When a retailer is paid for a product with cash and a money off purchase coupon, is VAT payable on just the cash? “It depends” said the ECJ.
Who: Yorkshire Co-operatives Limited, the Commissioners for Customs & Excise
When: January 2003
Where: European Court of Justice Luxembourg
In what at first sight appears to be judicial U-turn, the European Court of Justice has held that a retailer receiving payment for a product by way of cash and reimbursement in respect of a money off purchase coupon has to account for VAT on the cash plus the reimbursement. Yorkshire Co-operatives Limited (YCL) was a retailer of food and non-food goods. It bought some food products direct from a manufacturer (M) at the normal wholesale price. Separately, M issued money off next purchase coupons free and direct to the public. Those coupons were then brought to YCL, who accepted them, together with cash reduced by the value of the coupon, in return for M's products. YCL then sent the coupons back to M, who reimbursed the face value of the coupons to YCL.
The question for the court was whether the taxable amount for VAT purposes for the supply of M's products by YCL to its customers was only the cash received from customers, or the cash plus the value of the coupon.
The ECJ was clear in its judgement: the taxable amount in the hands of YCL was the full retail price, namely the price paid by the final consumer plus the face value of the coupon, being the amount reimbursed to YCL by M.
Why this matters:
On the face of it this judgement looks inconsistent with the decision of the same court, the European Court of Justice, in the case of the Boots Company Plc v Commissioners for Customs & Excise in March 1990. Here the judgement of the court was that the taxable amount in the hands of the retailer in respect of the product sale was only the cash received, not the cash plus the face value of the coupon.
The big differences between this 1990 case and the YCL case, however, was that the consumer came by the money off next purchase voucher in an altogether different way, and on the aspect of voucher value reimbursement. In the Boots case, the voucher had been provided to the consumer when the consumer brought other products from Boots and there was no reimbursement to Boots of the voucher value from a separate wholesaler. In the YCL case, the vouchers had been given away free by the manufacturer (not retailer) either in the form of coupons distributed generally or in the form of cut-out coupons published in newspapers and magazines. There was also reimbursement to YCL of the coupon value by the coupon issuer.
Although the distinction is clear, this latest judgement underlines the need for considerable care in the tax treatment of money off next purchase vouchers.