The Court of Appeal allowed an appeal by HM Revenue and Customs and reinstated a decision of the VAT tribunal that the transfer of a voucher by the taxpayer fuel company to a redeeming customer under a sales promotion scheme did not operate to reduce the consideration obtained by the taxpayer in respect of its supplies of fuel. Thus there could be no reduction in the amount by reference to which output tax was payable.

Facts

The taxpayer operated a customer loyalty scheme (known as ‘TOPS’). Purchasers of road fuel who were scheme members were awarded points and the points were redeemable for gift vouchers issued by retailers. The vouchers were purchased in bulk by the taxpayer at discount rates. A dispute arose concerning the value of the taxable supply made by the taxpayer. The Revenue rejected a claim by the taxpayer for the repayment of £1.6m overpaid output tax. The taxpayer took the view that the cost of providing face-value vouchers in the course of operating the scheme constituted a retrospective discount given to customers and reduced the taxable amount in accordance with art. 11(C)(1) of Council Directive 77/388 (the sixth directive).

Customs argued that there was no relevant relationship between the supply of vouchers and the consideration received by the taxpayer for the sale of road fuel. They considered that the supply of vouchers could not serve to reduce the original consideration provided by the customer for the fuel.

The VAT tribunal dismissed an appeal by the taxpayer ([2006] BVC 4,070; Decision No. 19,502) holding that the cost incurred by the taxpayer on the voucher to enable it to redeem TOPS points did not operate as a reduction in the price paid by the customer. Regardless of how the transfer of the voucher to the customer was characterised, it did not change the fact that the consideration obtained for the fuel remained the sum charged to the customer at the time of purchase. There was no relationship between the two supply chains, namely the sale of road fuel to the customer and the chain of supply commencing with the retailer's sale of a gift voucher for the taxpayer to use in the redemption process. Accordingly, the taxpayer's reliance on Elida Gibbs Ltd v C & E Commrs (Case C-317/94) [1996] BTC 5,513; [1996] ECR I-5339 was misplaced. The tribunal agreed with the opinion of the Advocate General in Kuwait Petroleum (GB) Ltd v C & E Commrs (Case C-48/97) [1999] BTC 5,203; [1999] ECR I-2323 that it was not possible to treat as a single economic transaction a series of events consisting of two distinct transactions: the sale of fuel coupled with the supply of stamps and the subsequent redemption of goods for those stamps.

The High Court allowed the taxpayer's appeal ([2006] BTC 5,706) on the basis that the case was covered by Elida Gibbs, which was authority for the proposition that where a trader supplied goods or services for a stated consideration, but under a sales promotion scheme was obliged to pay an amount away to the ultimate consumer or to an intermediary in the chain of supply, the consideration upon which the trader should be finally liable to VAT was reduced by the amount so paid away. Customs appealed to the Court of Appeal.

Issue

Whether the output tax payable on the fuel should be reduced by amounts equal to the costs incurred in purchasing the vouchers.

Decision

Richards LJ (Mummery and Maurice Kay L JJ agreeing) (allowing the appeal and reinstating the tribunal decision) said that the transfer of a voucher by the taxpayer to a customer redeeming his points under TOPS did not operate to reduce the consideration obtained by the taxpayer in respect of its supplies of fuel. To treat the transfer of the voucher as the grant of a retrospective discount or rebate on the price of fuel under art. 11(C)(1) of the sixth directive was to mischaracterise it. Nothing in the authorities supported such an approach.

It was important that the scheme's documentation did not describe the transfer of a voucher as a discount or rebate on the price of fuel. The earning of TOPS points and thereby of vouchers by the purchase of fuel was presented to customers as a means of obtaining extra goods or services from the selected retailers or the opportunity to make gifts to recognised charities. The focus was on the acquisition of something extra through participation in the scheme. There was no suggestion that the voucher constituted money-off or cash-back in respect of the purchases of fuel by which the points had been earned, or that the customer in some way paid less than the full price of the fuel purchased. That was underlined by the existence of multi-card TOPS accounts, where qualifying purchases of fuel could be made by family, friends or colleagues but it was only the primary cardholder who was entitled to redeem the TOPS points for vouchers. It was apparent from the judgment of the Court of Appeal in Tesco plc v C & E Commrs [2003] BTC 5,608 and in Lex Services plc v C & E Commrs [2003] BTC 5,658 that an objective analysis was called for, without regard to the parties’ subjective intentions or motivation, and that the scheme documentation should play an important part in the analysis. Moreover the ECJ in Kuwait Petroleum relied on how the redemption goods were described in the sales promotion scheme in determining whether there was a disposal of them free of charge or a supply for consideration. It was therefore in line with the authorities to attach importance to the TOPS documentation.

Tesco also made clear that regard should be had to the economic purpose of the scheme. TOPS was a customer loyalty scheme, the purpose of which was to promote sales of the taxpayer's fuel by encouraging motorists to come back for repeat purchases. The reality was that the customer paid the full pump price for the fuel whether or not he was a member of TOPS and whether or not, if a member of TOPS, he earned sufficient points under the scheme to qualify for a voucher. The customer who received a voucher did not thereby receive a discount on the price of the qualifying purchases of fuel, but got something extra for the price he paid for the fuel.

TOPS was a scheme under which the customer got more at the same price rather than the same at a lesser price, EC Commission v Germany (Case C-427/98) [2003] BTC 5,149; [2002] ECR I-8315 considered. The voucher only had value if spent on the acquisition of something else; and it is difficult to see how it could be said to be a retrospective discount on past purchases of fuel. Such a voucher was materially different in its nature from a monetary refund or rebate of part of the price paid for fuel, Elida Gibbs distinguished. Nothing in that case required TOPS to be treated as a price discount scheme if, on proper analysis by reference to its particular facts, it was not otherwise a price discount scheme; and if it was not a price discount scheme, nothing in the judgment required the value of the voucher to be treated as a reduction in the consideration obtained by the taxpayer. The ECJ's judgment did not contain or apply the wider principle formulated by the judge.

The supply of fuel and the transfer of a voucher could not be said to be a single economic transaction. They were, or formed part of, separate transactions, in the same way as the supply of fuel and the supply of redemption goods were held in Kuwait Petroleum to be separate transactions. It was difficult to see how the transfer of the voucher, if it was or formed part of one transaction, could amount to a reduction in the consideration paid for the fuel in a different transaction. To say that there were two different chains of supply, one relating to the fuel and the other to the vouchers, with no relevant linkage, was to express essentially the same point in a different way.

The fact that the taxpayer incurred a cost in purchasing the vouchers did not affect the resolution of the present issue. The situation was analogous to the incurring of a cost by the supplier in C & E Commrs v Primback Ltd (Case C-34/99) [2001] BTC 5,240; [2001] ECR I-3833. The incurring of such costs in order to promote sales of fuel is very different from obtaining a reduced consideration for the fuel itself. No reference for a preliminary ruling by the ECJ was called for in this case.

Court of Appeal (Civil Division).
Judgment delivered 18 October 2007.