JUDGMENT OF THE COURT

27 April 1999 (1)

(Sixth VAT Directive — Sales promotion scheme — Goods supplied onredemption of vouchers — Supply for consideration — Price discounts and rebates— Definition)

In Case C-48/97,

REFERENCE to the Court under Article 177 of the EC Treaty by the VAT andDuties Tribunal, London, for a preliminary ruling in the proceedings pendingbefore that court between

Kuwait Petroleum (GB) Ltd

and

Commissioners of Customs & Excise,

on the interpretation of Articles 2, point 1, 5(6), 11A(3)(b) and 27 of the SixthCouncil Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws ofthe Member States relating to turnover taxes — Common system of value added tax:uniform basis of assessment (OJ 1977 L 145, p. 1),

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, P.J.G. Kapteyn and G. Hirsch(Rapporteur) (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de Almeida,C. Gulmann, D.A.O. Edward, L. Sevón and M. Wathelet, Judges,

Advocate General: N. Fennelly,

Registrar: D. Louterman-Hubeau, Principal Administrator,

after considering the written observations submitted on behalf of:

—    Kuwait Petroleum (GB) Ltd, by John Walters QC, instructed by PeterLandon FCA,

—    the United Kingdom Government, by John E. Collins, Assistant TreasurySolicitor, acting as Agent, with Paul Lasok QC and Philippa J.E. Whipple,Barrister,

—    the French Government, by Kareen Rispal-Bellanger, Head of theSubdirectorate for International Economic Law and Community Law in theLegal Affairs Directorate of the Ministry of Foreign Affairs, and GautierMignot, Foreign Affairs Secretary in that Directorate, acting as Agents,

—    the Portuguese Government, by Luís Fernandes, Director of the LegalService of the Directorate-General for the European Communities of theMinistry of Foreign Affairs, and Angelo Cortesão Seiça Neves, a lawyer inthe same Service, acting as Agents,

—    the Commission of the European Communities, by Peter Oliver, of its LegalService, acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of Kuwait Petroleum (GB) Ltd, represented byJohn Walters, instructed by Peter Landon; the United Kingdom Government,represented by John E. Collins, with Paul Lasok; the French Government,represented by Gautier Mignot; and the Commission, represented by Peter Oliverand Hélène Michard, of its Legal Service, and Francesca Riddy, a national civilservant on secondment to that Service, acting as Agents, at the hearing on 5 May1998,

after hearing the Opinion of the Advocate General at the sitting on 9 July 1998,

gives the following

Judgment

1.

    By order of 15 January 1997, received at the Court on 6 February 1997, the VATand Duties Tribunal, London, referred to the Court for a preliminary ruling underArticle 177 of the EC Treaty five questions on the interpretation of Articles 2,point 1, 5(6), 11A(3)(b) and 27 of the Sixth Council Directive 77/388/EEC of 17May 1977 on the harmonisation of the laws of the Member States relating toturnover taxes — Common system of value added tax: uniform basis of assessment(OJ 1977 L 145, p. 1; hereinafter 'the Sixth Directive‘).

2.

    Those questions were raised in proceedings between Kuwait Petroleum (GB) Ltd(hereinafter 'Kuwait Petroleum‘) and the Commissioners of Customs & Excise(hereinafter 'the Commissioners‘) — the body responsible for collecting VAT in theUnited Kingdom — concerning the question whether VAT is payable on certainproducts offered by Kuwait Petroleum as part of a sales promotion exercisebetween 1991 and 1996.

The national legislation

3.

    Schedule 4 to the Value Added Tax Act 1994 defines the transactions which are,or are to be treated as, supplies of goods or services for the purposes of chargingVAT. Paragraph 5 of Schedule 4 provides:

'(1)     Subject to subparagraph (2) below, where goods forming part of the assetsof a business are transferred or disposed of by or under the directions of theperson carrying on the business so as no longer to form part of those assets,whether or not for consideration, that is a supply by him of goods.

(2)     Subparagraph (1) above does not apply where the transfer or disposal is —

(a)    a gift of goods made in the course or furtherance of a business (otherwisethan as one forming part of a series or succession of gifts made to the sameperson from time to time) where the cost to the donor is not more than£10; ...‘

Community legislation

4.

    Article 2, point 1, of the Sixth Directive provides:

'The following shall be subject to value added tax:

1.    The supply of goods or services effected for consideration within theterritory of the country by a taxable person acting as such;

...‘

5.

    Article 5(6) of the Sixth Directive provides:

'The application by a taxable person of goods forming part of his business assetsfor his private use or that of his staff, or the disposal thereof free of charge ormore generally their application for purposes other than those of his business,where the value added tax on the goods in question or the component parts thereofwas wholly or partly deductible, shall be treated as supplies made for consideration.However, applications for the giving of samples or the making of gifts of smallvalue for the purposes of the taxable person's business shall not be so treated.‘

6.

