OPINION OF ADVOCATE GENERAL

FENNELLY

delivered on 9 July 1998 (1)

Case C-48/97

Kuwait Petroleum (GB) Ltd

v

Commissioners of Customs & Excise

1.

    This case concerns whether 'free gifts‘, supplied as part of a scheme, using'stamps‘, for the promotion of sales of fuel at petrol stations, come, for VATpurposes, within the consideration of the price paid at the pump or, if not suppliedfor that consideration, whether they are, in any event, covered by Article 5(6) ofthe Sixth Directive. (2)

I — The factual and legal context

A — The promotion at issue

2.

    The appellant in the main proceedings, Kuwait Petroleum (GB) Ltd('Kuwait‘), sells 'Q8‘ brand of fuel (the 'premium goods‘) as a retailer at110 sites and as a wholesale supplier to independent retailers (hereinafter 'thedealers‘) at 500 other sites. The livery at both types of site is the same. Ontermination in 1991 of an earlier stamp promotion, Kuwait suffered a 15% fall inits market share. It then devised its own 'Q8 Sails Collection‘ scheme (hereinafter'the sails scheme‘), which was initially applied only at Kuwait sites but soonextended to dealers who so desired. (3) Dealers who opted to apply the schemeagreed to pay UK 0.22 pence (later, UK 0.33 pence) per litre (plus VAT) inaddition to the normal wholesale petrol price. In return Kuwait supplied all of therequired promotional literature and other necessities. (4)

3.

    The sails scheme operated from 1991 to 1996. One Q8 sails stamp wassupplied for each 12 litres of fuel purchased. Credit for partial stamp entitlementwas facilitated in some cases, towards the end of the promotion, by the use ofelectronic swipe cards. To fill a 'Collector Card‘ required 30 such stamps. Thenumber of complete cards needed to obtain a particular gift (the 'redemptiongoods‘) was set out in a gift catalogue. A high proportion, but not all, of thepurchasers of fuel collected stamps. (5)

4.

    To claim a gift, the customer had to complete an order form, verifyingfulfilment of the conditions of the offer. Although stamps were stated to be

non-transferable, Kuwait tolerated a certain amount of 'private pooling‘ of stamps(for example by work colleagues), but excluded secondary trading in stamps. Thestamps were stated to have a face value of UK 0.001 pence, but would beredeemed for cash only when their total cash value exceeded UK 25 pence,implying purchase of an extremely large amount of petrol. Though other figureshave been suggested, Kuwait puts the redemption rate as being 'well over 50%‘.

5.

    The sails scheme was discontinued due to changes in the market, particularlyas a result of price competition from the hypermarket petrol-retail sector. Although Q8 retail petrol prices fell by some UK 4 pence per litre, not all wasnecessarily directly attributable to the termination of the promotion. The Court isinformed that the cost of gifts redeemed under the scheme had, by February 1995alone, already reached UK £3 355 000, or UK 0.36 pence per litre of fuel sold atparticipating sites. (6)

B — The legal context

6.

    It will be helpful to mention the principal provisions of Community lawwhich have been debated in the observations submitted to the Court. Article 2 ofthe First Directive (7) provides that value added tax involves 'a general tax onconsumption‘ of goods and services.

7.

    In general, under Article 2(1) of the Sixth Directive, only supplies of goodsand services effected for consideration are subject to VAT. Article 5 defines the'supply of goods‘ as 'the transfer of the right to dispose of tangible movableproperty as owner‘. However, Article 5(6) provides that certain supplies of goods,even in the absence of consideration, will be subject to VAT:

'The application by a taxable person of goods forming part of his business assetsfor his private use or the use 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.‘

8.

    The corresponding provision in respect of the supply of services, containedin Article 6(2), however, provides, in relevant part:

'The following shall be treated as supplies of services for consideration:

...

(b)    supplies of services carried out free of charge by the taxable person for hisown private use or that of his staff or more generally for purposes otherthan those of his business.

... .‘

9.

    Article 11 of the Sixth Directive is concerned with the taxable amount forVAT purposes. Article 11A(1), in so far as is relevant, states:

'1.    The taxable amount shall be:

(a)    in respect of supplies of goods and services other than those in (b), (c) and(d) below, everything which constitutes the consideration which has been oris to be obtained by the supplier from the purchaser, the customer or athird party for such supplies including subsidies directly linked to the priceof such supplies;

(b)    in respect of supplies referred to in Article 5(6) ..., the purchase price of thegoods or of similar goods or, in the absence of a purchase price, the costprice, determined at the time of supply;

... .‘

Article 11A(3)(b) provides that the taxable amount shall not include 'pricediscounts and rebates allowed to the customer and accounted for at the time of thesupply ...‘, while Article 11C(1) provides, inter alia, that 'where the price isreduced after the supply takes place, the taxable amount shall be reducedaccordingly under conditions which shall be determined by the Member States‘.

10.

    The abovementioned Community rules are now implemented in the UnitedKingdom by the Value Added Tax Act 1994 (hereinafter the '1994 Act‘). It isimportant to note that, during the currency of the sails scheme, the supply ofbusiness gifts whose cost on acquisition exceeded UK £10 (UK £15 with effect from29 November 1995) was treated as a taxable supply, for the purposes of thenational rules implementing the second sentence of Article 5(6) of the SixthDirective.

C — The dispute and national proceedings

11.

