C-18/92 Bally

Judgment of the Court (Sixth Chamber) of 25 May 1993. - Chaussures Bally SA v Belgian State, Minister for Finance. - Reference for a preliminary ruling: Tribunal de première instance de Bruxelles - Belgium. - Value added tax - Sixth directive - Taxable amount. - Case C-18/92. European Court reports 1993 Page I-02871

Summary Parties Grounds Decision on costs Operative part

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Tax provisions ° Harmonization of laws ° Turnover taxes ° Common system of value added tax ° Taxable amount ° Transaction of sale with payment by credit card ° Commission retained by the issuer of the card ° Inclusion in the taxable amount

(Council Directive 77/388, Art. 11A(1)(a))

Article 11A(1)(a) of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted as meaning that where, in the context of a transaction of sale, the price of the goods is met by the purchaser by means of a credit card and paid to the supplier by the organization which has issued the card, after deduction of a percentage as commission in payment for the service rendered by the latter to the supplier of the goods, the sum so deducted must be included in the taxable amount on which the supplier, as the taxable person, must pay tax to the revenue authorities.

In Case C-18/92,

REFERENCE to the Court under Article 177 of the EEC Treaty by the Tribunal de Première Instance, Brussels, for a preliminary ruling in the proceedings pending before that court between

Chaussures Bally SA

and

Belgian State

on the interpretation of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1),

THE COURT (Sixth Chamber),

composed of: C.N. Kakouris, President of the Chamber, G.F. Mancini, F.A. Schockweiler, M. Diez de Velasco and P.J.G. Kapteyn, Judges,

Advocate General: C. Gulmann,

Registrar: H.A. Ruehl, Principal Administrator,

after considering the written observations submitted on behalf of:

° SA Chaussures Bally, by Luc Simonet, of the Brussels Bar,

° the Belgian State, by Ignace Maselis, of the Brussels Bar,

° the Government of the United Kingdom, by John Collins, of the Treasury Solicitor' s Department, acting as Agent, assisted by David Anderson, Barrister,

° the Commission of the European Communities, by Henri Étienne, Principal Legal Adviser, and Johannes Fons Buhl, Legal Adviser, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of SA Chaussures Bally, the Belgian State, the Government of the United Kingdom, represented by David Anderson and Susan Cochrane, of the Treasury Solicitor' s Department, acting as Agents, and the Commission of the European Communities, at the hearing on 14 January 1993,

after hearing the Opinion of the Advocate General at the sitting on 3 March 1993,

gives the following

Judgment

Grounds

1By judgment of 10 January 1992, received at the Court on 23 January 1992, the Tribunal de Première Instance (Court of First Instance), Brussels, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) (hereinafter "the Sixth Directive").

2Those questions arose in proceedings between SA Chaussures Bally ("Bally") and the Belgian State on the subject of the repayment of sums paid by Bally to the Belgian State as value added tax ("VAT").

3It may be seen from the judgment ordering the reference that Bally, which markets shoes bearing the trade-mark "Bally" acepts payment from its customers for their purchases either in cash or by cheque or by credit card. For the latter case Bally concluded, with various organizations issuing credit cards, agreements providing that when the customer, the credit card holder, purchases an article using the card, the organization issuing the card pays the supplier the price of the article and retains a commission amounting usually to some 5% of the payment.

4Bally, which is a taxable person for VAT purposes under Article 4 of the Belgian VAT Code, was unsure whether it owed the tax on the net amount which it received from the card-issuing organizations after deduction of their commission or on the gross amount, that is, the price of the goods before deduction of that commission. However, Bally always paid the VAT on the net amount until 1988 when, following a tax inspection relating to previous years going back to 1984, the Special Inspector of Taxes, after regularizing the position for the years 1984 to 1987, decided that "for the calculation of the taxable amount commission is not deductible from the price" and demanded from Bally an additional payment of BFR 2 206 000 by way of VAT, plus fiscal fines and interest.