    Article 11A(3)(b) of the Sixth Directive provides:

'[Within the territory of the country]

...

3.    The taxable amount shall not include:

...

(b)    price discounts and rebates allowed to the customer and accounted for atthe time of the supply.‘

The dispute in the main proceedings

7.

    Fuel marketed by Kuwait Petroleum under the trade mark 'Q8‘ is sold to thepublic either directly by Kuwait Petroleum, at approximately 110 service stationsowned by the company and operated by it or on its behalf, or through some 500independent retailers to whom Kuwait Petroleum sells Q8 fuel as a wholesaler.

8.

    Between 1991 and 1996 Kuwait Petroleum operated a sales promotion scheme, inwhich both the company-owned service stations and approximately 160 independentretailers took part. Under this scheme, customers were offered a 'Q8 sail‘(hereinafter 'a Q8 voucher‘) with every 12 litres of fuel purchased. Whether ornot the customer accepted the vouchers, the price of the fuel was the same. Whena customer had collected enough vouchers, he was entitled to redeem them forgoods chosen from a 'gift catalogue‘ or occasionally for services — in the form ofvouchers, such as theatre tickets — which Kuwait Petroleum undertook to providewithin a certain time.

9.

    The independent retailers taking part in the scheme each undertook to pay KuwaitPetroleum an additional amount per litre, plus VAT, in respect of the total volumeof fuel sold during the promotional period. That supplement, originally worth 0.22pence per litre, was increased to 0.33 pence per litre in 1993.

10.

    By letter of 16 June 1995, the Commissioners ruled that Kuwait Petroleum, whichhad deducted the input VAT on goods purchased for exchange with Q8 vouchers(hereinafter 'redemption goods‘), was liable to account for output VAT on itemssupplied to customers where the cost of the item exceeded £10, on the ground thatthose goods were supplied by Kuwait Petroleum 'otherwise than for aconsideration‘.

11.

    Kuwait Petroleum appealed against that decision to the VAT and Duties Tribunalon the ground that the redemption goods were, on the contrary, supplied for aconsideration. That consideration was represented by an indeterminate part of theVAT-inclusive price paid by the consumer, which covered the supply both of thefuel and of goods on subsequent redemption of Q8 vouchers, which meant thatKuwait Petroleum had already paid the VAT due on the transaction.

12.

    The VAT and Duties Tribunal held that, as a matter of English law, redemptionof the customer's Q8 vouchers was to be characterised as a unilateral act separatefrom the principal transaction, namely the purchase of fuel. The Tribunalconcluded also that the Q8 vouchers were obtained free of charge.

13.

    The VAT and Duties Tribunal observed, nevertheless, that consideration for thepurposes of English contract law is a different concept from consideration as thevalue of a taxable supply in VAT law. Accordingly, finding that an interpretationof Community law was necessary to enable it to give judgment in the dispute beforeit, the Tribunal decided to stay proceedings and refer the following questions to theCourt:

'Where a supplier of goods operates a business promotion scheme, under which,in outline:

    (i)    the promoter provided redemption goods for business purposes inaccordance with the terms of the scheme;

    (ii)    for no payment in money at the point of redemption;

    (iii)    against the redemption of vouchers to which a purchaser of premiumgoods became entitled by paying the full retail price of those goodswithout making any identifiable monetary payment for the vouchers.

1.    Is the expression ”price discounts and rebates allowed to the customer andaccounted for at the time of supply” in Article 11A(3)(b) of the SixthCouncil Directive to be interpreted to cover the whole cost of theredemption goods?

2.    Are the redemption goods to be treated as ”supplies made forconsideration” for the purposes of Article 5(6) of that Directive?

3.    If the redemption goods are provided otherwise than for consideration or”free of charge”, is Article 5(6) to be interpreted as requiring that theprovision of the redemption goods be treated as a supply for considerationnotwithstanding that such provision is for business purposes?

4.    Do any of the foregoing questions require a different answer:

    (a)    where all the vouchers redeemed for any item of redemption goodswere obtained on purchases of premium goods from the promoter ofthe scheme;

    (b)    where those vouchers were all obtained on purchases of premiumgoods from a trader who was a participating dealer in the scheme; or

    (c)    where the vouchers redeemed were obtained partly on purchases ofpremium goods from the promoter and partly on purchases ofpremium goods from one or more participating dealers?

5.    If the answer to question 3 is ”No”, is the United Kingdom entitledpursuant to Article 27 of the Sixth Council Directive and under thederogation obtained by it in 1977 to impose an output tax charge on thepromoter which is based on the cost to the promoter of the redemptiongoods in addition to the output tax included in the full retail price of thepremium goods?‘

Question 1

14.

