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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Tesco Plc v Commissioners for Customs and Excise Rev 1 [2003] EWCA Civ 1367 (14 October 2003) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2003/1367.html Cite as: [2003] EWCA Civ 1367, [2003] STC 1561, [2003] STI 1820, [2003] BTC 5608 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION (Mr Justice Ferris)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LATHAM
and
LORD JUSTICE JONATHAN PARKER
____________________
| TESCO PLC |
Appellant |
|
| - and - |
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| THE COMMISSIONERS FOR CUSTOMS AND EXCISE |
Respondents |
____________________
____________________
Crown Copyright ©
CONTENTS
| 1 INTRODUCTION | 1 10 |
| 2. THE UNDERLYING FACTS | 11 27 |
| 3. THE LEGISLATIVE BACKGROUND AND SOME RELEVANT AUTHORITIES | 28 94 |
| 4 THE ISSUE | 95 96 |
| 5. THE TRIBUNAL'S DECISION | 97 103 |
| 6 THE JUDGE'S JUDGMENT | 104 113 |
| 7. THE BATTLE LINES ON THIS APPEAL | 114 117 |
| 8. THE ARGUMENTS | 118 150 |
| 9. CONCLUSIONS | 151 179 |
| 10. RESULT | 180 - 182 |
Lord Justice Jonathan Parker :
PART 1. INTRODUCTION
PART 2. THE UNDERLYING FACTS
The basic Clubcard scheme
"Start saving today!
Simply complete this enrolment form and post it in one of the special in-store boxes. Then sign your Tesco Clubcard it will now give you points when you shop. These turn into pounds and help save you money. Tesco Clubcard is free it's our way of saying thank-you for shopping at Tesco. Here's how it works:
Check in at the checkout
Whenever you shop at Tesco have your Tesco Clubcard at the ready. The checkout assistant will swipe your card before your first purchase has been recorded. The points you earn will be shown on the till display and on your receipt. Your previous total will also be shown as long as you are shopping in the store where your card was issued.
Turn your points into pounds
Every quarter we will send you your statement. You'll see your points total and, providing you have collected 50 points or more [since increased to 150 points], we'll also send you Tesco Clubcard vouchers which you can spend in store. Simply present them at the checkout to claim your discount. They should be shown along with your card for security purposes."
"1. The Tesco Clubcard is issued by and remains the property of Tesco Stores Ltd, who reserve the right to decline issue [sic] or withdraw the card at any time, or to terminate the Clubcard scheme without notice.
2. All participants in the Tesco Clubcard scheme must be resident in the UK and aged 18 years or over.
....
4. To earn points for a transaction, your Tesco Clubcard must be presented at the checkout before your purchases are made .... The card is not transferable, and can only be used by the person whose signature is on the card.
....
6. You must spend at least £10 in a single transaction for that transaction to qualify for points. Then one point will be awarded for every £5 that is spent. [NOTE: The ratio of points to £s spent has since been changed to 1 point for every £1 spent.]
....
8. Rewards, in the form of Tesco Clubcard vouchers, will be mailed with a statement to customers who have accumulated at least 50 points by the end of each collecting period. [NOTE: The minimum number of points has since been increased to 150 points.]
9. .... Vouchers will be redeemable on qualifying purchases at all participating Tesco stores, and will not be exchangeable for cash and no change will be given.
10. The level of reward given will be based on the total number of points that a member has earned by the end of the last day of a collecting period.
11. Any points that a member has earned that fall between the level of reward that the member has qualified for and the next level up will be 'carried over' as the starting balance for the next collecting period.
12. Members who do not reach the minimum needed to qualify for a reward by the end of a collecting period will have their points total 'carried over' to the next collecting period.
13. Members who do not collect any points for 8 weeks may be removed from the scheme but may reapply at any time.
14. .... Tesco reserves the right to vary [the redemption value of points] at any time.
....
16. Tesco reserve the right to alter or amend the conditions of operations of the Clubcard scheme, or to terminate the scheme at any time.
...."
Third party schemes
(i) Third party retailer schemes
"5. Tesco sometimes enters into arrangements with third party retailers under which the third party allocates Clubcard points to its customers who tender a Tesco Clubcard at the time of payment for goods or services acquired from the third party. The points so allocated are included in the customer's quarterly Clubcard statement and converted into vouchers in the same way as points earned in respect of purchases from Tesco itself. These vouchers are redeemable in the usual way on the making of future purchases from Tesco, but not in payment for future purchases from the third party retailer.
6. In each case such arrangements are governed by a formal agreement between Tesco and the third party retailer in question. The Tribunal received evidence of three agreements made between a Tesco subsidiary and B&Q plc, Norweb plc and Going Places Leisure Travel plc respectively. While the agreements are not in any standard form they all have the same essential features which the Tribunal described (in paragraph 21 of its decision) as follows:
'(a) The rate at which customers will be entitled to Tesco Clubcard points is defined.
(b) The Third Party Supplier is granted the right to operate the Clubcard Scheme in its business during the term of the agreement.
(c) Tesco undertakes to assist the Third Party Supplier in various ways in the proper operation of the Clubcard Scheme during the term of the agreement.
(d) Tesco undertakes to honour in accordance with the terms of the Clubcard Scheme the redemption of points awarded to customers for purchases of Premium Goods or services from the Third Party Supplier.
(e) The Third Party Supplier undertakes to pay defined fees to Tesco. These fees in all cases include, but are not limited to, an element equal to the face value of the points acquired by Clubcard members through transactions with the Third Party Supplier. In one case this is described as a reimbursement. These fees also include an additional element payable quarterly, which in two cases is defined as a fixed sum (£300,000 and £150,000 respectively) and in one case is a variable fee of 60p per call to the Tesco call centre relating to the participation of the Third Party Supplier in the Clubcard Scheme.
(f) The Third Party Supplier gives various undertakings relating to the proper operation of the Clubcard Scheme.'"
(ii) Special promotions
"10. Sometimes a supplier of goods to Tesco may agree with Tesco that, during a particular period or in respect of a particular product line, extra Clubcard points, over and above the standard one point for each £1 spent, will be awarded to customers purchasing goods originating with that supplier and tendering their Clubcards at the time of payment. An arrangement of this kind will enable in-store promotions to be mounted based upon such offers as four bonus points on each purchase of a particular product.
11. The Tribunal did not have before it evidence of any particular example of such arrangements, although it must have accepted that they existed in some cases. There was no evidence of the terms agreed between Tesco and the supplier in any particular case. However it seems to me to be an inevitable inference that the arrangements between Tesco and the suppliers in question must include provisions for the cost of the promotion, including the cost of the additional points awarded, to be borne by the supplier. The customer will, of course, be made aware that additional points are to be awarded in respect of the purchase, this being the inducement which underlies the promotion, but he will not be told anything of the arrangements between Tesco and the supplier in question."
(iii) The TPF scheme
"7. Tesco Personal Finance Ltd ("TPF") is a joint venture company owned by a Tesco subsidiary and the Royal Bank of Scotland ("RBS"). It is part of the RBS VAT group but not part of the Tesco VAT group. As part of its business TPF carries on a credit card operation, issuing to its customers a TPF Visa card which can be used, like any other Visa card, at any outlet linked with the Visa network. In addition the TPF Visa card can be used as a Tesco Clubcard. Thus a customer purchasing goods from Tesco, or from a third party retailer within a scheme of the kind just described, may produce a TPF Visa card at the time of payment. The cost of the goods will be charged to the customer's Visa card account.
8. Under the arrangements which exist between Tesco and TPF the customer will also earn Clubcard points when he uses the TPF Visa card in this way. In the first place the customer will be credited with the number of Clubcard points appropriate to the cost of the goods purchased, without the need to produce a separate Clubcard. In addition the customer will be awarded an additional half a point for every £1 paid by the use of the TPF Visa card. Thus most purchases made at a Tesco store and paid for with a TPF Visa card will entitle the customer to one and a half points for each £1 spent.
9. No formal agreement exists between Tesco and TPF but the Tribunal was satisfied that the Clubcard scheme operates in relation to TPF as follows:
a) A TPF Visa card holder is entitled to Clubcard points as described above;
b) TPF periodically pays Tesco amounts calculated to reimburse Tesco for the costs incurred by it in support of the joint venture business of TPF;
c) The reimbursement does not, however, extend to the full face value of the points or vouchers acquired by the holders of TPF Visa cards. Instead it represents only 93% of that face value, that being the estimated rate of redemption of vouchers issued to Clubcard holders."
The present dispute
PART 3. THE LEGISLATIVE BACKGROUND AND SOME RELEVANT AUTHORITIES
A. Community law:
"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 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 and 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."
"Article 2
The following shall be subject to value added tax:
1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;
2. ....
Article 5
Supply of goods
1. 'Supply of goods' shall mean the transfer of the right to dispose of tangible property as owner.
....
Article 6
Supply of services
1. 'Supply of services' shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5.
....
