Keywords
Summary

Keywords

1. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Taxable amount – Deduction of input tax – Tax due or paid in respect of goods and services supplied to the taxable person

(Council Directive 77/388, Arts 5, 6, 11.A(1)(a)), and 17(2))

2. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Taxable amount – Deduction of input tax – Tax due or paid in respect of goods and services supplied to the taxable person

(Council Directive 77/388, Arts 5, 6, 11.A(1)(a)), and 17(2))

Summary

1. In relation to a customer loyalty rewards scheme in which the operator of the scheme enters into contracts with the suppliers of loyalty rewards, pursuant to which, when those suppliers deliver the loyalty rewards to the customers of traders in exchange for points, the operator pays to them an agreed value for those points, Articles 5, 6, 11.A(1)(a) and – in the version resulting from Article 28f(1) – Article 17(2) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, as amended by Directive 95/7, must be interpreted as meaning that payments made by the operator of the scheme concerned to the suppliers of loyalty rewards to customers must be regarded as being the consideration, paid by a third party, for a supply of goods to those customers or, as the case may be, a supply of services to them. It is, however, for the national court to determine whether those payments also include the consideration for a supply of services corresponding to a separate service.

While that loyalty rewards scheme is designed to encourage customers to make their purchases from particular traders and while, to that end, the operator of the scheme supplies a certain number of services linked to the operation of that scheme, nevertheless the economic reality is that, under that scheme, loyalty rewards, which may consist of both goods and, services, are supplied by the suppliers to the customers. Further, such a transaction, consisting of the supply of loyalty rewards, is subject to value added tax, since it is effected for consideration within the territory of the country by a taxable person acting as such. Admittedly, the sale of goods and the supplies of services giving rise to the award of points to customers, on the one hand, and the supply of loyalty rewards in exchange for those points, on the other hand, are two separate transactions. However, it is not a requirement of the Sixth Directive that, for a supply of goods or services to be effected ‘for consideration’, within the meaning of Article 2.1 of that directive, the consideration for that supply must be obtained directly from the person to whom those goods or services are supplied. Article 11.A(1)(a) of that directive provides that the consideration may be obtained from a third party. In that regard, since the redeeming of points by customers with the suppliers gives rise to a payment by the operator of the loyalty reward scheme to the suppliers, and since that payment is calculated by adding the charges payable by the operator, which represent a fixed amount for each point redeemed against all or part of the price of the loyalty reward, that payment represents the consideration for the supply of the loyalty rewards.

(see paras 41-43, 47, 55-57, 65, operative part)

2. In relation to a customer loyalty rewards scheme in which the operator of the scheme, who acquires a stock of loyalty rewards and is thereby the owner of them, markets that scheme and distributes those rewards to the customers of sponsoring traders in exchange for loyalty points, Articles 5, 6, 11.A(1)(a) and – in the version resulting from Article 28f(1) – Article 17(2) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, as amended by Directive 95/7, must be interpreted as meaning that payments made by a sponsor to the operator of that scheme who supplies loyalty rewards to customers must be regarded as being, in part, the consideration, paid by a third party, for a supply of goods to those customers and, in part, the consideration for a supply of services made by the operator of that scheme for the benefit of that sponsor.

While that loyalty rewards scheme is designed to encourage customers to make their purchases from particular traders and while, to that end, the operator supplies a certain number of services linked to the operation of that scheme, nevertheless the economic reality is that, under that scheme, loyalty rewards, which consist of goods, are supplied by the operator to the customers. Further, such a transaction, consisting of the supply of loyalty rewards, is subject to value added tax, since it is effected for consideration within the territory of the country by a taxable person acting as such. Admittedly, the sale of goods and the supplies of services giving rise to the award of points to customers, on the one hand, and the supply of loyalty rewards in exchange for those points, on the other hand, are two separate transactions. However, it is not a requirement of the Sixth Directive that, for a supply of goods or services to be effected ‘for consideration’, within the meaning of Article 2.1 of that directive, the consideration for that supply must be obtained directly from the person to whom those goods or services are supplied. Article 11.A(1)(a) of that directive provides that the consideration may be obtained from a third party. In that regard, since the loyalty rewards are invoiced by the operator of the scheme to the sponsor at the retail sale price with the addition of delivery charges applicable to the place where the order is made, ownership is transferred and points redeemed, under deduction of the operators’ profit margin which consists of the difference between the retail sale price of the loyalty rewards and the purchase price at which the operator obtains those rewards, the payment by the sponsor to the operator constitutes the consideration for the supply of those rewards.

However, since the payments made by the sponsor to the operator correspond to the retail sale price of the loyalty rewards with the addition of packaging and delivery costs and since, accordingly, the operator obtains a profit margin representing the difference between the retail sale price of the loyalty rewards and the purchase price at which the operator obtains those rewards, the payment can be divided into two elements, each of which corresponds to a separate service. Consequently, the purchase price constitutes the consideration for the supply of loyalty rewards to the customers, whereas the difference between the retail sale price, paid by the sponsor, and the purchase price paid by the operator in order to obtain the loyalty rewards, namely the profit margin, constitutes the consideration for the services which the operator of the scheme supplies to the sponsor.

(see paras 22, 41-43, 48, 55-56, 58, 61-63, 65, operative part)