    The Commissioners of Customs & Excise ('the Commissioners‘), by a letterof 16 June 1995, ruled that, where the cost of an item supplied under the sailsscheme exceeds UK £10, Kuwait was liable, pursuant to paragraph 6 of Schedule 6

of the 1994 Act, to account for VAT on the goods supplied. In the opinion of theCommissioners those goods were supplied 'otherwise than for consideration‘. Kuwait appealed against that decision to the VAT and Duties Tribunal, London(hereinafter 'the Tribunal‘).

12.

    Kuwait submitted that the redemption goods were not supplied 'free ofcharge‘ within the meaning of Article 5(6) of the Sixth Directive, whose purposewas to prevent the consumption of goods without the payment of VAT by taxablepersons, who, if they had purchased as consumers, would have paid VAT. (8) Kuwait asserted that it did not consume the goods itself but, on the contrary,supplied them to motorists pursuant to a collateral contract which could beregarded as forming a single economic transaction along with the supply of fuel. Moreover, it was contended that consideration was provided for the supply of theredemption goods. (9) The supply of fuel and the supply of the redemption goodsconstituted two interdependent contracts. The payment made for the fuel underthe first contract included payment for the later supply of the redemption goods. Where Kuwait was not the retailer of the fuel, it was contended that the part of thepayment for fuel to the dealer made in return for obtaining rights against Kuwaitwas the additional UK 0.22 pence/UK 0.33 pence per litre (plus VAT) which theparticipating dealers paid Kuwait for that fuel. (10)

13.

    The Commissioners submitted that the two stages by which the customerobtained the gifts had to be analysed separately. Relying upon Boots vCommissioners of Customs & Excise, (11) they submitted that the notion of'consideration‘ requires the grant of some advantage or economic benefit whichcannot consist merely of increased turnover. In this case the customer had nochoice but to pay the price demanded for the petrol; he could not demand abetter price on condition that the right to receive stamps would be waived. Thus,if any consideration had been paid, it was of a non-monetary kind. The

Commissioners contended that, under Article 5(6) of the Sixth Directive, the givingof gifts, even for business purposes, is subject to VAT, unless the gifts concernedare 'of small value‘. Furthermore, the amount paid by the dealers to Kuwait inrespect of the redemption goods was paid in order to participate in the sailsscheme and, ergo, not as a contribution towards the goods supplied to theircustomers.

14.

    The Tribunal has decided, as a matter of national law, that the promotioninvolves the provision of the stamps pursuant to a unilateral offer separate fromthe principal transaction, namely the supply of petrol. That unilateral offer wastransformed into a binding contract when the motorist handed in the requisitenumber of completed cards to obtain a gift item and complied with the otherconditions of the scheme. However, referring, in particular, to the Boots case, itrecognises that the concept of consideration for the purposes of Community VATlaw differs from that applied in English contract law. The Tribunal takes theprovisional view that the stamps were 'obtained ”free of charge”‘, since themotorist, in paying the pump price, did not make 'a part payment towards thepossible ultimate acquisition of a gift item‘. Nevertheless, conscious that this viewmight be incompatible with the Sixth Directive, it decided to refer the followingquestions to the Court:

'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 premium goodsbecame entitled by paying the full retail price of those goods withoutmaking 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 goods wereobtained on purchases of premium goods from the promoter of the scheme;

(b)    where those vouchers were all obtained on purchases of premium goodsfrom 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 of premiumgoods 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?‘

II — Observations submitted to the Court

15.

    Written observations have been submitted by Kuwait, the United Kingdomof Great Britain and Northern Ireland, the French and Portuguese Republics andthe Commission, all of whom, with the exception of Portugal, also submitted oralobservations. They may be summarised as follows.

16.

    Kuwait, supported by the Commission, submits that Article 5(6) cannotapply because the redemption goods at issue were supplied for consideration. Furthermore, they both contend that the United Kingdom may not rely on aderogation under Article 27(1) to subject such supplies to a charge to VAT. Theintervening Member States are unanimous as to the absence of consideration forthe supply of the redemption goods. They contend that their supply should besubject to VAT calculated on the taxable amount prescribed by Article 11A(1)(b),to wit the costs of purchasing the redemption goods. If consideration were givenfor the redemption goods, the United Kingdom maintains that it could, none theless, subject their supply to VAT on the basis of a derogation which it enjoys underArticle 27(5) of the Sixth Directive.

III — Analysis

A — Question 1 and discounts under Article 11A(3)(b)

17.

    It emerges, as much from the order for reference as from the observationssubmitted to the Court, that the first question, by which the Court is asked whether

a price discount for the purposes of Article 11A(3)(b) of the Sixth Directive canbe said to arise when the 'discount‘ covers the whole cost of supplying redemptiongoods, does not actually arise to be considered in the present case. As Kuwait, theUnited Kingdom, France and Portugal point out, no purchase price for theredemption goods at issue existed and, thus, no discount or rebate was allowed. The interpretation of Article 5(6) is more pertinent to the facts of this case. Consequently, I suggest that the first question be answered to the effect that thereis no discount for the purposes of Article 11A(1)(b) in a scheme such as the sailspromotion scheme.

B — Outline of Questions 2 to 5

18.

    The remaining questions essentially raise three issues. Firstly, are thesupplies by Kuwait of the redemption goods to be 'treated as supplies made forconsideration‘ by virtue of Article 5(6) of the Sixth Directive? Secondly, shouldKuwait be treated as having received consideration in the form of the purchase offuel by motorists at Kuwait-owned or dealer-owned stations? Thirdly, in the eventthat the answers to the first two questions result in these supplies not being taxed,is the United Kingdom none the less entitled, by virtue of Article 27 of the SixthDirective, to tax them on the cost price of the redemption goods? I propose todeal with the questions in that order.