Article 10
1. (a) 'Chargeable event' shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.
(b) ....
2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. ....
....
Article 11
A. Within the territory of the country
1. The taxable amount shall be:
(a) in respect of goods and services .... 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;
....
3. The taxable amount shall not include:
(a) ....
(b) price discounts and rebates allowed to the customer and accounted for at the time of supply;
...."
(a) Authorities as to the approach to be adopted in analysing the relevant transaction
"It is clear therefore that a technical analysis of one part of a transaction, or of one set of obligations within a contract, even though accurate in legal principle, which is capable of explaining the service supplied, or the consideration given, in a restricted way, is not necessarily the right answer in law to the application of the provisions of this statute [the Finance Act 1972]. I accept counsel for the Crown's submission that this approach does indicate that taxable transactions should not be artificially dissected so as to demonstrate as being the service provided, or the consideration given, something other or less than that which appears to have been the service provided or the consideration given upon examination of the entire transaction. The meaning of 'entire transaction' for this purpose must be objectively determined upon the facts of the transaction by reference to the terms agreed."
Ralph Gibson J's 'entire transaction' test is reflected in the approach adopted by the European Court of Justice some 20 years later in Customs and Excise Commissioners v. Mirror Group plc [2001] STC 1453 (C 409/98) (see paras 40 and 41 below).
"The value added tax tribunal held that value added tax was payable on the £1.50. They regarded it as a question of fact . I do not myself think it was a question of fact for the tribunal. We are told that some tribunals hold that value added tax is payable on these sums of £1.50 paid by the students; and that other tribunals hold that it is not payable. That will never do. Either value added tax is payable on all these sums of £1.50 or on none of them. It cannot depend on the state of mind of any individual student by asking him or her: what did you pay the £1.50 for? It must depend on the legal effect of the transaction considered in relation to the words of the statute. And that is a question of law."
"I come back to the real question in this case: what did the board supply in consideration for the £1.50 they received? Did they supply transport by rail, or only an option to buy tickets? To my mind they supplied transport by rail; and the £1.50 was part payment for it. It is not correct to separate the £1.50 as if it was a separate payment for some separate service, separate from the travel by rail. The £1.50 is really part and parcel of the payment which the student makes for travelling on the railway."
"I should at this stage break off to notice, and underline, the limited nature of my jurisdiction in an appeal of this kind. The right of appeal to this court arises under the Tribunals and Inquiries Act 1992 and is on law only. Just as with judicial review, that means that any findings of fact of the tribunal can only be impugned here on the familiar Wednesbury basis . So much is common ground .. However, [the taxpayer] submits that where the issue for decision depends upon the construction of documents, the exercise of construction which the tribunal at first instance and the court on appeal must undertake is one of law, so that there is no difference between the nature of my task in relation to the contractual documents in this case, and the task which the tribunal had to perform. .
I certainly accept that where any issue turns wholly upon the construction of a document having legal consequences, the exercise of construction is one of law for the judge. But for the proper resolution of a case of this kind, there are I think two qualifications. The first is that the concept of making a supply for the purposes of VAT is not identical with the performance of an obligation for the purposes of the law of contract, even where the obligation consists in the provision of goods or services. The second is that, in consequence, the true construction of a contractual document may not always answer the question what was the nature of the VAT supply in this case? In so far as the answer to that question is not concluded by the legal process of construing the documents, there remains a question of fact; and for the purposes of an appeal of this kind, as I have made clear, the Wednesbury rule must therefore guide this court's approach in relation to it."
"In principle, the nature of a VAT supply is to be ascertained from the whole facts of the case. It may be a consequence, but it is not a function, of the contracts entered into by the relevant parties."
"An approach of that kind would be contrary to the VAT system's objectives of ensuring legal certainty and a correct and coherent application of the exemptions provided for in art. 13 of the Sixth Directive. The court observes in this connection that, to facilitate the application of VAT, it is necessary to have regard, save in exceptional cases, to the objective character of the transaction in question . A taxable person who, for the purposes of achieving a particular economic goal, has a choice between exempt transactions and taxable transactions must, therefore, in his own interest, duly take his decision while bearing in mind the neutral system of VAT . The principle of the neutrality of VAT does not mean that a taxable person with a choice between two transactions may choose one of them and avail himself of the effects of the other."
"27. In order to identify the key features of a contract .... we must go beyond an abstract or purely formal analysis. It is necessary to find the contract's economic purpose, that is to say, the precise way in which performance satisfies the interests of the parties. In other words, we must identify the element which the legal traditions of various European countries term the cause of the contract and understand as the economic purpose, calculated to realise the parties' respective interests, lying at the heart of the contract. In the case of a lease, as noted above, this consists in the transfer by one party to another of an exclusive right to enjoy immovable property for an agreed period.
28. It goes without saying that this purpose is the same for all the parties to the contract and thus determines its content. On the other hand, it has no connection with the subjective reasons which have led each of the parties to enter into the contract, and which obviously are not evident from its terms. I have drawn attention to this point because, in my view, failure to distinguish between the cause of a contract and the motivation of the parties has been the source of misunderstandings, even in the cases under consideration here, and has complicated the task of categorising the contracts at issue."
"We reject the submission that there is any principle that transactions which have the same economic effect are, necessarily, to be treated in the same way for the purposes of VAT. The principle of neutrality, as explained by the Court of Justice in Elida Gibbs [1996] STC 1387 at 1403 and 1404, [1997] QB 499 at 561 and 562, paras 28 and 31, requires that the taxable person that is to say, in the present case, the supplier is not required to account for an amount of VAT which is greater than the amount actually paid by the final consumer in the present case, the purchaser of the Lex car. As the Court of Justice emphasised in Elida Gibbs [1996] STC 1387 at 1402, [1997] QB 499 at 560, para 19, it is the final consumer who is intended to bear the tax; and the taxable amount upon which VAT is chargeable cannot exceed the consideration which the final consumer pays for the supply. But that principle does not provide the answer, in the present case, to the question 'what monetary equivalent did the parties attribute to the part exchange car?'; nor even to the question 'what monetary equivalent did the part exchange car represent to Lex when it accepted that car in part payment for the supply of the Lex car?' (see the judgment of the Court of Justice in Argos [1996] STC 1359 at 1373, [1997] QB 499 at 529, para 20)."
(b) Authorities relating to the Community law concept of 'consideration'
"It should be noted in the first place that the expression in issue is part of a provision of Community law which does not refer to the law of the Member States for the determining of its meaning and scope; it follows that the interpretation, in general terms, of the expression may not be left to the discretion of each Member State."
"So a provision of services is taxable, within the meaning of the Second Directive, when the service is provided against payment and the basis of assessment for such a service is everything which makes up the consideration for the service; there must therefore be a direct link between the service provided and the consideration received which does not occur in a case where [as in that case] the consideration consists of an unascertained reduction in the value of the shares possessed by the members of the cooperative and such a loss of value may not be regarded as a payment received by the cooperative providing the services."
"In our opinion the answer to the point which has been raised in this case is to be found by giving the phrase 'a consideration in money' in sub-ss (2) and (4) of s. 10 [of the Value Added Tax Act 1983] its ordinary meaning. No question arises here as to whether there was or was not a direct link between the consideration and the supply. .... [R]eciprocity is not in question in the present case. The relationship between the company and its sponsors was clearly a direct relationship. The sponsors paid their money direct to the company and they received, or at least were entitled to receive, the benefits direct in return. The consideration for these benefits was the amount of money which had to be paid in order to receive them. The tribunal was satisfied that the benefits were not being given gratuitously but only in return for the payment of money to the company. The question then is what the sponsor had to pay to obtain these benefits. The tribunal held that this was a contract constituted by offer and acceptance, and on this view it appears to us that the sum of £150 was the consideration in money for the supply. Thus, the value of the supply falls to be determined in terms of s. 10(2) of the 1983 Act, and it must be taken to be, when grossed up by the addition of the tax chargeable, equivalent to the sum of £150."
"38. Whether there is a legal relationship in the Tolsma sense cannot depend .... on the presence of specific legal characteristics, in particular contractual or procedural ones, such as enforceability in legal proceedings. Since the conditions for the existence and content of legal relationships vary according to national legal systems, that would also be incompatible with the principle of fiscal neutrality and the objective of harmonisation of VAT. Otherwise the inclusion of a 'binding in honour only' clause could open the way to tax evasion.
39. All that need be examined is whether the components of reciprocal performance are exchanged in the framework of agreements even ones that are binding in honour only from which it is apparent that there is a direct link between them.
40. In the Tolsma case there were no agreements of any kind whatever which might have created a link between service and payment sufficient for it to be possible to speak of a transaction 'for consideration' within the meaning of art. 2 of the Sixth Directive; the 'provider of the service' (in that case a street musician) admittedly received certain sums 'for his service', but the 'recipients of the service' paid them purely voluntarily and in principle received the service regardless of their consideration ....
