19502

SUPPLY OF GOODS – Taxable amount – Points issued by supplier by reference to quantity of road fuel purchased – Points redeemable in return for face value voucher issued by high street store – Supplier purchases face value voucher – Whether taxable amount should be reduced by cost to supplier of face value voucher – EC Council Directive 77/388, arts 11A.1(a), 11C.1

LONDON TRIBUNAL CENTRE

	TOTAL UK LTD	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)

Sitting in public in London on 6 and 7 March 2006

John Walters QC, for the Appellant 

Rebecca Haynes, counsel, instructed by the acting general counsel & solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	Total UK Ltd (“Total”) appeals against the decision of the Customs in a letter of 3 May 2005 refusing to meet Total’s claim for £1.6m in output tax which Total said had been overpaid in the period 1 October 2001 to 31 October 2004.  The basis for Total’s claim, shortly stated, is that the cost to Total of  providing face value vouchers in the course of a promotion scheme constitutes a retrospective discount of the price paid by Total’s customers on their purchases and thus reduces the taxable amount in accordance with article 11C.1 of the Sixth VAT Directive.  

Factual background

2.	The evidence included documents relating to the so-called “Total Oil Promotion Scheme” (“TOPS”) and an oral explanation given by Mrs K L Munro, corporate communications manager for Total.  

3.	Total is the UK refining, marketing and distribution subsidiary of the French oil company Total SA.  Total operates two refineries and sells motor fuels through a network of  855 service stations in the UK.  520 of those are owned by Total and these are operated either by Total or by its contractors.  335 sites are owned and operated by third parties with Total “branding”.

4.	In 1991 Total introduced TOPS as a customer loyalty scheme.  The basis of the scheme is that the customers who become cardholders and who register their names and who collect 5000 TOPS points become entitled to claim £5 gift vouchers issued by a selection of high street stores; alternatively the cardholding customer can choose to donate a £5 charity gift voucher to a recognized charity, school or community project.  

The recruitment of cardholders

5.	Total publicizes the TOPS scheme by advertisements. At the head of one advertisement is a picture of a card and the logos of Boots, B&Q, Woolworths and Marks & Spencer.  At the centre are the words “You get more treats on TOPS.  Apply for a TOPS card now at www.topscard.com” and at the foot are the words – “You know when to turn Total”.  Another advertisement shows a card at the head, the words “The card that bags you £5” at the centre and Boots and Marks & Spencer logos at the foot.  The potential cardholder can obtain his card by going online and ordering one or by picking one up at the filling station.  

Total’s published explanation of the TOPS scheme

6.	The handout to the customer contains the following passages:

“With TOPS, every litre of fuel you buy earns you TOPS points.  Collect points to treat yourself to anything from bubble bath to power tools … 
We give you five points for every litre of fuel you buy when your TOPS card is swiped in-store.  … Collect 5000 TOPS points and you can choose your £5 gift voucher to spend how you like – or if you open a TOPS multi-card account you can choose to give the same cash value to any recognized charity.

Apply for a multi-card TOPS account and you can collect points with a partner, family members or business colleagues. Multi-card TOPS accounts can also collect for charities … .

Each TOPS multi-card account has an allocated primary cardholder (you decide who when you apply) and this person is the only one who can manage the account online and redeem TOPS points for gift vouchers. The primary cardholder receives all the applied-for cards, as well as your security password and access to your online account.”

Using the card

7.	Each card has a number which registers its use on a central database kept by a service company for Total.  A person buying road fuel may present a card which is swiped in at the till and the points attributable to that card are recorded on the database.  The card so presented may be the one that bears his name.  The card may bear the name of another cardholder who has become registered; this normally happens when a “family and friends” account or a “business colleagues” account has been opened in the name of one person.  

Recording points

8.	Points collected on purchase of fuel products are stored electronically on the magnetic strip of the card and can be traced back to each purchase of fuel to which the points relate; the TOPS card can hold an unlimited number of points.  

