VATVAL05700 - Non-monetary consideration: reward goods sold for less than their cost to the supplier
An interesting variation on the “usual” non-monetary consideration situation came to light in the wake of traders making claims for repayment following the European Court’s decision in Empire Stores. It arose specifically in relation to tupperware traders. Under tupperware company arrangements, there is a pyramid structure. “Tupperware co” sells goods (often at a reduced price) to “distributors”. The “distributors” sell these items, to “demonstrators” below the price which they have paid for those goods. The demonstrators use the goods as “rewards” for hostesses that have held parties at which Tupperware’s goods have been displayed and sold. The slightly unusual factor here is that because of the scale of the operation most of the distributors (and possibly some demonstrators) are registered for VAT. Most of the cases seen by HQ have concerned distributors alleging that they are only required to account for VAT upon the amount of money received from demonstrators for the reward goods.
Essentially, there is a chain of transactions involving non-monetary consideration which you should approach as follows:
- First you must satisfy yourself that non-monetary consideration is in fact present in each transaction level. You can establish this by asking whether:
- The distributors provided services to Tupperware co?
- The demonstrators provided services to the “distributors”?
- The hostesses provided services to the demonstrators?
- Secondly, you must establish whether or not the reward goods supplied in return for that non-monetary consideration were otherwise available to the provider of the service at a higher monetary payment. If they are, then using Naturally Yours principles, they should be valued by reference to that monetary value.
- Thirdly, which will probably be the case, if the goods are not otherwise available at a wholly monetary amount then Empire Stores principles demand that the appropriate value of the non-monetary consideration will be the cost incurred by the supplier of the reward goods. Consequently, the distributors will be required to account for VAT on the payments actually received from the demonstrators (the value of the monetary part of the consideration) and on the difference between the money received and the total cost incurred by the distributors when purchasing those goods (the value of the non-monetary part of the consideration). The two values taken together will equal the cost price paid by the distributors.