41. In contrast to the Tolsma case, in cases such as that in the main proceedings there is indeed a type of agreement under which the entry fee is paid for the service provided by the organiser of the competition. ...."
"In my view the tribunal was perfectly entitled, indeed right, to find on the evidence that what each of those attending paid for included not merely seeing the presentation of the awards, but the actual provision or supply of those awards. It was a vital part of the evening."
"Nor does it matter in my view whether the diners knew or considered whether the price they paid included or constituted the costs of the awards. Such price in fact contributed to the cost of the evening which included the provision of the awards. That in my view is a sufficiently direct link."
"[Counsel] for the commissioners .... points out that no individual advertiser can know what part of the money consideration provided by him is attributable to the supply of goods. That is no doubt true but not, in my judgment, relevant. The question is not whether the advertiser knew what part of the money he provided was for the supply of goods but whether there was consideration for the supply of goods."
(c) Authorities relating to voucher schemes
"This simple transaction has given rise to arguments at great length, many of which have gone up what I venture with respect to think were blind alleys. Consideration has been given to the question of whether a Provident customer acquiring goods through the Provident check is giving cash or something other than cash as a consideration. This point may be of some importance. From my point of view I am quite confident that the customer who presents the Provident check is paying cash and not consideration other than cash."
"11. In order to provide a helpful answer to the problem of interpretation raised by the questions submitted to the court, that problem must be defined with reference to the national court's findings of fact as to what the coupons represent in the relations between Boots and its customers from the economic and legal point of view.
12. According to the documents before the court, by the coupon given to the customer on the sale of the premium goods, Boots engages to grant the bearer of the coupon, on the subsequent purchase of one of the articles indicated in it, a price reduction equal to the nominal value also indicated on the coupon. Thus the coupon is constitutive of the bearer's right to a price reduction equal to the amount indicated on the coupon.
13. From the economic point of view, since the obligation assumed by Boots forms part of a promotion scheme the cost of which is borne by Boots itself, it affords Boots no advantage other than the prospect of increasing its turnover by increasing the volume of its sales of premium goods and redemption goods. It is only where the coupon is surrendered to Boots and is then recovered by its supplier, when the latter bears all or part of the promotion costs, that the coupon has monetary value for Boots equal to the amount actually paid by the supplier to Boots pursuant to their own contract. In the case in question, the coupon represents for Boots only an obligation to grant a reduction, which is allowed with the aim of attracting the customer."
"15. According to art. 11A(1)(a) of the Sixth Directive, the taxable amount within the territory of the country is to be, in respect of supplies of goods, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser. Paragraphs (2) and (3) of art. 11A enumerate certain items which are to be included in the taxable amount and other items which are not to be included. Paragraph (3)(b) of art. 11A provides that the taxable amount is not to include 'price discounts and rebates allowed to the customer and accounted for at the time of supply'. Thus, the items referred to in para (2) of art. 11A are treated by the directive itself as constituting the 'consideration' and therefore the taxable amount and the items referred to in para (3) are excluded, likewise ex lege, from the concept of consideration.
16. It follows that each time the question of classifying a specific item arises, it is first necessary to examine whether the item falls within one of the categories referred to in paras (2) and (3) and it is only when the answer is the negative that reference must be made to the general concept in para (1)(a)."
"18. 'Discounts and rebates' which, according to art. 11A(3)(b) of the Sixth Directive, are not to be included in the taxable amount, constitute a reduction of the price at which an article is lawfully offered to the customer, since the seller agrees to forgo the sum represented by the rebate in order precisely to induce the customer to buy the article.
19. That provision is merely an application of the rule laid down in art 11A(1)(a) of the Sixth Directive, as interpreted by the court in its decisions .... according to which the taxable amount is the consideration actually received.
20. The United Kingdom states that the promotion scheme used by Boots should be distinguished from the typical case of a price discount or rebate since the reduction allowed to the purchaser is granted in exchange for the coupon which has a value.
21. That viewpoint cannot be accepted. It is clear from the coupon's legal and economic characteristics described above that, although a 'nominal value' is indicated on it, the coupon is not obtained by the purchaser for consideration and is nothing other than a document incorporating the obligation assumed by Boots to allow to the bearer of the coupon, in exchange for it, a reduction at the time of purchase of redemption goods. Therefore, the 'nominal value' expresses only the amount of the reduction promised.
22. The answer to the question must therefore be that art 11A(3)(b) of the Sixth Directive must be interpreted as meaning that the expression 'price discounts and rebates allowed to the customer and accounted for at the time of the supply' covers the difference between the normal retail selling price of the goods supplied and the sum of money actually received by the retailer for those goods where the retailer accepts from the customer a coupon which he gave to the customer on a previous purchase made at the normal retail selling price."
"30. Kuwait Petroleum contests the approach of the tribunal in divorcing the previous supply of the premium goods (fuel) from the later supply of the redemption goods. .... Supported by the Commission, it contends that, in the case of redemption goods provided in exchange for stamps obtained from its own sites, the consideration for the supply of the goods constitutes an unascertained part of the VAT-inclusive price paid by the motorist. If the consumer chose not to accept the stamps, he was opting not to avail of a right that he had paid for. In support of this contention it relies, in particular, on the court's judgment in Elida Gibbs .... while asserting that the commissioners' reliance on [Boots] is misconceived. Kuwait Petroleum repeats its argument before the tribunal that the sale of the fuel with the stamps forms part of the same single economic transaction as the supply of the redemption goods.
31. Kuwait Petroleum submits that this analysis also applies with respect to stamps supplied by dealers. In its view, the involvement of dealers should not affect the application of the Community VAT law principle of neutrality. It .... contends that the operation of the scheme imposed an additional burden on independent participating dealers; they, in effect, paid Kuwait Petroleum an extra 0.22p/0.33p per litre, plus VAT, for supplies of fuel in return for which they received a supply of stamps. ....
32. The United Kingdom disagrees, saying that there was but one pump-price for each grade of fuel. The stamps were issued, like the coupons in Boots, for no consideration; however, the subsequent supply of the redemption goods was free of charge, whereas the coupons issued by Boots served directly as discounts off the price of the goods subsequently purchased. At the hearing, it was claimed that the very rationale of promotions such as that in issue in the present case is that the customer should receive something without being required to pay anything in return. The simple fact that Kuwait Petroleum incurred costs in operating the scheme does not affect the question whether consideration was provided. Consideration is what is received by the taxable person for the supply. In this case, it cannot be viewed as an unascertained part of the purchase price paid by motorists; the motorist merely paid for the fuel while at the same time receiving stamps, without .... providing any additional consideration to Kuwait Petroleum for those stamps. The United Kingdom, thus, does not accept that the supply of fuel and the later supply of redemption goods constituted a single economic transaction. It submits that the additional 0.22p/0.33p per litre was paid to Kuwait Petroleum by the dealers for fuel in return for the right to participate in the promotion and the resulting opportunity for increasing their own turnover. It did not constitute third-party consideration provided by the dealers to Kuwait Petroleum in respect of the supply of redemption goods, since the payment had no 'direct link' with the delivery of redemption goods by Kuwait Petroleum. ...."
"33. The divergent views concerning whether Kuwait Petroleum received consideration for the redemption goods depend essentially on whether the sale of fuel with stamps and the subsequent supply of redemption goods for the surrender of stamps constitute a single economic transaction, as claimed by Kuwait Petroleum, or whether, as alleged in particular by the United Kingdom ...., no distinct discernible consideration can be identified.
34. .... In the present case, then, the question is whether there was a 'direct link' between the supply of the redemption goods and the purchase of fuel by motorists who received stamps."
"38. It appears to me that the most useful point of reference for the resolution of the present case is [Boots]. .... Although the case was formally concerned with an alleged discount, the core issue was whether, as the United Kingdom asserted in Boots, the reduction on purchases of redemption goods was allowed 'in exchange for the coupon which has value' (see .... para 20); in other words, did the purchaser in the second transaction by surrendering coupons provide consideration equal to the face value of the coupon? Boots was, thus, in effect a price-reduction case. The court stated that the coupons at issue 'represents for Boots only an obligation to grant a reduction, which is allowed with the aim of attracting the customer' ....; the coupons were 'not obtained by the purchaser for consideration' and constituted 'nothing other than a document incorporating the obligation assumed by Boots to allow to the bearer of the coupon, in exchange for it, a reduction at the time of purchase of the redemption goods'."
"39. The supply of redemption goods under the sails scheme is not, in my view, made for consideration as explained in the above-mentioned cases.
40. I do not think it is possible to establish the necessary direct link between the supply of redemption goods and any identifiable element in the price paid for fuel at the pumps, even acknowledging that each motorist is entitled to demand stamps in proportion to his purchases .... It is apparent from such cases as .... [Boots] that the scheme at issue created its own identifiable link, both qualitatively and quantitatively. If the sails scheme had entitled the motorist to a given reduction or even, for example, the supply of a litre of fuel free for every 50 litres purchased, there would have been a straightforward reduction in the price of the fuel supplied, akin to that in Boots. ....