Registering the card

9.	Before the points on the card can be redeemed, the person seeking to redeem must register.  He does this by making an on-line or postal application.  

Redemption

10.	Points can be redeemed in units of 5000 by the registered cardholder.  The voucher or vouchers chosen by that cardholder will be sent to him within 28 days.  The points redeemed are deducted from his points balance.  

Gift vouchers

11.	Each voucher issued by each high street store has the store’s name, the value (£5) and the words “Gift Voucher” printed on one side.  Taking the Marks & Spencer voucher as example, the other side contains an identification number and the words:
“This voucher cannot be exchanged for cash.  It can only be exchanged for goods, including foods, wine and selected financial services products.”

Total’s acquisition of gift vouchers

12.	Total purchases stocks of gift vouchers at a discount to their face value. Through its bulk purchasing power Total can obtain discount rates of up to 11.5%.  

Third party dealers

13.	Third party dealers at the 335 sites that are not owned and operated by Total itself buy and sell Total motor fuel products on their own account. They participate in the TOPS scheme and pay Total 0.28p per litre of the fuel purchased as their contribution to the costs of the TOPS scheme.  Total manages the scheme, acquires the gift vouchers from the high street stores and transfers them to cardholders on redemption and in doing so makes no distinction or adjustment for situations where motor fuel has been purchased from third party dealers.  

The issue

14.	The issue in this case is whether the amounts spent by Total in purchasing face value vouchers to be provided to the customer as part of the redemption process under the TOPS scheme ranks, as Total contends, as a reduction in the price of the road fuel after the supply of that road fuel has taken place, thereby reducing the taxable amount obtained by Total for that supply.  It was common ground that the points under the TOPS scheme were not supplied for a consideration comprised in the price paid for the road fuel.  

Summary of the contentions

15.	Total, represented by John Walters QC, expresses its case in two propositions.  First, the cost incurred by it on the vouchers exchanged for points awarded on the sale of fuel operates as a retrospective discount to the consideration for the supply of the fuel under Article 11C.1.  Second, the vouchers are securities for money and, for VAT purposes are the equivalent of cash.  The fact that the supply of the fuel to the customer takes place under a separate transaction from those entered into when, on provision of the voucher, Total comes to redeem the voucher does not, it is argued in reliance on the decision of the European Court of Justice in Elida Gibbs Ltd v Customs and Excise Commissioners (Case C-317/94) [1996] STC 1387, deny the presence of a direct link between the two transactions.  The principle of neutrality as applied in Elida Gibbs necessarily leads to the conclusion that Total’s supply of road fuel to the customer is to be abated by Total’s expenditure on the vouchers, which (so the argument runs) is the subjective value, to Total, which Total gives back to customers on provision of vouchers to them.

16.	The response of the Customs, represented by Rebecca Haynes, can be shortly summarized. On the proper analysis of the transactions there is no relevant relationship between the supply of vouchers and the consideration received by Total for the supply of the fuel, i.e. the price paid at the pump.  Each supply is part of a different chain of supply with no direct link between them.  In whatever way the supply of vouchers is characterized, their supply cannot serve to reduce the original consideration provided by the customer for the fuel.

The statutory provisions

17.	Article 11A.1 provides:

“The taxable amount shall be –

(a)	in respect of supplies 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;”

Article 11C.1 provides:

“In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.”

Conclusions

18.	For illustrative purposes I summarize what, on the evidence, appears to be a typical scenario where Total itself makes the supply of road fuel to the end-consumer.  To set the scene I mention that the sale prices at the pump are advertised to customers.  The expression “money-off” or “cash-back” or like words do not appear at the filling station – at least so far as road fuel is concerned. The TOPS scheme and its advantages are, as noted above, advertised to customers. The prices used in the scenario that follows are  provided for ease of calculation and bear no relation to real prices.

(a)	On Day 1 a registered TOPS cardholding customer, “A” buys 50 litres of standard petrol at 100p a litre from a filling station owned and operated by Total.  The “taxable amount” of that supply for purposes of Article 11A.1(a) alone is £50.  A’s card is swiped and his purchase, “the Day 1 supply”, earns him 250 TOPS points.