C — Question 3 and the scope of Article 5(6)

19.

    The Tribunal has found that 'the purposes of the promotion, both for[Kuwait] and the participating dealers‘ were 'to restore and maintain the volumeof sales of Q8 fuel in a very competitive market by being able to offer a loyaltybonus‘. It is therefore clear that, for the purposes of Article 5(6) of the SixthDirective, the supply of the redemption goods was made for business purposes. The question that arises is whether, notwithstanding that purpose, the gratuitousnature of the supply renders Article 5(6) applicable. (12)

20.

    The finding that the supplies were made for business purposes by no meansconcludes the matter. There is profound disagreement as to whether Article 5(6)of the Sixth Directive is designed to tax so-called 'free gift‘ promotions where thepurchase of those gifts was subjected to VAT and the taxpayer proposes to deductthe inputs while wishing not to pay tax on the supplies.

21.

    Kuwait invokes Article 2 of the First Directive, claiming that VAT is a taxon final consumption. Article 5(6) of the Sixth Directive is designed to ensure thattaxable persons do not take unfair advantage by avoiding tax on self-consumption. Article 6(2)(b) clearly would not tax equivalent supplies of services.

22.

    This last point is, however, cited a contrario by the United Kingdom asshowing the intent of the Sixth Directive to treat goods differently from services. Furthermore, with the support of France and, in this respect, of the Commission,it makes two points about the wording of Article 5(6). Firstly, that provisionapplies to any 'disposal ... free of charge‘; i.e., that expression is clearly to be readdisjunctively and is not governed by the ensuing phrase, 'more generally forpurposes other than his business ...‘. Secondly, the exclusion by the secondsentence of 'the making of gifts of small value for the purposes of the taxableperson's business‘ strongly implies that gifts not of 'small value‘ are not excluded.

23.

    I confess that the interpretation of Article 5(6) of the Sixth Directive cannotbe entirely free from doubt. It is necessary to have regard both to the wording andthe general content of that provision. The first sentence is, on the one hand,principally designed, as Kuwait says, to tax the self-supply of business goods — forinstance, the retailer who supplies his household from his shop. None the less, theexpression 'disposal thereof free of charge ...‘ is, in grammatical terms, capable ofa disjunctive reading. Taken alone, the first sentence is ambiguous. However, twoother textual considerations seem to me to tilt the balance decisively in favour ofthe disjunctive treatment.

24.

    Firstly, the provision in the second sentence that 'the making of gifts ofsmall value‘ even for business purposes should not be treated as supplies made forconsideration would make no sense if those gifts were to be so treated in any event. The word 'however‘ highlights the distinction between first and second sentences.

25.

    Secondly, it is difficult to avoid the conclusion that the contrasting treatmentof services by Article 6(2)(b) of the Sixth Directive is deliberate. Without wishingto speculate, I suggest that among the obvious differences between goods andservices is that services do not lend themselves, at least not so readily, to freepromotion schemes. The more significant labour content would presumably reducecapacity for mass supply of free services. Thus, it seems likely that the disparity inthe wording of the two provisions was deliberate. (13)

26.

    I would draw further support for this view from the legislative history ofArticle 5(6) of the Sixth Directive cited by the United Kingdom in its writtenobservations. Article 5(6) of the Sixth Directive replaced Article 5(3)(a) of theSecond Directive, under which 'the use for the needs of his undertaking, by ataxable person, of goods which he applies to his own private use or transfers freeof charge‘ were to be 'treated as a supply against payment‘ and, ergo, taxable. Itshould be noted that under point 6 of Annex A to the Second Directive, MemberStates were permitted, as an alternative to taxing such supplies, to 'forbid‘ theexercise of the right of deduction or, if a deduction had already been effected, to'adjust it‘. It is, thus, clear that the authors of the Second Directive wereconcerned that goods obtained by taxable persons in circumstances giving rise toa right to claim a deduction should not be capable of being supplied free of chargewithout the imposition of a corresponding charge to VAT. This objective wasmaintained in the Commission's proposal for the Sixth Directive. (14) Under the firstsentence of Article 5(3)(a) of that proposal, '... applications by a taxable personof goods forming part of his business assets to his own personal use or that of hisstaff or the disposal thereof free of charge, where the value added tax on the goodsin question or the component parts thereof is wholly or partly deductible‘ were tobe treated as supplies made for consideration. Thus, apart from the absence of anyreference to cases where a disposal free of charge is made for business purposes,the proposal was very similar to the final text (quoted in paragraph 7 above). Moreover, the second sentence of the proposed provision was also almost identicalto the text finally adopted. Accordingly, 'applications for the purposes of ...making gifts of small value, eligible for classification as general expenses giving taxrelief, [were not] to be considered as taxable transactions‘.

27.

    I think that the imposition of tax on 'free gift‘ promotions, where the sailsscheme at issue is not so structured that the 'gift‘ is so closely linked with anothersupply as to be made for the same consideration as that supply, is consistent withthe purpose of the VAT system as a tax on the final consumer. No doubtArticle 5(6) of the Sixth Directive is most obviously aimed at cases of self-supplyof goods by taxable persons. A brief reflection shows why. The goods will havebeen supplied to the taxable person as part of his business and he will be able todeduct the input VAT. If he did not pay tax on his personal or householdconsumption of them, he, though acting as a consumer, would not pay any VAT. In the same way, where an undertaking like Kuwait supplies goods free of charge,having deducted the input VAT, the same result is achieved. It is not wrong orcontrary to the logic of the VAT system, in that situation, to treat Kuwait as theconsumer of the goods.