    By its first question, the national court asks essentially whether, on a properconstruction of Article 11A(3)(b) of the Sixth Directive, the terms 'rebates‘ and'price discounts‘ can be applied to reductions covering the whole cost of supplyingredemption goods.

15.

    The first point to note is that Kuwait Petroleum itself does not claim that it grantedits customers either a rebate or a price discount within the meaning of thatprovision. On the contrary, it argues that part of the fuel purchase pricerepresented the customer's payment for redemption goods. Accordingly, KuwaitPetroleum maintains that the first question is irrelevant.

16.

    As the Governments of the United Kingdom, France and Portugal have rightlypointed out, the grant of a rebate or a price discount presupposes that goods aresupplied for consideration. The very terms 'rebate‘ and 'price discount‘ indicatea merely partial reduction of the total price agreed. Where, on the other hand, areduction covers 100% of the price, the reality of the situation is that the goods arechanging hands free of charge. The disposal of goods free of charge falls within thescope of Article 5(6) of the Sixth Directive.

17.

    The answer to the first question must therefore be that, on a proper constructionof Article 11A(3)(b) of the Sixth Directive, the terms 'rebates‘ and 'pricediscounts‘ cannot be applied to reductions covering the whole cost of supplyingredemption goods.

Questions 2, 3 and 4

18.

    By its second, third and fourth questions, which it is appropriate to considertogether, the national court essentially asks whether, upon a proper constructionof Article 5(6) of the Sixth Directive, the application by an oil company of goodswhich are disposed of to a purchaser of fuel in exchange for vouchers which he hasobtained in varying quantities, depending on the volume of fuel purchased, onpayment of the full retail price for fuel from the pump — under the type of schemedescribed in paragraphs 7 to 9 above — must be treated as a supply forconsideration within the meaning of that provision.

19.

    The first point to note is that, in the present case, the exchange of goods for Q8vouchers was effected for business purposes, since — as the national court found —the object of the promotion scheme was, both for Kuwait Petroleum and for theindependent retailers taking part, to increase fuel sales. For that reason, a taxableperson in the same situation as Kuwait Petroleum is authorised to deduct, inaccordance with Article 17(2)(a) of the Sixth Directive, the amount of input VATpaid for the purchase of those goods.

20.

    In Kuwait Petroleum's submission, the fact that it supplied the goods for businesspurposes precludes application of Article 5(6) of the Sixth Directive. The firstsentence of that paragraph does not cover such applications. Since VAT is a taxon consumption, an output tax charge is necessary where there is an application ofassets which constitutes consumption by the taxable person. However, the supplyof goods on redemption of vouchers does not constitute consumption of thosegoods on the part of the undertaking.

21.

    On that point, it should be noted that the purpose of Article 5(6) of the SixthDirective is to ensure equal treatment as between a taxable person who appliesbusiness assets for private purposes and an ordinary consumer who purchasesgoods of the same type (see Case C-20/91 De Jong [1992] ECR I-2847, paragraph15, and Case C-230/94 Enkler [1996] ECR I-4517, paragraph 33).

22.

    However, it is clear from the very wording of Article 5(6), first sentence, of theSixth Directive that this provision treats as a supply made for consideration, andtherefore as subject to VAT, a taxable person's disposal free of charge of goodsforming part of his business assets, where input VAT was deductible on thosegoods, it being in principle immaterial whether their disposal was for businesspurposes. The second sentence of that provision, which precludes taxation of

applications for the giving of samples or the making of gifts of small value for thepurposes of the taxable person's business would make no sense if the first sentencedid not make VAT payable on the disposal free of charge of such goods by thetaxable person, even where this is done for business purposes.

23.

    Furthermore, as the Advocate General pointed out in paragraph 26 of his Opinion,that interpretation is supported by the legislative history of Article 5(6) of the SixthDirective. Point 6 of Annex A to the Second Council Directive 67/228/EEC of 11April 1967 on the harmonisation of legislation of Member States concerningturnover taxes — Structure and procedures for application of the common systemof value added tax (OJ, English Special Edition 1967, p. 16) and Article 5(3)((a)of the Commission's proposal for the Sixth Directive, submitted to the Council on29 June 1973 (OJ 1973 C 80, p. 1) provided inter alia that applications for thepurposes of giving samples or making gifts of small value, eligible for classificationas general expenses giving tax relief, were not — contrary to the general rule — tobe considered as taxable transactions. It follows that, where the gifts are not ofsmall value, such applications must be treated as taxable supplies, even where madefor business purposes.

24.