(b)	On Day 90 A buys 100 litres of diesel for 50p a litre (paying £50 in 	all). This purchase, “the Day 90 supply”, earns 500 TOPS points.

(c)	A goes online and finds he now has 5000 TOPS points.  He presents 	his card for redemption and indicates that he wants a Boots voucher.  

(d)	On Day 100 Total pays £5 to Boots for a Boots gift voucher.  (I am 	deliberately ignoring the discount offered by Boots to Total: it does not affect 	the present VAT principle.)
(e)	On Day 110 Total transfers the Boots voucher to A.  

Expressing Total’s first proposition, is it correct to say of the £5 spent by Total in buying the £5 Boots voucher on Day 100 (transaction (d)) which is transferred to the customer on Day 110 that, for VAT purposes, the £5 amounts to a “retrospective discount” being a reduction in the price of the Day 1 and the Day 90 purchases of road fuel (transactions (a) and (b)), and indeed for all the other purchases that made up A’s 5000 TOPS points?

19.	On a plain reading of Article 11A, I would conclude that the incurring of £5 by Total on the Boots voucher to enable it to redeem A’s accrued TOPS points did not operate as a reduction in the price paid by A in return for the Day 1 and the Day 90 supplies.  Article 11A.1 directs that the taxable amount in respect of a supply of goods is to be the consideration obtained by the supplier for that supply; and when subsequently the price is reduced after that supply takes place, Article 11C.1 provides that the taxable amount for that supply is to be reduced accordingly. In the present circumstances, and using the above scenario, the £5 spent by Total on Day 100 buys it a £5 Boots voucher.  The consideration obtained by Total in return for the Day 1 and the Day 90 supplies to A remains exactly as it was, i.e. £50 for 50 litres of standard petrol and £50 for 100 litres of diesel.  It is immaterial to this conclusion whether Total’s transfer of the Boots voucher to A (transaction (e) on Day 110) is to be analyzed for VAT purposes as either a cash payment, as a virtual cash payment, as an assignment of a chose in action, as the physical handing-over of a Boots voucher or as a “nothing” for VAT purposes.  

20.	Does the Elida Gibbs decision lead to a different conclusion?  Elida Gibbs manufactured goods and sold them in part to retailers and in part to wholesalers for resale to retailers.  Attached to the package of each item was a “cash-back” voucher.  The end-consumer was able to obtain a cash refund from Elida Gibbs by returning the voucher to Elida Gibbs.  It was, to use the Advocate General’s (Jacobs) expression in EC Commission v Germany (Case C-427/98), [2003] STC 301 (infraction proceedings against Germany for failing to give effect to the Elida Gibbs decision), a “leap-frogging voucher” : see paragraph 31 of his opinion. The amount charged by Elida Gibbs and invoiced to the retailer or wholesaler was determined without regard to the amount of the cash-back voucher. The Customs argued that the taxable amount obtained by Elida Gibbs was not to be reduced by the amounts paid to consumers by Elida Gibbs in respect of cash-back vouchers. This was because neither the retailer nor the wholesaler were parties to the transaction; there was therefore no direct link between the supply of goods by Elida Gibbs to them and the reimbursement from Elida Gibbs to the consumer. The Court disagreed. The Court recognized (in paragraph 27) that the consideration for purposes of Article 11A.1 is the value actually received in each specific case, but went on (in paragraph 28) to observe that it would not be in conformity with the Directive and the neutrality principle inherent in the system for the taxable amount used to calculate Elida Gibbs’ VAT liability to exceed the sum actually received by it.  The effect of Article 11C.1 is to ensure the neutrality of a person in Elida Gibbs’ position.  It followed from that provision that “account should be taken, when calculating the taxable amount of VAT, of situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the vouchers.”  (See paragraph 31.)