5Bally paid the sum demanded, though with reservations, and, whilst paying VAT on the gross amount as from 1989, brought an action before the Tribunal de Première Instance, Brussels, claiming repayment of the whole amount levied, in its view illegally, by way of VAT plus legal interest, and damages.

6The Tribunal de Première Instance, Brussels, being of the opinion that the decision in the case turned on the interpretation of the Sixth Directive, decided, by an interim judgment inter partes of 10 January 1992, to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

"1. Article 11(1)(a) of the directive:

In the context of a sale in which the payment is made by credit card, must not the view be taken that the consideration obtained from the credit organization by the affiliated trader for the delivery of a product is restricted solely to the amount received from that organization by the affiliated trader?

or

2. Article 11(3)(c) of the Sixth Directive:

Must the amount of the commission or discount retained by the issuing organization from the price displayed be regarded as payment for the expense incurred on behalf of the affiliated trader so as to ensure him a guaranteed payment and accordingly not form part of the taxable amount under Article 11(3)(c) of the Sixth Directive?"

7Reference is made to the Report for the Hearing for a fuller account of the Community rules, the facts of the main proceedings, the course of the procedure and the written observations submitted to the Court, which are hereinafter mentioned or discussed only in so far as is necessary for the reasoning of the Court.

The factual and legal background

8In order to usefully give an answer in response to the problem of interpretation raised by the questions referred to the Court, the problem must be defined in the light of the factual and legal context resulting from the findings of the national court.

9The documents submitted to the Court show that, when the purchaser pays the price of the goods by means of a credit card, there are two transactions: on the one hand the sale of the goods by the supplier, who calculates in the total price demanded the VAT which will be paid by the purchaser as the final consumer and which is charged by the supplier on behalf of the revenue authorities, and on the other hand the service performed for the supplier by the organization issuing the credit card. The latter service is that of guaranteeing payment for the goods purchased by means of the card, the promotion of the supplier' s business by enabling him to acquire new customers, possible publicity on his behalf or the like.

10The documents before the Court also show that the second transaction described above is exempt from VAT in Belgium pursuant to Article 13B(d) of the Sixth Directive, which allows Member States to exempt inter alia certain transactions relating to the granting and negotiation of credit and the management of credit by the person granting it, the negotiation of or any dealings in credit guarantees or any other security or guarantee.

First question

11By the first question the national court asks substantially whether Article 11A(1)(a) of the Sixth Directive must be understood as meaning that where, in the context of a sale transaction, the price of the goods is met by the purchaser by means of a credit card and paid to the supplier by the organization issuing the card after the retention of a percentage as commission in payment for a service rendered by the latter to the supplier of the goods, the sum retained must be included in the taxable amount for the tax which the supplier, as a taxable person, has to pay to the revenue authorities.

12According to Article 11A(1)(a) of the Sixth Directive, within the territory of the country the taxable amount is, in respect of supplies of goods, 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. The purpose of that provision is therefore, as may be seen from the ninth recital in the preamble to the Sixth Directive, to harmonize the taxable amount.

13Bally states that where payment is made by credit card the consideration which serves to determine the taxable amount should consist of the net sum actually received by the supplier after the organization issuing the card has deducted its commission because otherwise a supplier who arranges to be paid by the issuer of the card a sum less than the full price would thus be bearing improperly the consequences of the exemption from VAT granted in Belgium to the card-issuing organizations.

14That argument cannot be upheld. The harmonization sought by Article 11A(1)(a) of the Sixth Directive could not be achieved if the taxable amount varied according to whether the calculation was for the VAT to be borne by the final consumer or for determining the sum to be paid to the revenue authorities by the taxable person. It follows that when the supplier has calculated on the full price the VAT to be paid by the purchaser so as to charge it on behalf of the revenue authorities it is the same taxable amount which must be taken into account to determine the corresponding amount of VAT which the supplier as a taxable person is to pay to the revenue authorities.

