Whether certain supplies of food or meals prepared for immediate consumption constitute supplies of goods subject to the reduced rate of value added tax (VAT) provided for by German law as ‘foodstuffs’

The judgment delivered by the ECJ resulted from references in four sets of proceedings for preliminary rulings concerning the interpretation of Articles 2, 5(1) and 6(1) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes (Common system of Value Added Tax (VAT)) and the term ‘foodstuffs’ in category 1 of Annex H to that directive.

The cases referred to for preliminary ruling were as follows:–

Case 1

Mr Bog sold drinks and food prepared for consumption (in particular, sausages and chips) from three identical mobile snack bars at weekly markets. The mobile snack bars were equipped with a sales counter with a glass splashguard, below and around which ran a board made from a material sold which could be used for the consumption of food on the spot. To the sides of the vehicle, above the drawbar, there was a folding ‘tongue’, which was in the form of a table at the same height and from the same material as the ‘board’ running round the vehicle. The area where customers could consume the food was protected from the rain by a folding roof.

Mr Bog had declared turnover from the sale of his food was subject to the reduced rate. In a special turnover tax check, the inspector found that Mr Bog's customers generally consumed the goods on the spot. The tax authorities therefore issued an amended turnover tax assessment for 2004 to which Mr Bog lodged an objection to that decision.

The German court took the view that, in order to distinguish between supplies of food subject to the standard rate of VAT and those subject to the reduced rate, the decisive factor was whether the elements of supply of services qualitatively predominated. In this case it was the court's view that the supplies were supplies of goods, because, apart from the preparation of the food, the applicant had only provided covered areas at his mobile snack bars where food could be served and bins were placed.

Other elements of supply of services which characterised the overall impression on visiting a restaurant of the services offered by the operator (such as service, seating, enclosed rooms at an appropriate temperature and appropriate open-air facilities for consumption, the presence of cloakrooms and lavatories), by contrast, were absent.

The tax authorities appealed on a point of law arguing that the supplies of food had been combined with services which went beyond mere selling.

The Court held that the process of preparing food or meals at a time specified by the customer had been taken into account as an essential element of supply of services which, in conjunction with an additional service element such as, in the present case, the provision of tables to stand at or other facilities for immediate consumption, allowed the conclusion that services were qualitatively predominant.

In the light of recent developments in European Union law on VAT, however, the German Court was uncertain whether the preparation of food or meals intended for immediate consumption did not itself characterise the transaction, so that it was immaterial whether other services were added.

In those circumstances the German Court decided to stay the proceedings and to refer several questions to the Court for a preliminary ruling.

Case 2

CinemaxX operated cinemas in various locations in Germany. In the foyers of those cinemas, cinema-goers can buy, besides sweets and drinks, portions of popcorn and tortilla chips (nachos) in various sizes.

There are no counters for consumption at the sales stands themselves, but in some cinema foyers there are varying numbers of tables to stand at, bar stools, and sometimes benches, chairs, tables, and counters along the walls.

Popcorn is produced by filling certain proportions of miscellaneous ingredients into a popcorn machine in which the ingredients are heated. Part of the product is then immediately put in heated containers at the sales counters and the remaining product stored in large bags or tubs and then put into the heated containers when required. The tortilla chips are generally ordered from suppliers in packages and are also put in a heated container, in which they are kept lukewarm. Various sauces (dips) are offered with them.

In its turnover tax declaration for June 2005, CinemaxX declared the turnover from the sale of popcorn and tortilla chips was subject to the reduced rate of VAT. The tax authorities contested the tax declaration and issued an assessment in which that turnover was subject to the standard rate.

The German court considered that the transactions in question were not supplies of goods but supplies of services within the meaning of German tax legislation because CinemaxX did not sell foodstuffs to be taken away but food to be consumed on the spot.

CinemaxX appealed on a point of law submitting that, where food or meals are supplied, there was a restaurant transaction subject to the standard rate of VAT only where the element of supply of services was predominant. Keeping the popcorn and tortilla chips warm was not material because this involved merely the appropriate storage of foodstuffs and/or the maintenance of an optimum temperature for sale.

The tables for standing at, bar stools and other furnishings were not intended for the consumption of the popcorn and tortilla chips, because the cinema-goers overwhelmingly consumed those foodstuffs in the auditorium, not in the foyer. Moreover, CinemaxX's supplies did not differ from those made by supermarkets or kiosks in connection with the sale of food. In the view of the average cinema-goer, the sale was merely supplementary to the visit to the cinema.

The German court decided to stay the proceedings and to refer several questions to the Court for a preliminary ruling.

Case 3

Mr Lohmeyer operated several snack stalls and a swinging grill from which he sold food ready for consumption (fried sausages, sausages in curry sauce, hot dogs, chips, steaks, pork belly, skewered meat, and spare ribs). He declared his entire turnover from the sale of food as turnover subject to the reduced rate of VAT.

The tax authorities established, however, that the stalls had counters, and considered that these were special facilities made available for the consumption of food on the spot, with the result that the transactions in question were in principle subject to the standard rate of VAT. Accordingly amended tax assessments were issued and Mr Lohmeyer's complaints and action contesting those assessments were unsuccessful. He appealed on a point of law to the Bundesfinanzhof, submitting essentially that a counter at a snack stall did not constitute infrastructure for the purposes of the Court's case-law.

The court had held in a previous judgment that the process of preparing food or meals at a time determined by each customer constituted an essential service element. However, in the light of criticism of that case-law, the court considered that it was not sufficiently certain that the preparation of food at a specified time was to be regarded as an essential element which, either by itself or together with a not insubstantial additional service at the time of the supply to the customer, led to the conclusion that overall there was a supply of services.

In those circumstances, the court decided to stay the proceedings and to refer several questions to the Court for a preliminary ruling.