21.	In Elida Gibbs the Court was, as noted, addressing the question of whether an adjustment to Elida Gibbs’, the supplier’s, taxable amount was required as a result of a rebate, to use the words of the Advocate General in paragraph 23 of the Germany decision, that leap-frogged “one or more links in the normal VAT chain”. It follows that, if Total are to invoke Elida Gibbs successfully and consequently establish that Article 11C.1 applies to reduce the taxable amounts obtained by it for e.g., the Day 1 and the Day 90 supplies, Total must demonstrate that those supplies come within the same chain of transactions as the transactions by which they provided £5 of consideration in purchasing a £5 Boots voucher.

22.	There was no issue in Elida Gibbs as to whether or not Elida Gibbs’ supply of the specific item of goods to the retailer or the wholesaler and their onwards supplies to the consumers were part of the same chain of supply.  The cash-back voucher was physically attached by Elida Gibbs to the item of goods; Elida Gibbs accepted this as proof of the final consumer’s purchase and reimbursed the promised cash refund directly to the consumer.

23.	Pausing there, it will be recalled that a significant number of Total’s supplies of road fuel were to third party dealers who made separate sales of road fuel to motorists.  Had there been cash-back vouchers obtainable on each sale from the third party dealers which are redeemable by Total, the Elida Gibbs principle would have enabled Total to make an Article 11C.1 adjustment.  But that is not the position here.  

24.	Here the goods are sold by quantity without any offer of cash-back.  The cardholding customer is offered the opportunity of collecting TOPS points and the right, when he has collected 5000 of them as a consequence of other purchases of Total road fuel, to choose a £5 gift voucher to spend as he likes. There are two separate but related supply chains. The first is the chain of supply of the road fuel from Total (via the third party dealer in some instances) to the customer.  In contrast to the Elida Gibbs scenario, the customer obtains no cash-back voucher from Total in respect of this supply. The second chain starts with the retailer’s supply of a £5 gift voucher for Total to use in the redemption process. There is no relevant linkage between the two chains. In particular no part of the cost components in the first supply chain are cost components in the second chain. And, vice versa, none of the cost components in the second chain, e.g. Total’s payment for Boots’ supply of a voucher on Day 100 plus a part of the cost of administering the TOPS scheme, can properly be ascribed to Total’s supply of the 50 litres of road fuel on Day 1.  In this respect I share the opinion of the Advocate General (Fennelly) in Kuwait Petroleum (GB) Ltd v Customs and Excise Commissioners (Case C-48/97) [1999] STC 488 where, at paragraph 43, he says:

“In reality, it is 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 goods for those stamps.”

That passage was endorsed by the Court in paragraph 28 of the Judgment.

25.	For those reasons I do not see that Elida Gibbs helps Total. Article 11C.1 does not therefore come into play. However, in case it should become relevant, I mention the propositions on which Total bases its argument that the transfer of vouchers by Total to the customer as part of the redemption process can be characterized as a situation “where the price is reduced after the supply takes place”. The following propositions were advanced:

(i)	Just as the cash-back coupons resulted in a return of value to the customer when he presented them to Elida Gibbs, so do the face value vouchers received by the customer under the TOPS scheme.

(ii)	There is no supply of goods or services when Total obtains the face value voucher from the high street stores; that transaction is indistinguishable from the issue of shares considered in the case of Kreztechnik v Finanzamt Linz (Case C-465/03).  

(iii)	Alternatively, if there is a supply to Total by the high street stores, it is an exempt supply of services within Article 13B(d)3. Those services are not cost components in supplies made by Total; they are used by Total in making rebates to customers. 

(iv)	The vouchers are documents evidencing the high street store’s obligation to accept them, instead of money, taken at face value. They are securities for money and equivalent to cash.

Whether the transactions comprised in the redemption of the voucher are a chain of supply in their own right or individual transactions not amounting to supplies is, I think, immaterial.  However the redemption transactions are characterized, they are no part of the chain of supply that ends with the sale of the road fuel to the customer.

26.	Appeal dismissed.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED:17 March 2006
LON/05/581