15Bally also claims that the supplier is compelled for reasons of competition to accept payment by card and that it is not therefore the supplier who is the beneficiary of any service rendered by the organization issuing the card but the purchaser, the card-holder, and that the percentage of the price retained by the issuing organization does not represent the consideration for a service rendered to the supplier by that organization.

16It should be pointed out in that respect that the fact that the purchaser did not pay the price agreed direct to the supplier but through the intermediary of the organization issuing the card, which retained a percentage calculated on the price, cannot change the taxable amount. That deduction made by the card-issuing organization represents the consideration for a service rendered by it to the supplier. That service represents an independent transaction in respect of which the purchaser is a third party.

17It should be added that the method of payment used in the relations between the purchaser and the supplier cannot alter the taxable amount. The payment of the consideration for the delivery of goods may be made, according to Article 11A(1)(a), not only by the purchaser but also by a third party, in this case the organization issuing the card.

18Consequently the answer to the first question should be that Article 11A(1)(a) of the Sixth Directive must be interpreted as meaning that where, in the context of a transaction of sale, the price of the goods is met by the purchaser by means of a credit card and paid to the supplier by the organization issuing the card, after deduction of a percentage as commission in payment for the service rendered by the latter to the supplier of the goods, the sum so deducted must be included in the taxable amount on which the supplier, as the taxable person, must pay tax to the revenue authorities.

Second question

19By the second question the national court asks essentially for an interpretation of Article 11A(3)(c) of the Sixth Directive which it would find relevant if the percentage retained by the organization issuing the card were to represent, within the meaning of that provision, expenses paid out by the latter in the name and for the account of the supplier.

20In that regard, it should be stated that the national court' s findings, on the basis of which it has raised the first question, run counter to the supposition on which that question is based.

21In those circumstances there is no need to reply to the second question.

Costs

Costs

22The costs incurred by the Belgian Government, the Government of the United Kingdom and the Commission of the European Communities, 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 action/proceedings pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Sixth Chamber),

in answer to the question referred to it by the Tribunal de Première Instance, Brussels, by judgment of 10 January 1992, hereby rules:

Article 11A(1)(a) of the Sixth Directive must be interpreted as meaning that where, in the context of a transaction of sale, the price of the goods is met by the purchaser by means of a credit card and paid to the supplier by the organization which has issued the card, after deduction of a percentage as commission in payment for the service rendered by the latter to the supplier of the goods, the sum so deducted must be included in the taxable amount on which the supplier, as the taxable person, must pay tax to the revenue authorities.

OPINION OF ADVOCATE GENERAL GULMANN delivered on 3 March 1993 * Mr President, Members of the Court,

1The Tribunal de Première Instance, Brussels, has referred to the Court for a preliminary ruling two questions concerning the interpretation of Article 11A of the Sixth Directive on VAT. 1 These questions arise in proceedings brought by the Belgian company SA Chaussures Bally against the Belgian revenue 'authorities for a declaration that a decision taken by them is void.

2The court of reference has explained in its order for reference that the plaintiff markets 'Bally' shoes through a network of shops in Belgium and has further stated as follows:

'The customers of shops run by the plaintiff pay for their purchases either in cash, by cheque of by credit card for example "American Express", "Diners' Club" or the like;

In order to meet the wishes of potential customers to use credit cards as a means of payment, the plaintiff signed "shop" type agree

* Original language: Danish.

ments with organizations issuing credit cards;

Such organizations withhold from the traders affiliated to them a commission which is generally some 5% of the payments which they make to them following their use of the credit cards ...;

That commission represents payment for the services which the Diners' Club performs for establishments affiliated to it;

Certain organizations issuing credit cards prefer to submit one invoice for all their services (American Express), whereas others regard the service as relating to the individual purchase (Diners), but the commission or discount is always calculated on the whole turnover in the transactions between the affiliated establishment and the issuing organization.'