28.

    That a taxable person may pursue through a discount scheme the samebusiness purpose as that pursued by promotion schemes such as that at issue in thepresent case, viz. the promotion of sales, but without being subject to an additionalcharge to VAT based on the full cost price of acquiring redemption goods, cannotaffect the above interpretation of Article 5(6) of the Sixth Directive. The authorsof the Sixth Directive, through Article 11A(3)(b), clearly excluded 'price discountsand rebates allowed to the customer‘ from the calculation of the taxable amountfor VAT purposes, subject only to the condition that they be 'accounted for at thetime of supply‘. Although it is arguable that 'discounts‘ of 100% would falloutside the scope of Article 11A(3)(b) and, furthermore, that very large discountsof the type envisaged by the Tribunal in explaining the reference of its firstquestion, whereby the customer is merely required to pay a token amount forgoods supplied to him, should, having regard to the provisions of Article 5(6), betreated as potential tax-avoidance devices, no such discount is at issue in thepresent case. Kuwait has not sought to structure its scheme so as to give discountsto its customers on the supply of redemption goods. On the contrary, its principalargument is that consideration is provided for those supplies as part of the pricepaid at the pump.

29.

    Accordingly, I recommend that the second question be answered to theeffect that Article 5(6) of the Sixth Directive requires that a provision, free ofcharge, of redemption goods under a sales promotion scheme such as that at issuein the present case be treated as a supply for consideration, notwithstanding thatsuch a provision is for business purposes.

D — Question 2 and consideration for the redemption goods

(i)    Synopsis of the observations

30.

    Kuwait contests the approach of the Tribunal in divorcing the previoussupply of the premium goods (fuel) from the later supply of the redemptiongoods. (15) Supported by the Commission, it contends that, in the case ofredemption goods provided in exchange for stamps obtained from its own sites, the

consideration for supply of the goods constitutes an unascertained part of theVAT-inclusive price paid by the motorist for the stamps and the fuel. If theconsumer chose not to accept the stamps, he was opting not to avail of a right thathe had paid for. In support of this contention, it relies, in particular, on the Court'sjudgment in Gibbs (16) while asserting that the Commissioners' reliance on Boots ismisconceived. Kuwait repeats its argument before the Tribunal that the sale of thefuel with the stamps forms part of the same single economic transaction as thesupply of the redemption goods.

31.

    Kuwait submits that this analysis also applies with respect to stamps suppliedby dealers. In its view, the involvement of dealers should not affect the applicationof the Community VAT law principle of neutrality. It refers particularly toparagraph 28 of the judgment in Gibbs and contends that the operation of thescheme imposed no additional burden on independent participating dealers; they,in effect, paid Kuwait an extra UK 0.22 pence/UK 0.33 pence per litre, plus VAT,for supplies of fuel in return for which they received a supply of stamps. Since thedealers may deduct that additional VAT-input component from the VAT tax dueon the subsequent supply of the fuel and stamps to their customers, the economiceffect on the dealers is neutral. Alternatively, Kuwait submits that independentdealers acted as its agents in respect of the supply of the stamps. On this analysis,part of the retail price constitutes consideration for the supply by the participatingdealer, acting on its own behalf, of fuel while the remainder (UK 0.22 pence orUK 0.33 pence per litre) is consideration for the supply by it, as agent of Kuwait,of the stamps.

32.

    The United Kingdom disagrees, saying that there was but one pump pricefor each grade of fuel. The stamps were issued, like the coupons in Boots, for noconsideration; however, the subsequent supply of the redemption goods was freeof charge, whereas the coupons issued by Boots served directly as discounts off theprice of the goods subsequently purchased. At the hearing, it was claimed that thevery rationale of promotions such as that at issue in the present case is that thecustomer should receive something without being required to pay anything inreturn. The simple fact that Kuwait incurred costs in operating the scheme doesnot affect the question whether consideration was provided. Consideration is whatis received by the taxable person for the supply. In this case, it cannot be viewedas an unascertained part of the purchase price paid by motorists; the motoristmerely paid for the fuel while also receiving stamps, without, as in Empire Stores,providing any additional consideration to Kuwait for those stamps. The UnitedKingdom, thus, does not accept that the supply of fuel and the later supply ofredemption goods constituted a single economic transaction. It submits that theadditional UK 0.22 pence/UK 0.33 pence per litre was paid to Kuwait by thedealers for fuel in return for the right to participate in the promotion and the

resulting opportunity of increasing their own turnover. It did not constitutethird-party consideration provided by dealers to Kuwait in respect of the supply ofredemption goods, since the payment had no 'direct link‘ with the delivery ofredemption goods by Kuwait. These arguments are essentially supported by Franceand Portugal.

(ii)    Analysis

33.

    The divergent views concerning whether Kuwait received consideration forthe redemption goods depend essentially on whether the sale of fuel with stampsand the subsequent supply of redemption goods for the surrender of stampsconstitute a single economic transaction, as claimed by Kuwait, or whether, asalleged in particular by the United Kingdom and France, no discernible distinctconsideration can be identified.

34.

    This issue has to be resolved by reference to the autonomousCommunity-law notion of consideration, as explained in 'Dutch Potatoes‘ andapplied in the later case-law. (17) The Court held that there must be 'a direct linkbetween the service provided and the consideration received‘, that 'considerationfor the provision of a service must be capable of being expressed in money‘ andthat 'such consideration is a subjective value since the basis of assessment for theprovision of services is the consideration actually received and not a value assessedaccording to objective criteria‘. (18) In the present case, then, the question iswhether there was a 'direct link‘ between the supply of the redemption goods andthe purchase of fuel by motorists who received stamps.

