Flashback on ECJ Cases – C-398/99 (Yorkshire Co-operatives) – The nominal value of that coupon must be included in the taxable amount in the hands of the retailer

On January 16, 2003, the ECJ issued its decision in the case C-398/99 (Yorkshire Co-operatives).

Context: Sixth VAT Directive – Reduction coupons issued by a manufacturer – Taxable amount in the hands of the retailer

Article in the EU VAT Directive

Articles 11(A)(1)(a) and 11(C)(1)of the Sixth VAT Directive (Articles 73 and 90 of the 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.

Article 90
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Facts

Yorkshire is a co-operative society which carries on the business of a retailer of food and non-food goods. Between 1974 and 1996 Yorkshire accepted price-reduction coupons issued by various manufacturers. Those coupons were issued to the public either directly or in the form of cut-out coupons in newspapers and magazines. Each coupon either stated a sum of money or set out a means of calculating a sum of money and its terms enabled the customer to obtain from certain retailers the goods specified on the coupon at their retail price less the price reduction. The coupons also included instructions to the retailers as to the manner in which they were to proceed in order to obtain payment by the manufacturers of a sum equal to the nominal value of the coupons accepted.
The products covered by the coupons in question were always put on sale at the normal retail price, with the result that a customer without a coupon was required to pay the normal sale price.
Yorkshire included in its gross daily takings the sums received from manufacturers in exchange for price-reduction coupons collected from customers, thus declaring for VAT purposes the whole of the normal retail price of the products sold without deducting the amount of the price-reduction coupons. The price at which Yorkshire bought the products from the various manufacturers did not take account of the price-reduction coupons, and some products had even been purchased before the manufacturers issued such coupons.
On 2 December 1996 Yorkshire sought repayment from the Commissioners of a part of the VAT which it had paid in respect of the period from February 1974 to January 1996. Relying on the judgment in Case C-317/94 Elida Gibbs [1996] ECR I-5339, it claimed specifically that only the amounts paid by its customers constituted the consideration for the supply by it of goods during that period and that the amounts received from the manufacturers constituted refunds or reductions allowed by the latter on the initial purchase price. Those sums were therefore not to be included in the taxable amount. Furthermore, since no credit notes had been issued by the manufacturers to it, it was not required to adjust its input tax or to make any compensatory adjustment in its VAT declarations in connection with those supplies.
By letter dated 10 February 1997 the Commissioners rejected that request on the ground that Yorkshire had misinterpreted the Elida Gibbs judgment. They take the view that the taxable amount for the supply of goods by Yorkshire consists of the cash amounts paid by Yorkshire’s customers plus the amounts paid by the manufacturers.

Questions

1. On the proper construction of Article 11(A)(1)(a) and 11(C)(1) of the Sixth Directive, what is the taxable amount, in relation to a supply of goods by a retailer in the position of the appellant to a customer, where:
- (a) the manufacturer of the goods has sold them to the retailer (or, hypothetically, to a wholesaler who has sold them to the retailer),
- (b) in the course of a sales promotion the manufacturer procures the issue of a coupon, the terms of which are:
  - (i) that the holder, on presenting the coupon to the retailer, may buy the goods from the retailer at a price which is less than the retailer’s normal selling price by an amount (the reduction) specified in or ascertainable in accordance with the terms of the coupon, and
  - (ii) that the manufacturer, when the retailer has sold the goods in accordance with the terms of the coupon and has presented the coupon to the manufacturer, will pay to the retailer a sum equal to the reduction,
- (c) the retailer sells the goods to a customer on presentation of the coupon and on payment of the reduced price,
- (d) the retailer presents the coupon to the manufacturer and is paid a sum equal to the reduction?

Is the taxable amount:

- (i) the cash sum paid by the customer, or
- (ii) the cash sum paid by the customer together with the sum equal to the reduction paid by the manufacturer?
2. If the answer to question 1 is in sense (i), must the retailer adjust his input tax in his returns of VAT in relation to the supply of the goods by the manufacturer (or, as the case may be, by the wholesaler) to him, where the manufacturer or other supplier has not issued a credit note to the retailer for the reimbursement of the reduction?

AG Opinion

(1) The answer to the first question – leaving aside the hypothetical case of the involvement of a wholesaler – is that, in a case such as that at issue in the main proceedings, the taxable amount is the cash sum paid by the customer together with the sum equal to the reduction paid by the manufacturer.

(2) Having regard to my proposed answer to the first question, there is no need to answer the second question.

Decision

On a proper construction of Articles 11(A)(1)(a) and 11(C)(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, when, on the sale of a product, the retailer allows the final consumer to settle the sale price partly in cash and partly by means of a reduction coupon issued by the manufacturer of that product, and the manufacturer reimburses to the retailer the amount indicated on that coupon, the nominal value of that coupon must be included in the taxable amount in the hands of that retailer.

Summary

Manufacturer-issued coupons – Retailer’s taxable amount

If, when selling a product, a retailer agrees that the final consumer pays the sales price partly in cash and partly with a discount voucher issued by the manufacturer, and the latter reimburses the retailer the amount of this voucher, the face value of this voucher must be included in this retailer’s taxable amount.

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