41. However, there are two other decisive considerations. Firstly, it is acknowledged that a significant proportion of the stamps to which motorists are entitled are not claimed, or, if they are, that they are not always used to claim redemption goods. Kuwait Petroleum's claim is that the price, ostensibly paid for fuel both at Kuwait Petroleum-owned and independent sites, is actually paid in part only for the fuel, the remaining part being paid for the redemption goods. Thus the motorists who do not claim stamps or goods are paying, pro tanto, for nothing. On that view, Kuwait Petroleum, or the independent retailers, should pay VAT calculated by reference to the amount of the stamps not claimed or used. That result, though logical, is too theoretical and unreal. ....
42. Secondly and more seriously, it seems to me impossible to adapt Kuwait Petroleum's theory of the single economic transaction to take account of the proportion of the sales of fuel which took place through the dealers. The proposed allocation of the contribution paid by the dealers to Kuwait Petroleum (0.22p or 0.33p per litre) to the price paid by the motorist at the pumps is entirely arbitrary. It bears no relationship either to the actual price paid by the consumer who has no interest in the cost of the sails scheme or even to the price of the redemption goods. This, of course, is the result of the impossibility of fitting the intermediate transaction between Kuwait Petroleum and the dealer into the framework of a supposed single economic transaction between Kuwait Petroleum and the consumer. In fact, it exposes the weakness of the argument. Moreover, .... it is not even possible to segregate the two types of transaction. There is no way of distinguishing those stamps received at dealer-operated sites from those supplied directly by Kuwait Petroleum.
43. In reality, it is not possible to treat as a single economic transaction a series of events consisting of two distinct transactions; sale of fuel coupled with the supply of stamps and the subsequent supply of redemption goods for those stamps. This applies a fortiori when, in addition to the above events, the sale of fuel to an independent dealer and the latter's participation in the sails scheme must also be considered. .... In the present case, as Kuwait Petroleum accepted at the hearing, a number of transactions are involved. At a minimum, the sale of fuel and the supply of the redemption goods were separable not only in time but as to subject matter. When the sails scheme is operated by a dealer, yet another transaction occurs."
"26. Goods are supplied 'for consideration' within the meaning of art. 2(1) of the Sixth Directive only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied (see .... [Tolsma]).
27. It is for the national court to inquire whether, at the time of purchasing the fuel, the customers and Kuwait Petroleum had agreed through the dealers, as the case may be that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers. There is nothing, however, in the documents before the court to suggest that there was any such reciprocal performance by the parties concerned.
28. As the Advocate-General pointed out in para 43 of his opinion, the sale of fuel and the exchange of goods for vouchers are two separate transactions.
29. Moreover, there are two considerations in the case in the main proceedings which suggest that the exchange of goods for Q8 vouchers is a disposal free of charge, within the meaning of art 5(6) of the Sixth Directive, and that the application of those goods is therefore to be treated as a supply for consideration and, accordingly, taxable.
30. First, under the sales promotion scheme set up by Kuwait Petroleum, the redemption goods were described as gifts.
31. Second, it is not contested that the retail price of Q8 fuel [the premium goods], whether or not the purchaser accepted the vouchers, was the same, and this was the only price referred to on the invoice relating to the fuel purchase which .... [the company] or the independent retailers had to issue to the customers who were themselves taxable persons. That being so, [the company] cannot reasonably maintain that, contrary to the statements on the invoices which it issued, the price paid by the purchasers of fuel in fact contained a component representing the value of the Q8 vouchers or of the redemption goods."
"23. It seems to me that the starting point for deciding whether [counsel for Kuwait Petroleum]'s objections to the tribunal's findings have merit, is to appreciate what inquiry it should have undertaken to determine whether a disposal is 'free of charge' within the meaning of those words in art 5(6). As both parties agreed, this was addressed by the Court of Justice and is set out in the Kuwait judgment (see [1999] STC 488 at 509, [1999] ECR I-2323 at 2358, para 27). What has to be determined is whether, at the time of purchasing the premium goods, the customers and Kuwait Petroleum had agreed, directly or indirectly, that part of the price paid for the premium goods, whether identifiable or not, would constitute the value given in return for the redemption vouchers or the redemption goods. It would be insufficient to prove that Kuwait Petroleum alone thought that the redemption vouchers and redemption goods were being paid for by the customer through the price paid for the premium goods.
24. If the existence of such a consensus is the express and acknowledged view of the contracting parties, then the goods are not disposed of 'free of charge' and art 5(6) does not apply. However, here there was no such express and acknowledged view of the contracting parties. Both [counsel for Kuwait Petroleum] and [counsel for the Commissioners] agree that in those circumstances the inquiry is to be answered objectively. That is to say the fact-finding tribunal has to determine what the ordinary customer (the driver of the Clapham Ford Sierra) and Kuwait Petroleum should be taken to have agreed to at the time the premium goods were being purchased. That determination depends upon the inferences to be drawn from all the circumstances surrounding the transactions on the forecourt of the petrol stations. It is what the tribunal did here."
"34. Furthermore, I do not accept [counsel for Kuwait's] criticism of the points which the Court of Justice in Kuwait thought were telling. The invoices supplied to the customers at petrol stations and the way in which the promotion was run by Kuwait Petroleum and its participating agents were likely to reinforce each other and convey to the customers the marketing message that they were indeed getting something for nothing. .... They were only incorrectly worded if the redemption vouchers and redemption goods were being paid for. If they were not, the invoices were correctly worded. In any event, as I have said above, what counts is what the customers thought they were agreeing to. Kuwait Petroleum and its agents went out of their way to make customers think that they were being given free gifts. That largesse was to be repaid by customer loyalty. Kuwait Petroleum can hardly complain if customers believed what it was telling them. In the light of these considerations, there is no difficulty in dealing with [counsel for Kuwait's] argument in relation to a promotion of the 'Buy one: get one free' kind. There is a limit to the reasonable gullibility of ordinary members of the public. A promotion of that kind would not persuade most customers that they were really getting half of their acquisitions free. They would think that they were receiving each of the products at half price and that they were paying for both. They would be likely to regard the vendor's assertion that one product was being given free as little more than a puff."
"37. This manner of considering the transaction in economic terms is challenged in particular by the judgment in Chaussures Bally SA v. Belgium [1997] STC 209, C 18/92. The issue for determination in Bally was whether, in the case of purchase by credit card, VAT was chargeable on the full price or whether the commission payable to the credit card company could first of all be deducted. The court ruled in that case that the taxable amount had to be the full price. However, the judgment in Bally is not directly transposable to the present case. .... Rejection of the economic method of considering the transaction in the present case can thus find support in the Bally judgment only to the extent to which general principles can be derived from that judgment. In addition to the Bally judgment, account should also be taken in the present context of that in [Kuwait] in which the court focused on how the transaction was perceived externally by the consumer.
38. The court found as a fact in [Kuwait] that the handing out of vouchers on sales of fuel was expressly stated to be without consideration and could therefore also not be used to reduce turnover for the purposes of VAT assessment (see [ibid.] para 30). There is a parallel with the present case in so far as the credit was expressly to be granted interest free.
39. In both [Kuwait] and Bally the party liable to VAT regularly carried on two types of transaction, in which it charged the same price to customers. In the credit card transaction as formed the basis of the case in Bally the same prices are typically charged between vendor and purchaser as in a cash transaction. The form of payment alone takes a different form. It is therefore consistent if VAT is charged in the same way as for a cash transaction. The court stressed in [Kuwait] that the price of the purchased fuel remained the same irrespective of whether or not the vouchers in question were accepted (see [ibid.] para 31).
40. There are in the present case no clear grounds for arguing that the purchase of goods on interest-free credit is based on any price other than the cash price. Counsel for Primback stressed at the hearing that cash purchasers could negotiate rebates, but conceded that rebates were not expressly offered to cash purchasers. Consequently the facts of the present case are also in principle on a par with Bally and [Kuwait]. ....
41. The court also pointed out in Bally .... that the retailer liable to VAT expressly indicated on the sales invoice the VAT for the full amount paid by the customer. That in principle does not occur in the present case, since Primback does not indicate any VAT whatever on the invoice. There was, however, a dispute during the hearing as to whether, if it were to indicate VAT on invoices, Primback would be entitled to limit that indication to the amount received from the finance company. Counsel for Primback conceded that, in the event of a cash purchase without rebate, VAT were it to be indicated would in any case relate to the full price."
"35. According to Primback, the need to take account of the commercial reality leads inevitably to the conclusion that the different transactions between the parties involved cannot be analysed in isolation. Thus, in a situation where, as in the case in the main proceedings, the customer has the benefit, for a single price of two supply transactions, effected by two separate traders, one of which is taxable and the other exempt, but neither of which can be treated as being ancillary to the other, the correct method for determining the basis of assessment for VAT would be to divide the consideration in an appropriate manner between the two supply transactions at issue. Since the provision of credit undoubtedly has a value and the price advertised and invoiced to the purchaser in fact covers the cost of the interest-free loan enjoyed by the purchaser, the logical view would be that the consideration for the actual value of the goods is the difference between the advertised sales price and the cost of the credit which the retailer must himself ultimately bear.