    Kuwait Petroleum also argues that Article 5(6) of the Sixth Directive does notapply because, on the facts in the main proceedings, there was no disposal free ofcharge within the meaning of that provision. Consideration for the vouchers, andconsequently for the supply of the redemption goods, consisted in an identifiablefraction of the VAT-inclusive price paid by the customer when purchasing fuel,which meant that the customer paid at the same time for the goods obtainedthrough the promotion scheme. That was the bargain made with the finalconsumer at service stations belonging to Kuwait Petroleum. The terms of thatbargain remained essentially the same even where independent retailers wereinvolved in the distribution chain, because, with regard to the redemption of Q8vouchers and collection of the related fraction of the purchase price, those dealersacted on Kuwait Petroleum's behalf.

25.

    However, the Governments of the United Kingdom, France and Portugal maintainthat, notwithstanding the fact that all taxable persons should endeavour to ensurethat income covers expenditure, the customer buying fuel under arrangements suchas those at issue does not pay any consideration for the vouchers and gifts.

26.

    Goods are supplied 'for consideration‘ within the meaning of Article 2, point 1,of the Sixth Directive only if there is a legal relationship between the supplier andthe purchaser entailing reciprocal performance, the price received by the supplierconstituting the value actually given in return for the goods supplied (see, to thateffect, concerning the supply of services, Case C-16/93 Tolsma [1994] ECR I-743,paragraph 14).

27.

    It is for the national court to inquire whether, at the time of purchasing the fuel,the customers and Kuwait Petroleum had agreed — through the dealers, as the case

may be — that part of the price paid for the fuel, whether identifiable or not, wouldconstitute the value given in return for the Q8 vouchers or the redemption goods. There is nothing, however, in the documents before the Court to suggest that therewas in fact any such reciprocal performance by the parties concerned.

28.

    As the Advocate General pointed out in point 43 of his Opinion, the sale of thefuel and the exchange of goods for vouchers are two separate transactions.

29.

    Moreover, there are two considerations in the case in the main proceedings whichsuggest that the exchange of goods for Q8 vouchers is a disposal free of charge,within the meaning of Article 5(6) of the Sixth Directive, and that the applicationof those goods is therefore to be treated as a supply for consideration and,accordingly, taxable.

30.

    First, under the sales promotion scheme set up by Kuwait Petroleum, theredemption goods were described as gifts.

31.

    Second, it is not contested that the retail price of Q8 fuel, whether or not thepurchaser accepted the vouchers, was the same, and this was the only pricereferred to on the invoice relating to the fuel purchase which, pursuant to Article22(3) of the Sixth Directive, Kuwait Petroleum or the independent retailers had toissue to the customers who were themselves taxable persons. That being so,Kuwait Petroleum cannot reasonably maintain that, contrary to the statements onthe invoices which it issued, the price paid by the purchasers of fuel in factcontained a component representing the value of the Q8 vouchers or of theredemption goods.

32.

    The answer to the second, third and fourth questions must therefore be that, on aproper construction of Article 5(6) of the Sixth Directive, the application by an oilcompany of goods which are disposed of to a purchaser of fuel in exchange forvouchers which he has obtained in varying quantities, depending on the volume offuel purchased, on payment of the full retail price for fuel from the pump — undera sales promotion scheme such as that in issue in the main proceedings — must,where the goods are not of small value, be treated as a supply for considerationwithin the meaning of that provision.

33.

    In the light of the answer given to the second, third and fourth questions, there isno need to reply to the fifth question.

Costs

34.

    The costs incurred by the United Kingdom, French and Portuguese Governmentsand the Commission, which have submitted observations to the Court, are not

recoverable. Since these proceedings are, for the parties to the main proceedings,a step in the proceedings pending before the national court, the decision on costsis a matter for that court.

On those grounds,

THE COURT

in answer to the questions referred to it by the VAT and Duties Tribunal, London,by order of 15 January 1997, hereby rules:

1.    On a proper construction of Article 11A(3)(b) of the Sixth CouncilDirective 77/388/EEC of 17 May 1977 on the harmonisation of the laws ofthe Member States relating to turnover taxes — Common system of valueadded tax: uniform basis of assessment, the terms 'rebates‘ and 'pricediscounts‘ cannot be applied to reductions covering the whole cost ofsupplying redemption goods.

2.    On a proper construction of Article 5(6) of the Sixth Directive 77/388, theapplication by an oil company of goods which are disposed of to apurchaser of fuel in exchange for vouchers which he has obtained in varyingquantities, depending on the volume of fuel purchased, on payment of thefull retail price for fuel from the pump — under a sales promotion schemesuch as that in issue in the main proceedings — must, where the goods arenot of small value, be treated as a supply for consideration within themeaning of that provision.

Rodríguez IglesiasKapteyn Hirsch Mancini Moitinho de Almeida Gulmann Edward Sevón Wathelet

Delivered in open court in Luxembourg on 27 April 1999.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: English.