35.

    No direct link was held to exist in 'Dutch Potatoes‘ itself, between thegratuitous storage by an agricultural co-operative of potatoes for its members andthe reduced value of the members' shares in the co-operative. Similarly, when theApple and Pear Development Council, a statutory body, imposed an annual chargeupon growers, there was no direct link between the Council's activities and thatcharge. (19)

36.

    In Tolsma v Inspecteur der Omzetbelasting, which concerned whether thereceipts from passers-by by a musician who performed on public highways couldbe viewed as consideration for services provided to them, the Court ruled that a

supply of services is effected 'for consideration‘ within the meaning of Article 2(1)of the Sixth Directive, and hence is taxable, only if there is 'a legal relationshipbetween the provider of the service and the recipient pursuant to which there isreciprocal performance, the remuneration received by the provider of the serviceconstituting the value actually given in return for the service supplied to therecipient‘. (20) The Court, motivated largely by the voluntary nature of thedonations made to such musicians, found that there was 'no necessary link betweenthe musical service and the payments to which it gives rise‘. (21)

37.

    In Naturally Yours Cosmetics, on the other hand, the issue for the Court waswhether there was a direct link between the supply of goods by a wholesaler(Naturally Yours Ltd) for a price lower than their normal price and the value ofa service provided to it in respect of such transactions; i.e., between the supply oflow-cost 'dating gifts‘ to private hostesses and the party-organisation serviceprovided by beauty consultants through the hostesses for the purposes of promotingsales of the wholesaler's cosmetics. (22) The Court held that such a link was possiblesince the monetary value which the wholesaler and the beauty consultants to thecontract attributed to the service was ascertainable, namely the difference betweenthe price actually paid for the dating gift by hostesses and its normal wholesaleprice. Similarly, in Empire Stores, the issue was whether private individuals, whointroduced themselves or third parties as new customers to Empire Stores, a mailorder firm, under, respectively, a 'self-introduction scheme‘ and an'introduce-a-friend scheme‘, provided non-monetary consideration for the supplyof certain additional goods (the 'non-catalogue goods‘) to them without charge byEmpire Stores. The Court held, without distinguishing between the schemes, that'the supply of the article without extra charge is made in consideration of theintroduction of a potential new customer‘. (23) The Court held, in respect of bothschemes, that the link between 'the supply of the article without extra charge andthe introduction of a potential customer must be regarded as direct, since if theservice is not provided no article is due from or supplied by Empire Stores‘. (24)

38.

    It appears to me that the most useful point of reference for the resolutionof the present case is Boots. Money-off coupons were distributed as part of

promotions absolutely free, viz. either by means of cut-out coupons in newspapersor magazines, or by the free distribution of leaflets, or as coupons printed on thepackaging of 'premium goods‘ purchased in Boots outlets, which created anentitlement to a price reduction equal to their face value on later purchases of'redemption goods‘. Only the latter aspect of the case was in dispute. Boots hadbeen assessed for VAT on the face value of the coupons. Although the case wasformally concerned with an alleged discount, the core issue was whether, as theUnited Kingdom asserted in Boots, the reduction on purchases of redemption goodswas allowed 'in exchange for the coupon which has value‘; (25) in other words, didthe purchaser in the second transaction by surrendering coupons provideconsideration equal to the face value of the coupon? Boots was, thus, in effect aprice-reduction case. The Court stated that the coupons at issue 'represent[ed] forBoots only an obligation to grant a reduction, which is allowed with the aim ofattracting the customer‘; the coupons were 'not obtained by the purchaser forconsideration‘ and constituted 'nothing other than a document incorporating theobligation assumed by Boots to allow the bearer of the coupon, in exchange for it,a reduction at the time of the purchase of the redemption goods‘. (26)

39.

    The supply of redemption goods under the sails scheme is not, in my view,made for consideration as explained in the abovementioned cases.

40.

    I do not think that it is possible to establish the necessary direct linkbetween the supply of redemption goods and any identifiable element in the pricepaid for fuel at the pumps, even acknowledging that each motorist is entitled todemand stamps in proportion to his purchases, or at least every 12-litre unit of fuelpurchased. It is apparent from cases such as Naturally Yours Cosmetics, EmpireStores and Boots that the scheme at issue created its own identifiable link, bothqualitatively and quantitatively. If the sails scheme had entitled the motorist to agiven reduction or even, for example, the supply of a litre of fuel free for every 50litres purchased, there would have been a straightforward reduction in the price ofthe fuel supplied, akin to that in Boots. No link of the kind which arose inNaturally Yours Cosmetics and Empire Stores arises in this case.

41.

    However, there are two other decisive considerations. Firstly, it isacknowledged that a significant proportion of the stamps to which motorists are

entitled are not claimed or, if they are, that they are not always used to claimredemption goods. Kuwait's claim is that the price, ostensibly paid for fuel bothat Kuwait-owned and independent sites, is actually paid in part only for fuel, theremaining part being paid for redemption goods. Thus, the motorists who do notclaim stamps or goods are paying, pro tanto, for nothing. On that view, Kuwait, orthe independent retailers, should pay VAT, calculated by reference to the amountreceived for the sale of the fuel, but reduced by the amount of the stamps notclaimed or used. That result, though logical, is too theoretical and unreal. TheCommission refers, in support of Kuwait's analysis, by analogy to the purchase ofa theatre ticket that is subsequently not used. To my mind, when someonepurchases a theatre ticket he manifestly provides consideration for the reservationof a seat in respect of an artistic performance service to be provided later. Thathe may, for one reason or another, be unable to attend the subsequentperformance is irrelevant.