36. Primback adds, in the alternative, that the amount of commission retained by the finance house would amount to a discount or a rebate on the price within the meaning of art. 11A(3)(b) of the Sixth Directive, which should therefore not be included in the taxable amount for determining the VAT payable by the retailer in respect of the supply of goods to the final consumer.
37. The arguments put forward by Primback cannot be upheld.
38. First, as follows clearly from para 16 of Bally ...., the relationships between seller and purchaser and between seller and finance house must be distinguished for the purposes of determining the basis for calculating VAT. Consequently, the fact that the supply of services by the finance house is, in principle, VAT-exempt has no bearing on the basis of assessment for the charging of VAT in respect of the transaction between seller and purchaser, which alone is in issue in the main proceedings.
39. For the same reason, Primback's alternative argument is irrelevant.
40. Second, with regard solely to the legal relationship betwen seller and purchaser, Primback cannot validly claim that, for purposes of determining the basis of assessment for VAT, one must break down the single price advertised and invoiced to the consumer, distinguishing between the portion relating to the value of the goods and the portion relating to the cost of the credit ultimately borne by the retailer.
41. According to the order for reference, where a customer makes use of the possibility of paying for goods purchased from Primback by way of interest-free credit, that customer receives from the seller an invoice stating the price of the goods as advertised in the store at the time of sale and concludes with a finance house a loan agreement for an amount equivalent to the cash sale price of the goods. The finance house undertakes to pay that amount directly to the seller, on the purchaser's behalf, in settlement of the price advertised and invoiced by that seller. The customer repays to the finance house only the amount of the loan.
42. It follows that, in the present case, the price agreed between the parties to the contract of sale and paid by the consumer was the same, irrespective of the means by which the purchase of the goods was financed, with the result that Primback cannot reasonably argue that the price advertised in fact contained a component representing the value of the credit (see, by way of analogy, [Kuwait] para 31)."
"47. Primback cannot validly argue that the provision of interest-free credit as such reduces the countervalue of the supply of the goods. On the contrary, the option given to customers to purchase on credit not only increases the volume of the retailer's sales, but also enables the retailer to avoid having to accept payment by instalments and guarantees him payment for the goods sold, with the result that, in consideration of this supply of services provided by the finance house, the seller accords to the latter a commission which reduces his profit margin. That commission constitutes for Primback a charge connected with its business in the same way as, for example, its costs in respect of financing, advertising or rent.
48. By calculating VAT on the total price advertised and invoiced by the seller, the commissioners are not therefore charging a taxable person such as Primback an amount of tax exceeding that ultimately borne by the final consumer (see Elida Gibbs ....). In contrast, if the tax authorities were able to charge VAT only on a fraction of the price invoiced to the purchaser and payable by him, as Primback argues, a portion of the advertised price of the goods sold to the final consumer would not be subject to tax, with the result that the principle of fiscal neutrality would be infringed."
B. National law:
"....but not anything done otherwise than for a consideration".
"(1) For the purposes of this Act, the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6, and for those purposes subsections (2) to (4) below have effect subject to that Schedule.
(2) If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration.
(3) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration.
(4) Where a supply of any goods or services is not the only matter to which consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.
(5) ...."
"5. Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount."
".... Schedule 4 [of the 1983 Act] is merely a valuation provision, and paragraph 6 [the immediate predecessor of paragraph 5 of Schedule 6 to the 1994 Act] needs to be read in its context as one of the provisions of that schedule designed to deal with distortions and anomalies. .... paragraph 6 is designed to avoid double taxation where a supply is capable of being subdivided into two separate transactions by reason of prepayment."
"Except in Granton Marketing, the statutory provision which now appears as Schedule 6, paragraph 5 of the 1994 Act has received very little attention either from the national court or in the Court of Justice."
"Schedule 6, para 5 is directed to a voucher 'granted for a consideration'. It does not apply to the sort of 'money-off' or 'cash-back' vouchers considered in many of the cases cited to this court. Its most obvious application is to the sort of 'savings stamp' schemes which were used, at times when credit was not so easy to obtain as it is today, to enable consumers to put money aside in order to obtain goods or services, at some future time, from a particular supplier. That would be a clear case of prepayment contemplated by art. 11A(1)(a) ('the consideration which has been or is to be obtained'). If such savings stamps were sold by the supplier at a discount, it would appear to fall within art. 11A(3)(b) ('price reductions by way of discount for early payment'). But Sch 6, para 5 must not be construed so widely as to distort the general scheme of VAT as a Community tax, and I think that this court was right, in Granton Marketing, to be aware of that danger."
"I cannot accept that submission. It is no doubt true that a customer who presents a '50p off' voucher at Boots probably does not know or care whether this represents a discount borne by Boots or a part-payment to Boots (because Boots can obtain reimbursement from the manufacturer). But it is not necessary for the customer to know that .... From the point of view of the retailer the distinction is of obvious economic and fiscal importance, as is illustrated by the different schemes considered in the Boots case. In that case the Court of Justice made clear that a voucher which was worthless in the retailer's hands was only 'an obligation to grant a reduction' that is a discount."
"33. In my view it is clear that the transaction under which the dealer provides to the customer both the replacement car and the three MOT vouchers ought to be treated for VAT purposes as a single transaction. .... But, even if I were to take a different view (which I do not) I would not think it right to differ from the tribunal on a finding which it made after considering the evidence before it and directing itself correctly in the light of the authorities.
34. Nevertheless, I agree with the judge that a decision that the transaction is to be treated as a single supply is not determinative of the question whether para 5 .... has any application. The single supply is plainly a supply of goods; and, if it were necessary to categorise that supply, it would take its character from the dominant or principal element the supply of the replacement car. But, as it seems to me, that does not lead to the conclusion that the goods supplied do not include the MOT vouchers. And so it remains necessary to consider whether the consideration for the single supply includes some separable element of consideration attributable to the vouchers. If it does, then that element of the consideration for the single supply must be disregarded except to the extent (if any) that it exceeds the amount of the face value of the vouchers. That is what para 5 .... requires.
35. In considering whether the MOT vouchers were supplied for consideration the tribunal asked itself whether, if Hartwell failed to honour the undertaking expressed in the vouchers (to provide an MOT test), the customer could enforce that undertaking. The tribunal thought that the customer could do so. In my view it was correct to reach that conclusion. But the conclusion that the undertaking to supply a service (the MOT test) in the future would be enforceable because that undertaking is supported by consideration, in the sense recognised by domestic law does not answer the question whether anything which has been obtained by the dealer (Hartwell) for the single composite supply (within which the supply of MOT vouchers is comprised) can be treated, for the purposes of art. 11A(1)(a) of the Sixth Directive, as a separate consideration for the supply of the vouchers. In my view the commissioners are correct in their contention .... that there is nothing which constitutes a separate consideration for the supply of the vouchers; and that no part of the consideration for the single composite supply can be attributed to the vouchers. ...."
PART 4. THE ISSUE
PART 5. THE TRIBUNAL'S DECISION
"52. The test can be restated for Clubcard Scheme In-store purchases. It is for this tribunal to determine whether, at the time of purchasing the Premium Goods In-store the Clubcard members and Tesco had agreed, directly or indirectly, that part of the price paid for the Premium Goods, whether identifiable or not, would constitute value given in return for the Clubcard vouchers. If the existence of such an agreement is the express and acknowledged view of both of the contracting parties, that is to say Tesco and its Clubcard holding customer, then the Premium Goods have been purchased for a consideration. If there is no such express and acknowledged view then the inquiry is to be answered objectively. We have to determine what the customer who drives to the store in a Ford Sierra and Tesco should be taken to have agreed at the time the Premium Goods were purchased. That determination depends upon the inferences to be drawn from all the circumstances surrounding the In-store purchases.
53. We do not believe that we have sufficient evidence of an express and acknowledged agreement on the part of both Tesco and the customer that part of the price paid at the till on the purchase of the Premium Goods is paid for the vouchers. The statement of entitlement to points on the till receipt is clearly an acknowledgement by Tesco of an entitlement to the vouchers. But the issues remain as to whether that entitlement was as the result of a gift, and, if not, whether it was agreed by both Tesco and the customer that part of the price was paid for the vouchers.
