, it is up to the Member States to determine the rules and methods for rounding up amounts of VAT. In doing so, the Member States are bound to respect the principles on which the common system of this tax is based, in particular the principle of fiscal neutrality and the principle of proportionality. In particular, Community law does not preclude the application of a national rule requiring amounts of VAT to be rounded up where the fraction of the smallest currency concerned is equal to or greater than 0.5 and requires, on the other hand,
In the case of sales at a price inclusive of VAT, in the absence of specific Community legislation, it is a matter for each Member State to, within the limits laid down by Community law, respect in particular the principles of fiscal neutrality and proportionality, to determine the level to which an amount of VAT comprising a fraction of the smallest national currency can or should be rounded.
Since economic operators who calculate the prices of their sales of goods or services at prices inclusive of VAT are in a different situation from those who carry out the same type of transactions at prices exclusive of VAT, the former cannot rely on the principle of fiscal neutrality to claim that they are also allowed to round down the amounts due for VAT at package or transaction level.
Source:
Newsletters