42.

    Secondly and more seriously, it seems to me impossible to adapt Kuwait'stheory of the single economic transaction to take account of the proportion of thesales of fuel which took place through the dealers. The proposed allocation of thecontribution paid by the dealers to Kuwait (UK 0.22 pence or UK 0.33 pence perlitre) to the price paid by the motorist at the pumps is entirely arbitrary. It bearsno relationship either to the actual price paid by the consumer — who has nointerest in the cost of the sails scheme — or even to the price of the redemptiongoods. This, of course, is the result of the impossibility of fitting the intermediatetransaction between Kuwait and the dealer into the framework of a supposed singleeconomic transaction between Kuwait and the consumer. In fact, it exposes theweakness of the argument. Moreover, as is implied by paragraph (c) of the fourthquestion, it is not even possible to segregate the two types of transactions. Therewas no way of distinguishing those stamps received at dealer-operated sites fromthose supplied directly by Kuwait.

43.

    In reality, it is not possible to treat as a single economic transaction a seriesof events consisting of two distinct transactions; sale of fuel coupled with thesupply of stamps and the subsequent supply of redemption goods for those stamps. This applies a fortiori when, in addition to the above events, the sale of fuel to anindependent dealer and the latter's participation in the sails scheme must also beconsidered. Although it may sometimes be necessary to determine whether anumber of distinct transactions may, for VAT purposes, be treated as constitutingone single transaction, (27) I agree with the United Kingdom that the approach incases like Skatteministeriet v Henriksen is not of general application. (28) In thepresent case, as Kuwait accepted at the hearing, a number of transactions are

involved. At a minimum, the sale of fuel and the supply of the redemption goodswere separable not only in time but as to subject-matter. Where the sails schemeis operated by a dealer, yet another transaction occurs.

44.

    I cannot pretend that it is easy to extract from the case-law a completelycoherent set of rules which it is possible to apply with total confidence to everypromotion scheme devised by the ingenuity of commerce. The Court has beenasked to give rulings of principle on a wide variety of schemes which, in reality, ithas had to judge on an ad hoc basis. In particular, there are elements in somerecent decisions which tend to support at least some aspects of Kuwait's case. Kuwait has placed considerable reliance on Gibbs. (29) It concerned amanufacturer's (Elida Gibbs) sales promotion scheme for the distribution of twotypes of coupons; money-off coupons distributed both generally to the public, vianewspapers and the like, and via retailers, and cash-back coupons, distributed bysimply printing them on the packaging of its products. Redemption of themoney-off coupons occurred through the customer, on buying one of the productsspecified on the coupon, presenting it to the retailer, who subtracted the face valueof the coupon from the shelf price of the article in question and who wouldnormally later be reimbursed by Elida Gibbs. Conversely, the cash-back couponswere to be sent directly to Elida Gibbs by the consumers and the former wouldthen make a direct cash refund for the same value to the consumer, a procedurewhich did not involve either wholesalers or retailers at all and these traders wereas unaware of which of their customers made these claims as Elida Gibbs was ofwhich retailer had sold the product. Thus, the cash refund could never beaccounted for as between Elida Gibbs and the rest of the distribution chain. However, Elida Gibbs claimed that it was due a refund of the VAT paid on thepart of its sales that was represented by the face value of the coupons, since theyrepresented 'a retroactive discount‘ on the consideration originally received byit. (30) The Court identified the basic principle of the VAT system as being thatVAT should only affect the final consumer and, consequently, that the taxableamount 'cannot exceed the consideration actually paid by the final consumer‘. (31) In respect of a manufacturer who, like Elida Gibbs, refunds the value of money-offor cash-back coupons to final consumers, the significance of this principle is thatthe consideration received is 'a sum corresponding to the sale price paid by thewholesalers or retailers for his goods, less the value of those coupons‘; in otherwords, his taxable amount cannot 'exceed the sum finally received by him‘. (32) The

Court held in Gibbs that the absence of a 'contractual relationship with the finalconsumer‘ could not affect the application of the neutrality principle. (33)

45.

    Argos (34) concerned a well-known United Kingdom catalogue retailer whichtypically supplies goods at its various outlets for cash or in return for face-valuevouchers sold previously by it, though often at a discount on their face value. (35) The issue in the Argos case was whether Argos was entitled to reduce its taxableamount, in respect of retail sales at its outlets, by reference to the bulk-purchaseor other discounts allowed by it on the earlier sale of its vouchers in differenttransactions and (normally) to different parties from those subsequently presentingthe vouchers at its outlets. The Court held that it was even though the purchaserwas typically completely unaware of any such discount. It explained that '[s]inceArgos regards the voucher as representing such part of the catalogue price as isequal to its face value, the only question is as to the actual money equivalent of thevoucher taken in payment by Argos‘, (36) an amount which had to be ascertainedby having regard 'only to the transaction which is relevant in that regard, namelythe initial transaction concerning the sale of the voucher, at a discount orotherwise‘. (37) The buyer's ignorance in the second transaction of this amount wastreated as being irrelevant.

46.

    The common element in these cases is the willingness of the Court to takea broad and flexible approach to the ascertainment of the 'subjective value‘ of theconsideration actually received, namely the amount actually received by thesupplier. The disposition to disregard the contractual relationship between supplierand purchaser extended only to that purpose. In each case, it was the subjectivevalue and not the fact of consideration that was at issue. Neither of these casesresorts to the device of a 'single economic transaction‘ invoked by Kuwait in thepresent case. In Argos, in particular, the Court was at pains to distinguish twotransactions. (38)

47.