Case 4

Fleischerei Nier was a limited partnership which operated a butcher's shop and a party catering service. The food which was ordered from the catering service was supplied hot in closed containers, while crockery, cutlery, tables for standing at and staff were also made available, according to the customers’ wishes.

In its invoices the partnership applied the standard rate of VAT to the charges for the provision of cutlery, crockery, tables for standing at and staff and the reduced rate of VAT to the charges for the food.

The tax authorities, however, considered that the supplies of food should also be subjected to the standard rate of VAT to the extent that they were combined with the provision of crockery, cutlery, tables or staff, and accordingly issued an amended tax assessment.

In the complaint procedure, the parties reached agreement that the charges for the supply of food were to be subject to the standard rate of VAT in cases where serving staff were also provided. The complaint and the action against the amended assessment were unsuccessful.

The court considered that a party catering business performed for its customers a single supply, not several independent principal supplies, irrespective of whether the customer, in addition to the food, made use of one or more of the optional ancillary services offered, such as cutlery, crockery, tables for standing at or staff.

According to that court, it was necessary to clarify whether it was consistent with European Union law, when classifying the single supply of a party catering business, to regard the process of preparation of the food from various foodstuffs as an element of supply of services.

The court considered that criteria that worked in practice ought to be developed in order to achieve predictable results in the classification of those supplies and to ensure legal certainty for the operators concerned. There was no doubt that the single supply should always be classified as a supply of services where serving staff were provided, while the other services in consideration should not be regarded as characteristic or dominant where their actual total cost was well below the actual cost of the food prepared ready for consumption.

The court was uncertain whether that approach was compatible with the case-law of the Court when determining the predominant elements of a complex supply. Their costs may, inter alia, be relevant, but, according to case law, for the purposes of classifying a complex transaction, the costs must not, of themselves, be a decisive factor.

In those circumstances, the court decided to stay the proceedings and to refer several questions to the Court for a preliminary ruling.

ECJ Judgment

The Court held that several questions asked by the referring court in these cases were essentially whether the various activities of supplying food or meals prepared for immediate consumption constitute supplies of goods within the meaning of Article 5 of the Sixth Directive or supplies of services within the meaning of Article 6 of the directive, and what effect the additional elements of supply of services may have in this respect.

As a preliminary point, the Court stated that it must be established whether the various activities at issue are to be regarded as distinct transactions, taxable separately, or as single complex transactions comprising a number of elements.

According to the Court's case-law, where a transaction comprises a bundle of elements and acts, regard must be had to all the circumstances in which the transaction in question takes place in order to determine, first, whether there are two or more distinct supplies or one single supply and, secondly, whether, in the latter case, that single supply is to be regarded as a supply of goods or a supply of services.

In the present cases, in each of the disputes in the main proceedings, there was a combination of a supply of goods or several goods and a supply of various service elements, and the referring court considered that those supplies of goods and services formed a single transaction for the purposes of VAT.

The Court noted that the Sixth Directive established a common system of VAT based on a uniform definition of taxable transactions. To determine whether a single complex supply such as those at issue in the cases in the main proceedings should be classified as a ‘supply of goods’ or a ‘supply of services’, all the circumstances in which the transaction takes place should be taken into account in order to ascertain its characteristic elements and to identify its predominant elements.

The Court also pointed out that the predominant element must be determined from the point of view of the typical consumer and, in an overall assessment, to the qualitative and not merely quantitative importance of the elements of supply of services in relation to the elements of supply of goods.

The Court had previously held that restaurant transactions are characterised by a bundle of elements and acts, of which the provision of food is only one component and in which services largely predominate and as a result these must therefore be regarded as supplies of services within the meaning of Article 6(1) of the Sixth Directive. However the situation does differ where the transaction relates to food to take away and is not coupled with services designed to enhance consumption on the spot in an appropriate setting.

The Court ruled that Articles 5 and 6 of the Sixth Directive must be interpreted as meaning that:

• the supply of food or meals freshly prepared for immediate consumption from snack stalls or mobile snack bars or in cinema foyers is a supply of goods within the meaning of Article 5 if a qualitative examination of the entire transaction shows that the elements of supply of services preceding and accompanying the supply of the food are not predominant;
• except in cases in which a party catering service does no more than deliver standard meals without any additional elements of supply of services, or in which other special circumstances show that the supply of the food represents the predominant element of a transaction, the activities of a party catering service are supplies of services within the meaning of Article 6.
• in cases of the supply of goods, the term ‘foodstuffs’ in category 1 of Annex H to the Sixth Directive 77/388, as amended by Directive 92/111, must be interpreted as also covering food and meals which have been prepared for immediate consumption by boiling, grilling, roasting, baking or other means

The Court further held that it follows from Article 12(3)(a) of the Sixth Directive that the application of either one or two reduced rates is an option accorded to the Member States as an exception to the principle that the standard rate applies.

Moreover, according to that provision, the reduced rates of VAT may be applied only to the supplies of goods and services listed in Annex H to the Directive.

The provision in question refers to foodstuffs in general and makes no distinction or restriction whatever according to the kind of business, method of selling, packaging, preparation or temperature.

Furthermore, the provision also mentions ‘ingredients normally intended for use in preparation of foodstuffs’ and ‘products normally intended to be used to supplement or substitute foodstuffs’.

Finally, food and meals prepared for immediate consumption serve as food for consumers. It was for that reason that the Court held the term ‘foodstuffs’ in category 1 of Annex H to the Sixth Directive must be interpreted as also covering food and meals which have been prepared for immediate consumption by boiling, grilling, roasting, baking or other means.

The full text of the case can be accessed at http://www.bailii.org/eu/cases/EUECJ/2011/C49709.html