54. We are looking for a consensus. It is relevant what both Tesco and the Ford Sierra driver considered to be the agreement and the nature of the transaction. Was it a gift of a voucher? Or was part of the purchase price paid at the till paid for the right to receive vouchers? We have no difficulty in concluding that Tesco saw it as a right to receive vouchers the cost of which was borne partly out of the price paid at the till. There is no such thing as a free lunch. Tesco knew it had costs that must be covered to justify the Clubcard Scheme. While it might not have attributed the cost individually to each sale of Premium Goods, it was the prices received on those sales as a whole that it looked to to cover the costs. We have no doubt that Tesco considered itself bound to issue the vouchers in accordance with the terms of the Clubcard Scheme. Tesco considered itself both contractually bound by the purchase of the Premium Goods and as receiving consideration for that commitment from part, if an unidentified part, of the price paid at the till. We see no significance in the point made by Miss Whipple that the cost of the Clubcard Scheme can be looked at as overheads of Tesco. They are not a necessary cost for the sale of products at a store. They were introduced to improve or maintain turnover.
55. The real issue for us is whether we are satisfied that the Ford Sierra driving Clubcard member at the time of the purchase of Premium Goods at the till considered the vouchers to be a gift, or whether he or she considered that part of the purchase price paid at the till was paid for the right to receive the appropriate vouchers.
56. We have no hesitation in saying that we are satisfied that such a customer did consider that the price paid at the till was paid partly for the right to get the vouchers. We are satisfied that the vouchers were not considered to be simple gifts. In coming to that conclusion we take into account all the factors raised by Miss Whipple and set out in paragraph 32(d). What we find of overwhelming influence is the very high rate of redemption. Even if the first time the Ford Sierra driver uses his or her Clubcard, that is done with little thought to the future value of the vouchers, that cannot be the case after any reasonable length of time. The Clubcard member knows from experience that the Vouchers will come. The number of points promised is mentioned on the till receipt. A regular statement is received showing the number of points and vouchers that are due. The vouchers arrive. Trouble is taken to keep them. Trouble is taken to take them to a Tesco store. They are valued by the Clubcard members, or at any rate by Clubcard members holding 93% of the vouchers issued. If they are valued when used, it is simple to infer that they also become valued at the time the right to get them is obtained, that is to say at the time when the customer purchases the Premium Goods for a cash sum.
57. In short, it is difficult to believe that vouchers that are redeemed to the extent of 93% are looked on as mere gifts. It is not difficult to infer that the average Clubcard member realises that the value is part of what he is paying for at the time of purchase of the Premium Goods."
"64. For these reasons we conclude for the purposes of this decision in principle that the Appellants appeal succeeds in so far as it relates to vouchers obtained by Clubcard members from In-store purchases. Those vouchers are obtained for the purposes of paragraph 5 of Schedule 6 to the 1994 Act for a consideration. It is not relevant for the purposes of this decision in principle to attempt to identify the extent of that consideration, whether by reference to the face value of the vouchers, the price paid for the Premium Goods, the proportion redeemed or otherwise, that is to be disregarded in accordance with that paragraph. Nor are we asked at this stage to make any decision upon when any amount is to be 'disregarded'."
"65. We apply the same test for these vouchers. But that means focussing on what happened at the time when the Clubcard member purchases goods or services from a Third Party Supplier. Mr Cordara effectively asked us to focus on the payments by the Third Party Suppliers to Tesco. He submitted that part of their payments to Tesco was the consideration to be disregarded under paragraph 5 of Schedule 6. [Kuwait] is however clear authority for the proposition that we should, at least in the first instance, look at the point when the Clubcard member purchases the relevant goods or services from the Third Party Supplier.
66. Restating the test for vouchers issued in relation to purchases from Third Party Suppliers, we conclude that it is for this tribunal to determine whether, at the time of purchasing the Premium Goods from the Third Party Supplier the Clubcard members and Tesco had agreed, directly or indirectly, that part of the price paid for the Premium Goods, whether identifiable or not, would constitute value given in return for the Clubcard vouchers. Again in the same way we have to determine that question with the inferences to be drawn from all the circumstances surrounding the purchases from Third Party Suppliers.
67. We conclude that the same consensus exists. The Clubcard terms envisage the possible use of Clubcards with Third Party Suppliers. In its promotional material Tesco tells the members the names of the appropriate Third Party Suppliers. Once a Clubcard member has purchased goods or services from a Third Party Supplier Tesco is bound to the member to supply the vouchers to him or her. That is when the right to the points and vouchers accrues. It would make no difference if the Third Party Supplier for some reason failed to make the appropriate payment to Tesco. In the same way that Tesco knows that part of the price paid for In-store Premium Goods covers the cost of vouchers, so it must know and agree that part of the price paid for Premium Goods paid to a Third Party Supplier by the Cardclub member covers the cost to the Third Party Supplier of paying to Tesco an equivalent sum for the vouchers.
68. In the same way that the Clubcard member agrees that part of the price paid for In-store Premium Goods is paid for the right to receive vouchers, so will the member agree that part of the price paid to the Third Party Supplier is paid for the right to receive vouchers. The same very high redemption rate applies. We see no reason why the Clubcard member should look at his or her purchases of Premium Goods from Third Party Suppliers in any different way to the purchase of Premium goods In-store. He or she equally knows that they are entitled to the vouchers, that they will arrive from Tesco, that they will have the same value and consequently that part of what they are paying for is the vouchers.
69. It follows that we are satisfied that when the Clubcard member uses his or her Clubcard to purchase Premium Goods from a Third Party Supplier the resulting vouchers are obtained for a consideration. It makes no difference in our view that the consideration is paid by the Clubcard member to a third party. The payment remains clearly linked to the agreement between the member and Tesco created by the membership of the Clubcard Scheme. Under the terms of that agreement Tesco is equally as bound to supply the vouchers as it is when the purchase is In-store.
70. Citing Telemed, Mr Cordara submitted that the payments by the Third Party Supplier to Tesco were the consideration for the vouchers to be disregarded for the purposes of paragraph 5 of Schedule 6 to the 1994 Act. He submitted that the Third Party supplier (A) is paying Tesco (B) to make a supply of the vouchers to the Clubcard member (C). But that ignores the fact that Tesco is committed to the Clubcard member to provide the vouchers as soon as the Premium Goods are purchased. It would make no difference that the Third Party Supplier might fail to make payment. The relevant consideration is that that has already been paid to the Third Party Supplier. That has to be the consideration to be disregarded under provisions of paragraph 5 of Schedule 6. This is a situation that is much more akin to the conventional voucher, for which paragraph 5 of Schedule 6 was apparently introduced. The voucher is purchased from retailer A and redeemed against a supply by retailer B. Here, as must be common in such a conventional situation, the purchaser of the voucher does not know, and is not interested in, the arrangements between the trader who supplies the Premium Goods and the trader who supplies the Redemption Goods. He simply knows that by making the payment he will get the voucher, which is part of what he wants.
71. Mr Cordara, when he heard that this was how we were tending to treat purchases from Third Party Suppliers, suggested that the Third Party Suppliers had an ostensible authority to receive the payments for the vouchers from the Clubcard members. It might well be possible to structure the Clubcard Scheme so that the payments of consideration for the purchase of these Third Party Supplier Premium Goods are received by the recipients as agents for Tesco. But Tesco has expressly denied that that is what is happening. The relevant agreements all make it clear that there is no agency between Tesco and the Third Party Supplier. While it may be possible in many instances to ignore the specific and express terms of an agreement and to look at the true commercial effect and reality of the relationship entered into by a registered trader, we do not see that can be done in favour of the trader who has himself drawn up the relevant agreement and now seeks to set it aside.
72. It follows that we are satisfied that vouchers supplied for transactions with a Third Party Supplier are granted for a consideration, but, contrary to the submissions of Mr Cordara, we are also satisfied that the consideration for the purposes of paragraph 5 of Schedule 6 to the 1994 Act is that paid by the Clubcard member to the Third Party Supplier. That is the consideration to be disregarded from any DGT, and presumably by the Third Party Supplier."
"75. The first point to make is that we are not in this part of our decision concerned with normal vouchers obtained for the use of a TPF Visa card for In-store purchases from Tesco of Premium Goods, but with the additional vouchers obtained for every pound spent using the TPF Visa card as a credit card. Secondly we consider that in order to apply the test in [Kuwait] we need to focus on the time at which the TPF Visa card holder uses the card and on the payments made by the holder to TPF for its use. Again, as in the case of Third Party Suppliers, Mr Cordara asked us to focus on the payments made by TPF to Tesco. But that is not the time when the clubcard member acquires his right to the vouchers under the Clubcard Scheme. Again, as in the case of Third Party Suppliers, the card holder does not know, and is not interested in the terms of any agreement and any payments made between TPF and Tesco.
76. The same conclusion applies to vouchers granted for the use of a TPF Visa card as for vouchers used for purchases of Premium Goods from a Third Party Supplier. The arrangements may be somewhat more complicated. But we have no difficulty in inferring that the holder of a TPF voucher is soon as aware of the value of vouchers obtained in this way as in any other. Furthermore vouchers which come from Tesco for the use of the TPF Visa card specifically indicate their source on their face. These vouchers have the same very high rate of redemption. They are not regarded as a gift. The basic difference is that there is no clear agreement between Tesco and TPF governing their relationship. It is, therefore, perhaps more readily open to Tesco to say that the consideration received by TPF from the card holder by reason of the use of the card is received as agent for Tesco. There is no clear agreement to say that there is no agency. But we are not satisfied that TPF is receiving any consideration as agent for Tesco.
