Flashback on C-33/93 (Empire Stores) – Delivery, without additional payment, of article to person who registers himself or another as a new customer

On June 2, 1994, the ECJ issued its decision in the case C-33/93 (Empire Stores).

Article in the EU VAT Directive

Artcile 11(A)(1)(a) of the Sixth VAT Directive. (Article 73 of the EU VAT Directibve 2006/112/EC).

Sixth VAT Directive

Article 11

A. Within the territory of the country

1. 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;

EU VAT Directive 2006/112/EC

Article 73
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Facts

By order of 14 January 1993, received at the Court on 4 February 1993, the Manchester Value Added Tax Tribunal referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation of Article 11A(1)(a) of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (Directive 77/388/EEC, OJ 1977 L 145, p. 1; hereinafter ‘the Sixth Directive’).
Those questions were raised in proceedings between Empire Stores Ltd (herein after ‘Empire Stores’) and the Commissioners of Customs and Excise (herein after ‘the Commissioners’) concerning two assessments of the VAT payable by Empire Stores on goods which it had given to people who introduced themselves or others as potential new customers.
Empire Stores is a mail order company selling goods by catalogue. Its customers are predominantly women. According to the order for reference, during the periods to which the assessments refer Empire Stores used two schemes to attract new customers.
Under the first scheme, referred to as the ‘self-introduction scheme’, Empire Stores offered potential customers the possibility of choosing one article from a list, that article to be supplied without extra charge once they had filled in a form requesting personal details designed to establish their creditworthiness, had been approved by Empire Stores and had placed an order for goods from its sales catalogue or had made at least a first payment in respect of such an order. Under the second scheme, referred to as the ‘introduce-a-friend scheme’, Empire Stores offered such an article to established customers who recommended one of their friends as a potential customer; the article was supplied once the new customer had filled in the form, had been approved by Empire Stores and had made a first payment relating to an order placed by him or her.
Under both schemes Empire Stores accounted for VAT in respect of the articles on the basis of the cost price to them. The Commissioners took the view that VAT ought to have been calculated on the basis of their tax-exclusive cost price plus 50%, being the Commissioners’ estimate of the prices which Empire Stores would have charged for the articles in question if they had been offered in its sales catalogue, and raised assessments on that basis.
Empire Stores appealed against the assessments to the Manchester VAT Tribunal which in a decision of 17 August 1992 ruled that the appeals ought to be allowed and the assessments discharged, adding: One or both of the parties however may wish to have one or more of the questions considered in this decision referred to the European Court at this stage. We therefore express our decision provisionally for the present. If within the period of two months from the date on which this decision is released either of the parties serves notice of application for the purpose of having a question or questions referred to the European Court, we direct that the application is to be heard by a chairman sitting alone and that the hearing of the appeals is to stand adjourned until further direction, with liberty to apply to restore. If no such notice is served within the said period, at the expiration of the period our decision is to become final (…).’

Questions

For the purposes of Article 11A(1)(a) of the Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes (Directive 77/388/EEC of 17 May 1977), where a supplier of goods ordered by mail order from a catalogue (“catalogue goods”) operates schemes, full details of which appear in the decision annexed, under which, in summary:

(i) when a potential customer supplies satisfactory information about herself (in particular as to credit-worthiness), the supplier undertakes to supply to that person without extra charge, if and when she is approved and either orders catalogue goods or, as the case may be, orders catalogue goods and duly makes a payment for them, an article chosen by her from a range of goods offered by the supplier which may or may not also be available from his catalogue; and
(ii) when an existing customer finds and introduces to the supplier a new potential customer who supplies satisfactory information about herself (in particular as to credit-worthiness), the supplier undertakes to supply to that existing customer without extra charge, if and when the person introduced is approved and either orders catalogue goods or, as the case may be, orders catalogue goods and duly makes a payment for them, an article chosen by the existing customer from a range of goods offered by the supplier which may or may not also be available from his catalogue, and the articles not so available (“non-catalogue goods”) supplied as aforesaid are not otherwise the subject of supplies by the supplier and do not have a normal sale price attached to them, in relation to each scheme:
- (1) Is the supply of non-catalogue goods made for a consideration separate from the sum of money payable to the supplier for the catalogue goods ordered from him?
- (2) If the answer to (1) is “yes”, how is the taxable amount to be determined? Is the taxable amount
  - (i) the purchase price paid by the supplier for the goods, or
  - (ii) the price at which the supplier would sell the goods if the goods were also offered in his catalogue (calculated consistently with the supplier’s pricing procedures), or
  - (iii) some other and if so what amount?

AG Opinion

(1) in both schemes described by the national court the supply of a gift made by the supplier amounts to a supply of goods for consideration within the meaning of the Sixth VAT Directive, such consideration being of a sufficiently direct nature;
(2) the taxable amount is the purchase price paid by the supplier for the goods supplied as a gift.

Decision

Article 11A(1)(a) of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (Directive 77/388/EEC) must be interpreted as meaning that the taxable amount in respect of an article supplied without extra charge to a person who introduces herself or another person as a potential new customer is distinct from the taxable amount in respect of the goods bought from the supplier by the new customer and corresponds to the price paid by the supplier for that article.

Summary

Delivery, without additional payment, of article to person who registers himself or another as a new customer.

The taxable amount of the item that a supplier delivers without additional payment to a person who registers himself or another as a potential new customer is different from the taxable amount of the goods purchased by the new customer from the same supplier and corresponds to the taxable amount of the goods purchased by the new customer from the same supplier. the supplier paid the purchase price for that item.

Source