Executive summary
On October 5, 2023. the ECJ Case decided the case C-505/22 (Deco Proteste – Editores, Lda). It decided that a subscription gift given in exchange for a periodical subscription is considered an ancillary supply and falls within the concept of “supply of goods for consideration” according to Directive 2006/112/EC.
The case involved a Portuguese company that provided gifts such as tablets or smartphones to new subscribers, with a unit value below EUR 50. The company argued that the gift was not a supply of goods for free and fell under the low-value gift.
The Tax Arbitration Tribunal referred several questions to the ECJ, including whether the gift was a separate supply of goods made free of charge, part of a single transaction for consideration, or part of a commercial package.
The Court concluded that the provision of a subscription gift in exchange for a periodical subscription is considered an ancillary supply and should not be considered a disposal of goods free of charge.
Article in the Directive
Article 16
The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.
However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.
Facts
- Deco Proteste – Editores is a Portuguese company that publishes and sells subscription-based magazines and documents providing consumer protection information.
- As a promotional campaign, new subscribers receive a gift, such as a tablet or smartphone, with a unit value always below EUR 50. The gift is sent by courier with the first monthly subscription payment, and there is no minimum subscription period.
- In 2019, the tax and customs authority found that the subscription gifts constituted gifts under VAT Code Article 3(7), but their value exceeded the 0.5% turnover ceiling, resulting in a VAT assessment of EUR 3,472,125.38 for 2015-2018.
- The company paid EUR 2,851,551.41, including interest, but appealed for reimbursement, arguing that the subscription gift is not a form of giving and falls under the low-value gift concept of VAT Code Article 3(7).
- The referring court is uncertain whether the subscription gift can be regarded as given in exchange for value and whether the 0.5% turnover ceiling renders the second paragraph of Directive 2006/112 ineffective.
Questions
- The Tax Arbitration Tribunal (CAAD) has referred several questions to the Court for a preliminary ruling regarding the classification of gifts given to new subscribers of periodicals.
- The questions include whether the gift is a separate supply of goods made free of charge, part of a single transaction for consideration, or part of a commercial package.
- The CAAD also asks whether an annual ceiling on the overall value of gifts is compatible with the concept of “the application of goods as gifts of small value” and whether that proportion renders the directive ineffective.
- Finally, the CAAD questions whether the ceiling infringes on the principles of neutrality, equal treatment, non-discrimination, and proportionality.
Argumentation
- First question, must Article 2(1)(a) and the first paragraph of Article 16 of Directive 2006/112 be interpreted as meaning that the giving of a subscription gift in return for a subscription to periodicals falls within the concept of a ‘supply of goods for consideration’ within the meaning of those provisions, or whether the first paragraph of Article 16 must be interpreted as meaning that the giving of such a gift, constituting a transaction separate from the subscription transaction, must be regarded as a disposal of goods free of charge within the meaning of that provision.
- In order to determine whether the taxable person performs several distinct main supplies or a single supply, it is necessary to identify the characteristic elements of the transaction in question, from the perspective of the average consumer. (pt 21)
- The provision of subscription gifts for all new subscriptions is an inTegral part of the commercial strategy of the applicant in the main proceedings. Furthermore, according to that court, subscription costs are considerably higher when accompanied by subscription gifts. (pt 25)
- There is therefore a clear link between the provision of a gift and the subscription to the magazines of the applicant in the main proceedings. (pt 26)
- Sole purpose of the promotional gift is to encourage the purchase of a subscription.
- The other questions were not answered.
Decision
Directive 2006/112/EC states that providing a subscription gift in exchange for a periodical subscription is considered an ancillary supply that falls within the concept of “supply of goods for consideration” and should not be considered a disposal of goods free of charge.
See also
- ECJ C-505/22 (Deco Proteste – Editores, Lda) – Judgment – A gift for a subscription is not a free transfer of goods and is ”incidental service” to the main supply
- Roadtrip through ECJ Cases – Focus on ”Free Products” (Art. 16)
- Roadtrip through ECJ Cases – Focus on ”Composite supplies”
- Join the Linkedin Group on ECJ VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