77. We are, therefore, satisfied that the vouchers obtained by Clubcard members from the use of TPF Visa cards are obtained for a consideration for the purposes of paragraph 5 of Schedule 6 of the 1994 Act, and that that consideration is part of the consideration that TPF receives from the card holder, and not any sum received by TPF from Tesco."
"78. That leaves open the 1% of vouchers issued for specific promotions agreed between Tesco and the suppliers of particular promoted products. We are not satisfied by the evidence we have that these should be treated in the same way as other vouchers issued for In-store purchases of Premium Goods. Admittedly they have the same high redemption rate. But that follows inevitably from the fact that the points are pooled when fixing the number of vouchers to be issued. It is not clear to us what inferences should be drawn in relation to the purchase of these goods. It is not clear the extent to which the Clubcard member considers or knows that he or she is buying these special vouchers when he purchase the relevant Premium Goods. And that, under the Kuwait Petroleum test is the time when we have to consider whether the vouchers are gifts or are supplied for a consideration. We cannot infer that the Clubcard member always knows, or generally should be taken to know, that the bonus vouchers will be available and we have no evidence to show that at that time the customer has any knowledge of any agreement between Tesco and its supplier."
PART 6. THE JUDGE'S JUDGMENT
"12. A voucher scheme such as the basic Clubcard scheme gives rise to actual or potential VAT consequences at two separate stages. The first is that at which the vouchers are issued. This is the stage at which the customer acquires the goods or services which entitle him to the vouchers. (I ignore the fact that, under the Tesco scheme, when goods are purchased what the customer is given is points which are only subsequently converted into vouchers. This is a matter to which I shall return, but for reasons I explain later I equate the award of points with the issue of vouchers). The goods supplied at this stage are conventionally referred to as "premium goods".
13. The question which arises at this first stage is whether the retailer issuing the vouchers incurs a "cost" and, if so, whether he is entitled to deduct that cost when calculating the amount of VAT payable by him. Assuming a retailer all of whose supplies are of goods subject to VAT and who has takings of £100 but issues vouchers to the value of £5 redeemable against future purchases, is the VAT payable to be calculated on the basis that the value of the supplies made was £100 or on the basis that it was £95?
14. The second stage at which VAT has a potential impact is that at which the vouchers are redeemed by being applied in payment for goods (conventionally referred to as "redemption goods") supplied at that stage. Is the retailer obliged to account for VAT at that stage on the basis that the supplies made have a value equal to the full price of the redemption goods, or is that value reduced to the extent that the price of the redemption goods is satisfied by the tendering of vouchers? If the retailer supplies redemption goods to the value of £100 but accepts payment to the extent of £5 in the form of vouchers previously issued by him, must he account for VAT at that stage on the footing that he has made supplies to the value of £100 or only £95?
15. If the answer to these questions is that the retailer must account at each stage for VAT on £100 this will result in double taxation. This can be seen most clearly if one takes the example of a record token, which is a form of voucher. If a customer purchases a £10 record token from a retailer the retailer will, in a sense, have supplied goods to the value of £10. But record tokens are usually purchased as gifts and are likely to be redeemed by the recipient of the gift in payment for the purchase of a record from a retailer other than the one supplying the token. Is the retailer supplying the token liable for VAT on the value of the token, even though he will presumably have to account for its cost to the clearing house which issues the token? As for the retailer who supplies a record in return for the token, has he made a supply of no value or a supply worth the £10 which he can doubtless recover from the clearing house? If the retailer supplying the token is accountable for VAT on the money paid for the token and the retailer supplying the record is liable for VAT on the price of the record the same £10 will have suffered VAT twice."
"30. I do not accept this argument. It is true, of course, that a voucher gives the right to satisfy, pro tanto, a liability to pay for goods or services, while a point by itself gives no such right. But the only significance of a point is that, when aggregated with other points, it will automatically be converted into a voucher. Every point credited to a customer will, in time, be converted in this way. Thus so long as the present conversion rate of a penny a point is maintained, each point carries with it an entitlement, in due course, to one-hundredth of a £1 voucher."
"32. If the question whether Clubcard vouchers are granted for consideration were governed by the concepts of English domestic law there would, I think, be no doubt that it must be answered in the affirmative. Tesco invites customers to join its Clubcard scheme and offers them in return benefits in the form of vouchers. Each customer provides consideration, in the domestic law sense, by providing the information which is required before membership is accepted (which is or may be of value to Tesco in that it facilitates Tesco's analysis of the spending habits of particular customers) and subsequently by purchasing goods on the footing that the promised benefits will be forthcoming. There is therefore an enforceable contract between Tesco and each Clubcard holder. Under this contract Tesco is obliged to award or allocate points to each customer in accordance with the rules of the scheme and the amounts spent by the customer. If Tesco were to decline to credit points to a customer who tenders his Clubcard when paying for goods or if it were to refuse to redeem a voucher at its face value in accordance with the scheme, the customer would clearly be entitled to sue for damages for breach of contract.
33. As I understood the argument, the Commissioners accepted this analysis as a matter of domestic law. But both parties accepted that for the purpose of VAT law the term "consideration" has an autonomous meaning determined in accordance with European community, not domestic, law. The point on which they differed was the nature of this autonomous meaning. On behalf of Tesco Mr. Cordara submitted that if there is consideration in the domestic law sense there must equally, or even more strongly, be consideration in the community law sense. Community law is based on continental law in which the doctrine of consideration, as understood in England, has no part. That doctrine is, however, strictly applied in English domestic law. It would be surprising, Mr. Cordara submitted, if community law requires a narrower meaning to be given to the term 'consideration' in community law than that given by English law. Mr. Vajda, on the other hand, declined to consider which meaning is the narrower. His submission was simply that the authorities show that vouchers of the kind issued pursuant to the Clubcard scheme cannot be regarded as 'granted for a consideration'. I must therefore examine the principal authorities."
"44. The decision in Boots may be thought to have little bearing on the present case, because the issue in Boots was the amount of the consideration received on the supply of the redemption goods. In the present case the question is whether the points issued at the time of supply of the premium goods are "granted for a consideration". It is accepted that the word "consideration" must be given the same meaning in each case. But the exclusion of a discount from the consideration received on the supply of goods at the redemption stage does not obviously provide an answer to the question whether, at the stage when the premium goods are supplied, the obligation to give a discount is assumed for consideration. However I find it difficult to see why, on the authority of Boots, the credit against the purchase price of the redemption goods which is allowed by Tesco when Clubcard vouchers are redeemed is not a "discount" deductible in calculating the consideration received for the redemption goods. If this is right and Tesco is also right in its argument that it can deduct the "cost" of the points in calculating its liability for VAT on the sale of the premium goods, Tesco will be entitled to two allowances in respect of the same item. It does not seem to be likely that this should be so, for paragraph 5 of schedule 6 is clearly intended to prevent double taxation, not to provide double allowances. Nor does it seem acceptable that Tesco should be able to choose which allowance to claim. These aspects of the matter were not, however, explored in argument before me."
"76. In stating my conclusions on these appeals I will deal separately with (a) the basic Clubcard scheme; (b) the third party retailers scheme; (c) the TPF scheme; and (d) the special promotions scheme.
(a) The Basic Clubcard scheme
77. In my judgment the Tribunal asked itself the right question in respect of the basic Clubcard scheme. But I have reached the conclusion that it gave the wrong answer to that question. I do not accept that, at the time of purchasing premium goods in-store, Tesco, and the Clubcard member making the purchase, can be regarded as having agreed that part of the price paid would constitute value given in return for the Clubcard vouchers issued in respect of the points earned on that occasion.
78. I accept that, for reasons which I have already given, there is a contract between Tesco and the Clubcard member under which Tesco is obliged to allocate points and subsequently to convert them into vouchers. But, in my judgment, the Tribunal has failed to analyse correctly the "legal and economic characteristics" (to use the expression adopted by the ECJ in [Boots]) of the points and vouchers. In my view the analysis applied by the Advocate General and the ECJ to the coupons which were issued in [Boots] applies equally to the points and vouchers issued under the Clubcard scheme. The essence of the matter is not that the customer is buying points or vouchers from Tesco but that, as an inducement to the customer to make a subsequent purchase, Tesco is accepting an obligation to allow the Clubcard member who is issued with the vouchers a reduction at the time of the subsequent purchase of redemption goods.
79. The main consideration which has guided me to this conclusion is that, at the stage of the sale of the premium goods, the price charged to Clubcard members who produce their cards is the same as that charged to customers who are not Clubcard members. This was one of the two decisive considerations in [Kuwait] and was also of critical importance in [Primback].