    Similarly, in Empire Stores, which has some elements in common with thepresent case (see paragraph 37 above), the Court was asked whether the supply,in that case, of the non-catalogue goods was made for a consideration separatefrom the money payable to the supplier for the catalogue goods ordered from him. The Court identified the services involved in the introduction of a new customeras constituting a separate consideration for the supply of the non-catalogue goods. It was satisfied the value of those services provided to Empire Stores could'unquestionably be expressed in monetary terms‘, which, since it was of anon-monetary nature, should be regarded as 'the value which the recipient of theservices ... attributes to the services which he is seeking to obtain and mustcorrespond to the amount which he is prepared to spend for that purpose‘. (39) Where that amount involves the supply of goods, as in Empire Stores, the Courtheld that 'that value can only be the price which the supplier has paid for thearticle which he is supplying without extra charge in consideration of the servicesin question‘. (40) In the present case, Kuwait receives no services or otheradvantages of any kind from motorists filling their vehicles with Q8 fuel apart fromthe price paid at the pump which, as far as its customers are concerned, is paidonly in respect of the stated price of the fuel.

48.

    Finally, I do not think that the neutrality principle, as construed by theCourt in Gibbs, assists Kuwait in identifying a consideration in the present case. That principle is concerned with ensuring that VAT, as a tax on consumption, ispaid only by the final consumer. In Gibbs, the Court was concerned that thereduction in the consideration paid by the final consumer, which it regarded asoccurring as a result of the use by that consumer of the coupons issued by ElidaGibbs, should be reflected in the latter's VAT return, since, otherwise, it wouldbear the burden of the VAT included in the portion of the final retail priceeffectively not paid by the final consumer as a result of the redemption of thecoupons. In the instant case, apart from the fact that under the interpretation ofArticle 5(6) which I propose (see paragraphs 23 to 29 above), it is Kuwait whichshould be deemed to be the final consumer of the redemption goods, I do notaccept that the neutrality principle is infringed by requiring a taxable person, whohas been permitted to deduct the VAT included in the purchase price of certaingoods, to account for that VAT, by way of a VAT output, when those goods aresubsequently supplied free of charge, or in circumstances where it is impossible toidentify with sufficient clarity a separate consideration.

49.

    Accordingly, I believe that the second question posed by the national courtshould be answered to the effect that, in a case where the supplier of fuel, both atits own retail outlets and at those operated by independent retailers, operates apromotion scheme consisting of stamps which can be collected by consumers atboth types of retail outlets and used in order to claim goods from catalogues

published by the supplier, the price paid by the consumer for fuel does not includeconsideration for the supply of those goods.

E — Question 5

50.

    In the light of the answers which I propose in respect of the first fourquestions, I do not consider it necessary to address the fifth question.

IV — Conclusion

51.

    Accordingly, I recommend that the Court answer the first three questionsreferred by the VAT and Duties Tribunal, London as follows:

For the purposes of the Sixth Council Directive 77/388/EEC of 17 May 1977 on theharmonisation of the laws of the Member States relating to turnover taxes —Common system of value added tax: uniform basis of assessment; where asupplier 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 premium goodsbecame entitled by paying the full retail price of those goods withoutmaking any identifiable monetary payment for the vouchers;

(1)    There is no price discount allowed to the customer for the purposes ofArticle 11A(3)(b) of the Sixth Directive;

(2)    Article 5(6) of the Sixth Directive is to be interpreted as requiring that aprovision, free of charge, of redemption goods under a sales promotionscheme such as that at issue in the present case be treated as a supply forconsideration, notwithstanding that such a provision is for business purposes;

(3)    In a case where the supplier of fuel, both at its own retail outlets and atthose operated by independent retailers, operates a promotion schemeconsisting of stamps which can be collected by consumers at both types ofretail outlets and used in order to claim goods from catalogues published bythe supplier, the price paid by the consumer for fuel does not includeconsideration for the supply of those goods.

1: Original language: English.

2: —    Sixth Council 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.

3: —    The Court has been informed that, of the 500 independent sites, about 220 were operatedby major dealers, of whom 160 agreed to participate in the sails scheme.

4: —    Payment was effected by means of a reduction off-invoice in the dealers' trading marginduring the promotion period.

5: —    The order for reference refers to a rate of 79%, which is based on the theoreticalmaximum number of stamps which could have been issued having regard to the totalamount of fuel sold.

6: —    If point of sale and other related costs, as well as the contingent liability for the cost offuture redemptions, were excluded, the figure would be UK 0.27 pence per litre.

7: —    First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislationof Member States concerning turnover taxes; OJ, English Special Edition, First Series1967 (I), p. 14.

8: —    Reliance was placed upon Advocate General Van Gerven's Opinion in Case C-33/93Empire Stores v Commissioners of Customs & Excise [1994] ECR I-2329 (hereinafter'Empire Stores‘), paragraph 19, and the speech of Lord Slynn in Customs & ExciseCommissioners v PFA (Enterprises) Ltd [1993] STC 86 (HL), where, in respect of what wasthen paragraph 5(2) of Schedule 4 of the Value Added Tax Act 1983 (now paragraph 6 ofSchedule 6 of the 1994 Act), he held that it was 'directed to cases where the taxableperson has obtained a credit for input tax on the purchase of a business asset and thenmerely gives it away without payment of output tax‘.

