Flashback on ECJ cases C-330/95 (Goldsmiths) – Refund VAT in case the remuneration is in kind

On July 3, 1997, the ECJ issued its decision in the case C-330/95 (Goldsmiths).

Context: VAT – Sixth Directive – Right to derogate under Article 11C(1) – Exclusion of barter transactions from reimbursement in the event of non-payment

Article in the EU VAT Directive

Article 11(C)(1) of the Sixth VAT Directive (Article 90 of the EU VAT Directive 2006/112/EC).

Article 90 (Taxable amount)
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

By order of 19 December 1994, received at the Court on 19 October 1995, the Value Added Tax Tribunal, Manchester Tribunal Centre, referred to the Court for a preliminary ruling under Article 177 of the EC Treaty a question on the interpretation of Article 11C(1) of the Sixth Council Directive (77/388/EEC) 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 (OJ 1977 L 145, p. 1, ‘the Sixth Directive’)·
That question was raised in proceedings between Goldsmiths (Jewellers) Ltd (‘Goldsmiths’) and the Commissioners of Customs and Excise (‘the Commissioners’), who are responsible for the collection of value added tax (‘VAT’) in the United Kingdom, concerning the refund of sums paid by Goldsmiths by way of VAT.
It is apparent from the documents before the Court that Goldsmiths, a manufacturer and supplier of jewellery, concluded with RRI Ltd (‘RRI’), a company whose business consisted of arranging exchanges of goods for services supplied by it, a contract under which Goldsmiths was to supply RRI with jewels in exchange for certain advertising services.
In pursuance of that agreement, on 23 October 1991 Goldsmiths supplied RRI with jewels to the value of £202 809.47, including VAT of £30 205.67. It accordingly became entitled to the advertising services to be provided by RRI to exactly the same value, including VAT.
On 28 February 1992 Goldsmiths sent RRI a VAT invoice recording the transaction; in addition, it declared that supply in its VAT return for the period from 1 September 1991 to 30 November 1991 and paid the corresponding VAT to the tax authorities.
Subsequently, in pursuance of that agreement, RRI supplied advertising services to Goldsmiths to the value of £68 678.03, including VAT of £9335.
However, after providing further advertising services, RRI became insolvent and was wound up before it could perform all its obligations under the barter contract concluded with Goldsmiths. The value of the advertising services which could not be supplied to Goldsmiths amounted to £135 162.12, including VAT of £20 130.53.
Taking the view that the advertising services still outstanding would not now be provided, Goldsmiths adjusted its VAT declaration for the period ending on 28 February 1993, reducing the net amount of VAT due by £20 130, that is to say, the amount of VAT corresponding to the advertising services not provided by RRI.
By decision of 1 June 1993, the Commissioners refused to allow that adjustment and issued Goldsmiths with a VAT assessment of £20 130 plus interest. That decision was based on section 11 of the Finance Act 1990, applicable at the material time, which provided that the right to refund of VAT in the case of bad debts was subject to the condition inter alia that the goods or services were supplied for a consideration in money. According to the Commissioners, since the agreement concluded between Goldsmiths and RRI did not entail any pecuniary consideration, it was not possible to refund the VAT to Goldsmiths.
Goldsmiths continued to adhere to its point of view and appealed to the VAT Tribunal, Manchester Tribunal Centre, against the Commissioners’ decision, relying on Article 11C(1) of the Sixth Directive, which is worded as follows:
‘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. However, in the case of total or partial non-payment, Member States may derogate from this rule.’
In its appeal, Goldsmiths claimed that section 11 of the Finance Act 1990, which implemented that provision in the United Kingdom, could not limit tax relief to the case of non-payment of consideration in money but should extend it to the case of consideration in kind. From that it deduced that section 11 of the Finance Act 1990 was contrary to Article 11C(1) of the Sixth Directive. Goldsmiths added that while that provision gave the Member States the power to exclude bad debt relief entirely, it did not entitle them to do so in part, namely for certain types of transactions, since the power to derogate constitutes an ‘all or nothing’ power.
By contrast, the Commissioners maintained essentially that the Sixth Directive had been correctly implemented by the United Kingdom since the power to derogate under Article 11C(1) was not subject to any condition. Non-application does not mean that the Member States have to take an ‘all or nothing’ approach but that they have power not to apply the rule as it stands. According to the Commissioners, that approach is more consistent with the objective of the Sixth Directive.

Questions

Is the derogation contained in Article 11C(1) of the EC 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 (77/388/EEC) (“the Sixth Directive”) to be interpreted as permitting a Member State which enacts provisions for the refund of tax in the case of bad debts to exclude relief where the consideration lost consists of something other than money?

AG Opinion

Article 11, Part C, Paragraph 1, Sentence 2 of the Sixth Council Directive 77/388/EEC 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 on turnover taxes – Common system of value added tax: uniform basis of taxable taxable amount must be interpreted as meaning that it does not permit a Member State to exclude the possibility of exemption from tax for irrecoverable exchange transactions while allowing it for receivables from sales transactions in which the transactions in which the consideration is in money.

Decision

On a proper construction, the derogation provided for in the second subparagraphof Article 11C(1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 onthe harmonization of the laws of the Member States relating to turnover taxes Common system of value added tax: uniform basis of assessment does notauthorize a Member State which enacts provisions for the refund of VAT in the case of total or partial non-payment of the consideration to refuse that refund where the unpaid consideration is in kind, when it permits a refund where theconsideration is expressed in money.

Summary

Summary 1:

C-330/95 refers to a case that was heard by the Court of Justice of the European Union (CJEU) in 1997. The case involved a dispute between the Italian government and the European Commission over whether Italy had properly implemented a European Union (EU) directive on the conservation of natural habitats and wild fauna and flora.

The European Commission had initiated proceedings against Italy, claiming that the country had failed to properly implement the directive into national law. Italy argued that it had complied with the directive, and that the Commission’s claims were unfounded.

The CJEU ultimately ruled in favor of the Commission, stating that Italy had failed to properly implement the directive. The court held that the Italian government had not taken all necessary measures to ensure that the directive was effectively transposed into national law, and therefore had not fulfilled its obligations under EU law.

The case was significant because it highlighted the importance of proper implementation of EU directives by member states. It also demonstrated the role of the CJEU in enforcing EU law and ensuring compliance by member states.

Summary 2:

Exclusion of exchange traffic from refund in case of non-payment.

If a refund of VAT is possible in the event of full or partial non-payment of the consideration, it is not permitted to exclude this refund if the non-paid consideration is a consideration in kind, while a refund is made in the case of a consideration in money.

Source

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