80. Another way of examining what is, I think, essentially the same point is to ask whether the cost of the Clubcard scheme is borne by Tesco itself or by the Clubcard members. It seems to me that the answer to this question must be that the burden is borne by Tesco. What Tesco promises to its Clubcard members is that if they buy goods at the same price as other customers and tender their Clubcard at the time of purchase Tesco will, at its own expense, allow a discount on the subsequent purchase of other goods. It is of significance, in my view, that at the stage of purchasing the premium goods the customer has no choice but to pay the full price. He cannot choose to forego the points and pay a reduced price.
81. In my view the VAT invoice point which weighed with the ECJ in [Kuwait] probably also has its counterpart in the present case. There was no evidence as to the way in which Tesco expresses any VAT invoices which it issues to customers and it may be that it seldom has occasion to issue such invoices. But if Tesco were to issue a VAT invoice at the stage of the purchase of premium goods the only proper basis on which such an invoice could be prepared would, it appears to me, be one which records the whole of the price paid by the customer as being paid for the goods.
82. The factor which was considered by the Tribunal to be of overwhelming importance was the high rate of redemption of Clubcard vouchers. But I find it difficult to see why this should be of significance. Redemption occurs subsequently to the allocation of points, which is the stage at which the Tribunal was looking for the consensus which it referred to. A new Clubcard member making his first purchase in respect of which points are allocated would not, I think, be affected by the fact that a high proportion of vouchers issued to other Clubcard members are redeemed. He probably considers that it is worthwhile participating in the Clubcard scheme, for if he did not he would not have become a member. But it does not follow that he regards himself as buying points as well as goods when he makes a purchase, still less that part of the price which he pays is attributable to the points.
83. In my judgment the Tribunal was wrong in its conclusion that [Boots] did not provide guidance because it was not clear that the ECJ would have taken the same view of the economics if it had been shown that Boots could have assumed at the time of the supply of the coupons that almost all the coupons would be redeemed (Decision paragraph 60). To my mind the actual or anticipated rate of redemption is irrelevant to the analysis of the legal and economic characteristics of coupons or vouchers. If it were relevant then what would be the position if a scheme launched with an expectation of a low rate of redemption resulted in a high rate or in the converse situation where a high rate of redemption is expected but not realised? I cannot see how the analysis of the legal and economic characteristics of a coupon or voucher can be affected by such considerations.
(b) The third party retailer scheme
84. The effect of the third party retailer scheme is that Tesco agrees with the third party to provide to customers of the third party a benefit, in the form of a discount on future purchases from Tesco. The third party agrees to pay to Tesco the amount of the discount and, in one form or other, an administration charge. The question which has to be considered is whether the points and vouchers which evidence the customer's entitlement to the discount are granted for consideration.
85. In the light of my conclusion in respect of the basic Clubcard scheme, no part of the price paid by the customer to the third party can be regarded as the necessary consideration. That consideration must be found, if it is to be found at all, in the payment made by the third party to Tesco.
86. I confess that I have not found it easy to decide whether or not consideration can be found in this way. In the end, however, I have concluded that it cannot. My main reason for this conclusion is that the points and vouchers are supplied not to the third party retailer but to that retailer's customer. This leads me to the view that what is granted for the consideration moving from the third party is not a "token stamp or voucher" within paragraph 5 of schedule 6 but a service provided by Tesco to the third party in the form of participation in a promotional scheme which will assist the third party to increase its turnover. I consider, therefore, that the payments made by the third party are not such consideration as is referred to in paragraph 5 of schedule 6.
87. I am fortified in this conclusion by two further matters. The first is that the position is similar to that which existed in Boots in cases where the cost of the promotion was borne wholly or partly by the manufacturer of the goods to which the coupon related. As to this the situation is described as follows in paragraph 12 of the report of the Judge Rapporteur (see [1990] STC at page 389):
'In its appeal ... to the High Court, Boots did not dispute that it was liable to account for the value added tax in respect of any receipt from a manufacturer representing reimbursement, in exchange for coupons sent to it by Boots, of the cost of the promotion when that cost is borne, under the terms of the contract between them, wholly or partly by the manufacturer.'
I find nothing in [Boots] to suggest that this concession was wrongly made. It must, I think, have been founded upon an analysis similar to that which I have made.
88. The second matter is the anomalous and complex situation which would exist if points and vouchers attributable to purchases from third party retailers had to be treated differently from points and vouchers attributable to in-store purchases. The practical difficulties are perhaps less acute at the stage of allotment of the points, because it should be possible to ascertain what payments have been received from third parties in reimbursement of the face value of the points. It will nevertheless be anomalous that points attributable to in-store purchases have to be treated differently from points attributable to purchases from third parties. At the redemption stage the problems intensify. Is Tesco entitled to deduct, for the purposes of its VAT computation, the value of vouchers derived from points earned in respect of each type of purchase? If so, Tesco will obtain a double allowance for a single item of cost. If not, what is the basis for this distinction and how is it to be applied in practice? In my judgment an interpretation of paragraph 5 of schedule 6 which does not give rise to these problems is to be preferred to that urged on me on behalf of Tesco.
(c) The [TPF scheme]
89. There are two parts of this scheme to be considered. The first relates to the points awarded by the treatment of the TPF Visa card as a Clubcard. The second relates to the points awarded as the result of the agreement of Tesco to give extra points for the use of the TPF Visa card as such, in preference to a rival credit card or cash.
90. As to the first, the position is, in my view, indistinguishable from the basic Clubcard scheme. It seems that the Tribunal itself took this view, although its conclusion as to the result was the opposite of my own (see paragraph 75 of the decision where the Tribunal said, "we are not ... concerned with normal vouchers obtained for the use of a TPF Visa card for in-store purchases").
91. As to the second I agree with the Tribunal that the same conclusion applies to vouchers granted for the use of a TPF Visa card as for vouchers issued (the Tribunal said "used", but I think this must be a mistake) for purchases of premium goods from a third party retailer (Decision paragraph 76). My reasons for arriving at this conclusion are rather different from those of the Tribunal, but the conclusion itself is the same.
(d) [Special promotions]
92. I do not consider that the case in relation to this scheme can be disposed of in the way that the Tribunal decided (see paragraph 75 above) although I arrive at the same result as the Tribunal. In my view the position under this scheme is the same as that in relation to the reimbursement of the value of points by third party retailers (see paragraphs 84 to 88 above) or by TPF (see paragraphs 89-91). In my judgment a supplier who reimburses Tesco in respect of the nominal value of points allocated on a special promotion of that supplier's goods is paying not for points or vouchers but for the provision of promotional services and paragraph 5 of schedule 6 does not apply."
PART 7. THE BATTLE LINES ON THIS APPEAL
PART 8. THE ARGUMENTS
Mr Cordara QC's submissions on behalf of Tesco
Mr Vajda's submissions on behalf of the Commissioners
".... the only significance of a point is that, when aggregated with other points, it will automatically be converted into a voucher". (Emphasis supplied.)
PART 9 : CONCLUSIONS
The Edwards v. Bairstow point
" to examine the determination having regard to its knowledge of the relevant law."
"If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been an error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination, or as one in which the true and only reasonable conclusion contradicts the determination."
The general approach to analysing the Clubcard scheme
1. The resolution of the issue as to the application of paragraph 5 in the instant case depends upon the legal effect of the Clubcard scheme, considered in relation to the words of the paragraph (British Railways Bd. esp. at 223g per Lord Denning MR: see para 34 above).
2. In considering its legal effect, the entire scheme must be examined (what is the 'entire scheme' for this purpose being objectively determined by reference to the terms agreed) (Pippa Dee esp. at 501j per Ralph Gibson J: see para 33 above).
3. The terms contractually agreed may not be determinative as to the true nature and effect of the scheme (Reed, see paras 36 to 38 above): it is necessary to go behind the strictly contractual position and to consider what is the economic purpose of the scheme, that is to say "the precise way in which performance satisfies the interests of the parties" (the Advocate-General's opinion in Mirror Group, para 27: see para 41 above).
4. Economic purpose is not the same as economic effect. The fact that two transactions have the same economic effect does not necessarily mean that they are to be treated in the same way for VAT purposes (Littlewoods esp. at para 84 per Chadwick LJ: see para 42 above).
5. Equally, the economic purpose of a contract (what the Advocate-General in Mirror Group called the 'cause' of a contract: see para 27 of his opinion) is not to be confused with the subjective reasons which may have led the parties to enter into it (in so far as those subjective reasons are not obviously evident from its terms) (see ibid. para 28). The Advocate-General went on to observe (an observation which seems to me to be particularly apt in the context of the Tribunal's Decision in the instant case):
".... failure to distinguish between the cause of a contract and the motivation of the parties has been the source of misunderstandings, .... and has complicated the task of categorising the contracts at issue."
The points/vouchers issue
The 'consideration' issue
(i) The basic scheme
(ii) The third party schemes
PART 10: RESULT
Lord Justice Latham :
Lord Justice Schiemann :