3It further appears from the order for reference that:

— at one stage Bally had asked the Belgian revenue authorities to clarify the question whether it was required to pay VAT on the full selling price or whether it was responsible only for tax on the amount it received from the organizations issuing credit cards after they had deducted their commission; and

— the Belgian revenue authorities claim in the main proceedings that the taxable amount is the first-mentioned sum, whilst Bally claims that the taxable amount is the second such sum.

4The first question referred to the Court is as follows:

'1. Article 11(1)(a) of the directive:

In the context of a sale in which the payment is made by credit card, must not the view be taken that the consideration obtained from the credit organization by the affiliated trader for the delivery of a product is restricted solely to the amount received from that organization by the affiliated trader?'

5Article 11 of the directive contains rules as to the taxable amount. Article 11A lays down rules as to the taxable amount for transactions within the territory of the country. Paragraph 1 provides:

'1. The taxable amount shall be:

(a) in respect of supplies of goods ... 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 ...'

Article 11A(2) and (3) lay down, respectively, as regards certain specific cases, what is to be included in the taxable amount (for example taxes, other than VAT, and packing, transport and insurance costs) and what is not to be included therein (for example price reductions by way of discount for early payment).

6It may perhaps be helpful to show by certain figures the practical significance of the differing points of view.

If it is assumed for example that:

— the rate of VAT is 20%;

— the selling price less VAT is ECU 100; and

— the commission deducted by the card-issuing organization on payment to the vendor is 5%,

the Belgian authorities' view would mean that the company's taxable amount would be ECU 100, that is, that the VAT due is ECU 20, whereas Bally's view would imply that the taxable amount is only ECU 95, that is, that the VAT due is ECU 19.

It may also be appropriate to stress that:

— the vendor has claimed from the purchaser, that is, the final consumer, VAT on the full amount and that the purchaser has signed a 'credit card slip' for ECU 120;

— Bally receives from the issuer of the credit card ECU 114, since the commission of 5%, according to the information received, is calculated, in pursuance of the existing agreements between Bally and the issuers of the credit cards, as the selling price including VAT; and

— in accordance with a possible exception in the directive, it seems that in Belgium VAT is not levied on the card-issuing organizations' commission.

7Bally states in its observations submitted to the Court substantially that in fact it receives from the card-issuers, to take the figures in the example, only ECU 95 in payment for the goods sold, together with ECU 19 representing VAT on the payment actually received for the goods, that the ECU 95 must therefore be regarded as the consideration it has received from a third party for the sale of the goods and that it is therefore that amount which, according to Article 11A, represents the taxable amount. Bally states in addition that it is particularly the card holders, that is, the purchasers, who benefit from the services provided by the card-issuers, and that it is unreasonable for the company to have to pay VAT on sums paid to the card-issuers, simply because they are exempt.

The Belgian Finance Minister, the United Kingdom and the Commission agree that Article 11A must be interpreted as meaning that the taxable amount is the full amount of the consideration, namely ECU 100. There are certain differences in the reasons they give. These differences arise inter alia in a different view as to whether the consideration for the goods supplied is received from the purchaser or from a third party, namely the card-issuers.

8In my view there can be no reasonable doubt that Article 11A must be interpreted as meaning that the taxable amount is the sum on which Bally demands VAT from the purchasers, even if they pay by credit card.

I think it is important to remember that the purpose of Article 11A is primarily to establish the taxable amount — the taxable value — of the goods delivered by a supplier to a purchaser with a view to the latter's paying VAT at the rate applicable in the Member State on the taxable amount thus laid down. The VAT is 'paid' in the last resort by the final consumer as a given percentage of the taxable amount, as to which see Article 12(3) of the directive. The detailed provisions of Article 11A(1) to (3) aim in the first place at solving the problems which not infrequently arise in practice, when the taxable person, the supplier, has to determine the taxable amount in relation to the person who has to pay the VAT for the article supplied.

9Accepting Bally's view would mean that there may be a difference between the taxable amount used when demanding VAT from final consumers and that which determines the amount of VAT payable by the taxable person to the authorities. It seems to me hard to reconcile with the system of the directive to accept that such a difference can exist and in any case Bally did not succeed in showing that there should be such a difference in this situation.

