VATSC06690 - Consideration: Change in consideration: Briefs and Information sheets: Business Brief 25/96: 6 December 1996
Business Brief 25/96
European Court Judgments affect Business Promotion Schemes
The European Court of Justice released two judgments, Elida Gibbs Ltd and Argos Distributors Ltd on 24 October which will affect Customs & Excise’s policy on business promotion schemes. This business brief outlines the effects of the two cases and how businesses in a similar position can recover overpaid VAT as a result of the rulings.
Elida Gibbs Ltd v C & E Comrs (Case C-317/94) [1996] STC 1387, ECJ
Manufacturers—If you are a manufacturer and have been operating money-off coupon schemes or cashback schemes you may be eligible for a VAT refund. You will have to demonstrate that payments are made to the retailers and consumers in the transaction chain and that the payments relate directly to successfully redeemed coupons following a retail sale of the goods.
Retailers—Customs & Excise do not consider that this decision alters the amount of tax due from retailers participating in money-off coupon or cashback schemes. Following from the court’s reasoning in establishing the value of Elida Gibb’s supplies, it is clear that for the retailers’ position to remain fiscally neutral, no adjustments should be made to the value of either their inputs or their outputs.
It is clear from the judgment that retailers must account for output tax in respect of payments from manufacturers as well as the money paid by customers. However, if a VAT registered customer requests a tax invoice in respect of purchases made using money-off vouchers, this should be based on only the amount paid by the customer. This achieves fiscal neutrality as required by the judgment.
There is a similar case to that of Elida Gibbs, involving Conoco Ltd, awaiting a hearing date at the ECJ. In the long term, the VAT position of manufacturers’ money-off and cashback schemes will have to be viewed in the light of both of these cases. Businesses using money-off and cashback schemes should be aware that Customs & Excise will further review its position once the Conoco case has been concluded.
Argos Distributors Ltd v C & E Comrs (case C-288/94) [1996] STC 1359, ECJ
If, as part of your business, you supply goods or services in return for face value vouchers that have been previously sold by you and you will not be reimbursed by a third party, you will be able to claim a repayment of VAT if you can satisfy all the following conditions.
You must have accounted for VAT on the full face value of the vouchers in the past. You must be able to demonstrate that vouchers included in your claim were sold at less than face value. You must be able to substantiate the sale price of the vouchers at the time of their redemption.
A key element in the Argos decision was that the supplier had to be able to show the price at which vouchers had been sold at the time they were redeemed for goods. When the customer is a VAT registered business, the VAT invoice must therefore show the VAT due upon the actual sale price of the redeemed vouchers.
Businesses presently unable to meet these requirements will be allowed the period between the issue of this business brief and 30 June 1997 to modify their accounting arrangements so that —
- the price at which vouchers were sold can be identified at the time of their redemption; and
- accurate VAT invoices can be issued at the time of redemption.
After that date, where these conditions remain unfulfilled, VAT will have to be accounted for upon the full face-value of the vouchers as before.
Businesses should also note that where vouchers are redeemed by VAT registered businesses and VAT invoices issued as above, these must be accounted for outside any retail scheme being used; if a retail scheme based on expected selling prices is used these must be adjusted to reflect discounts given in respect of all redeemed vouchers sold below face value.
Next year Customs & Excise intend to review the arrangements under which VAT is not charged on face value vouchers at point of sale. Businesses will be consulted on the review.