9: —    Particular reliance was placed on Case 230/87 Naturally Yours Cosmetics v Commissionersof Customs & Excise [1988] ECR 6365 (hereinafter 'Naturally Yours Cosmetics‘).

10: —    It was conceded that extra output VAT on the amount of UK 0.33 pence (orUK 0.22 pence) per litre would, on this analysis, be due from Kuwait. In the alternative,the self-introduction of the customer as a customer of the dealer who sold Q8 fuel wasadvanced as a possible consideration. However, this contention was flatly rejected by theTribunal, which found it to be 'far-fetched‘.

11: —    Case C-126/88 [1990] ECR I-1235 (hereinafter 'Boots‘).

12: —    Thus, Case C-20/91 De Jong v Staatssecretaris van Financiën [1992] ECR I-2847, which isthe only case in which the Court has, to date, considered Article 5(6), and which concernedthe application to private use of what had previously been a business asset, in that case adwelling, is not in point.

13: —    It should be noted that, in so far as some of the gifts supplied by Kuwait took the form ofholiday vouchers, they may be subject not to Article 5(6) but, as a supply of intangibleproperty rights, constitute a provision of services for the purposes of Article 6(1) and,pursuant to Article 6(2)(b), be subject to no additional charge to VAT. Since no questionregarding this aspect of the sails scheme has been referred to the Court, this is a matterfor the national court alone.

14: —    Proposal for a sixth Council Directive on the harmonisation of legislation of MemberStates concerning turnover taxes — Common system of value added tax: uniform basis ofassessment; OJ 1973 C 80, p. 1.

15: —    It contends that the Tribunal's reasoning is inconsistent with the approach adopted by adifferently constituted VAT and Duties Tribunal, London in Gallagher v Commissionersof Customs and Excise, in which an application to make a reference has been stood overpending the outcome of the reference in the present case; direction of 3 April 1997. Gallagher also concerns a redemption scheme whereby vouchers were included with thesale of the premium goods (cigarettes) and could, together with the packaging from thecigarettes, later be exchanged for redemption goods. In a letter to the Registrar of theCourt of 1 May 1997, the President of the VAT and Duties Tribunals enclosed a copy ofhis provisional decision in Gallagher for the benefit of the Court in the present case andexplained that, as he saw no material difference between the Gallagher and KuwaitPetroleum cases, he had deferred making a reference pending the Court's ruling in thelatter.

16: —    Case C-317/94 Gibbs v Commissioners of Customs & Excise [1996] ECR I-5339 (hereinafter'Gibbs‘).

17: —    See Case 154/80 Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats[1981] ECR 445 (hereinafter 'Dutch Potatoes‘), where the Court held that the meaningof 'consideration ... is part of a provision of Community law which does not refer to thelaw of the Member States for the determining of its meaning and its scope‘.

18: —    Ibid., paragraphs 12 and 13.

19: —    Case 102/86 Apple and Pear Development Council v Commissioners of Customs & Excise[1988] ECR 1443.

20: —    Case C-16/93 [1994] ECR I-743 (hereinafter 'Tolsma‘), paragraph 14.

21: —    Ibid., paragraph 17.

22: —    Loc. cit., footnote 8 above.

23: —    Empire Stores, loc. cit., paragraph 13. According to Advocate General Van Gerven, 'thegift is evidently intended as the quid pro quo for an advantage supplied to Empire Storesby the person making the introduction, even if that advantage differs according to thescheme applied‘; paragraph 14 of the Opinion.

24: —    Ibid., paragraph 16. The fact that the extra goods under the 'introduce-a-friend scheme‘were only supplied when the new customer placed an order and complied with certainother conditions did not preclude the finding of a direct link.

25: —    Loc. cit., footnote 10 above, paragraph 20.

26: —    See paragraphs 13 and 21 of the judgment. Advocate General Van Gerven viewed thecoupons as price-reduction certificates. He saw no distinction between those given awayfree and those acquired on purchasing premium goods. Regarding the latter, he felt thatthere was a direct link between the full price and the supply of the premium goods. Inrespect of the supply of the redemption goods, the acceptance of the coupon 'constitutesan obligation on the part of the supplier [and] cannot be regarded as consideration, thatis to say an advantage for the supplier capable of being expressed in money. It is thereforeto be regarded as price discount or rebate within the meaning of Article 11A(3)(b)‘(emphasis in original); paragraph 15 of the Opinion.

27: —    See, in this respect, paragraph 42 of my Opinion of 11 June 1998 in Case C-349/96 CardProtection Plan v Commissioners of Customs & Excise.

28: —    Case 173/88 [1989] ECR 2763.

29: —    Loc. cit., footnote 15 above.

30: —    Gibbs, paragraph 12.

31: —    Ibid., paragraph 19.

32: —    Paragraph 28.

33: —    Paragraph 31. The Court took the view (paragraphs 32 and 33) that the functioning of theVAT system at the intermediate stages in the chain of distribution would be unaffected; thus, intervening suppliers could, in effect, continue to use the input and output VATfigures which applied in respect of the initial (pre-redemption of the coupons) supplies tothem of Elida Gibbs goods.

34: —    Case C-288/94 Argos Distributors v Commissioners of Customs & Excise [1996] ECR I-5311(hereinafter 'Argos‘).

35: —    In the present case, Argos supplied Kuwait, for part of the duration of the sails scheme,with the redemption goods.

36: —    Argos, paragraph 18.

37: —    Ibid., paragraph 20.

38: —    Paragraph 15.

39: —    Empire Stores, paragraphs 17 and 19.

40: —    Ibid., paragraph 19.