10In my view there are no compelling reasons for following the company's point of view. In this connection it seems to me that there is no problem in regarding the commission which the card-issuer deducts from the amount on the credit-card payment slip as Bally's payment for the services rendered to it by the card-issuer. It is a fact that the commission payable is laid down in an agreement between Bally and the card-issuer on which the card-holder, that is, the purchaser of the goods, has no influence. Bally has thus also assumed the obligation to pay commission on the full value shown on the credit-card payment slip, namely the selling price plus VAT.

Moreover, in my opinion, Bally is misunderstanding the position when it expresses the view that the fact that the services of the card-issuer are not subject to VAT is of essential importance for assessing this case. If such services were subject to VAT the consequences at first sight would be only that the commission of 5% would have to be subject to VAT and that Bally would therefore have to pay a larger sum to the card-issuers.

11The United Kingdom stressed during the oral procedure, correctly in my view, that the Court should ensure that the reasons it gives for its answers to the question referred to it should not as such have a content as to be able to influence the legal description of the legal relationships, which in other respects are quite complicated, between card holders, card-issuers and the suppliers affiliated to the latter. The reasons I have given for my suggested answer do not seem to me, and in any event are not intended, to be capable of being taken as support for any particular view as to how the legal relationships between the parties involved are to be described outside the sphere of VAT.

12The Commission called attention in its written observations to the fact that in certain circumstances — namely where a supplier generally gives cash customers a discount equal to the card issuer's commission — there might be grounds for modifying the solution supported by the Commission itself in this case. The United Kingdom Government stated during the oral procedure that it did not agree with the Commission on this point. I do not think there is any reason for the Court to express an opinion on that question in this case, in which it is clear according to the order for reference that the circumstances referred to by the Commission do not apply.

13The second question from the court of reference is worded as follows:

'Article 11(3)(c) of the Sixth Directive:

Must the amount of the commission or discount retained by the issuing organization from the price displayed be regarded as payment for the expense incurred on behalf of the affiliated trader so as to ensure him a guaranteed payment and accordingly not form part of the taxable amount under Article 11(3)(c) of the Sixth Directive?'

14Article 11A(3)(c) provides that the taxable amount is not to include:

'the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account ...'.

15That provision cannot be quoted as support for thinking that Bally may use as the taxable amount in relation to the revenue authorities the sum which it receives from the card-issuing organization.

As previously mentioned, the purpose of Article 11A(3) is to make it clear that the supplier of goods is not to include certain sums in the taxable amount used as against the purchaser. The purpose of subparagraph (c) is thus to make it clear that there are sums which the supplier does as a matter of pure fact receive from purchasers but which nevertheless are not to be included in the taxable amount because they are only a repayment of expenses which the supplier has incurred in the purchasers' interest and which cannot therefore be regarded as a part of the consideration for the goods delivered.

This case relates to a quite different situation since the purchaser has in fact paid VAT on a taxable amount from which no deduction of the kind referred to in Article 11A(3)(c) has been made.

It may be added that, as has already been mentioned, it cannot be regarded as natural to consider the commission paid as an amount paid out 'in the name and for the account' of the purchaser.

Conclusion

16I therefore suggest that the Court should reply as follows to the questions referred to it by the Tribunal de Première Instance, Brussels:

Article 11A of the Council's Sixth Directive should be interpreted as meaning that when a purchaser pays for an article with a credit card the taxable amount is the selling price — excluding the value added tax itself — which appears on the credit card payment slip signed by the purchaser at the time of the purchase and not the amount which the supplier receives from the organization issuing the credit card after the latter has deducted an amount as commission.

Notes

(1) Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

(2) The case-law of the Court on the interpretation of Article

(11) A relates moreover to such situations, for example the judgments in Joined Cases 138 and 139/86 Direct Cosmetics [1988] ECR 3937 and in Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365.