C-288/94 Argos Distributors

JUDGMENT OF THE COURT (Sixth Chamber)

24 October 1996"

In Case C-288/94,

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

Argos Distributors Limited

and

Commissioners of Customs and Excise

on the interpretation of Article 11 of the Sixth Directive, 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: G. E Mancini, President of the Chamber, C. N. Kakouris (Rapporteur) and G. Hirsch, Judges,

* Language of the case: English.

Advocate General: N . Fennelly, Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

— Argos Distributors Ltd., by David Milne QC, instructed by Herbert Smith, Solicitors,

— the United Kingdom Government, by Stephen Braviner, of the Treasury Solicitor's Department, acting as Agent, assisted by Nicholas Paines, Barrister,

— the Greek Government, by Michail Apessos, Legal Adviser in the State Legal Service, Foteini Dedousi, Agent for Legal Proceedings in the State Legal Service, and Anna Rokofyllou, Special Adviser to the Deputy Minister for Foreign Affairs, acting as Agents,

— the Commission of the European Communities, by Peter Oliver and Enrico Traversa, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Argos Distributors Ltd, represented by David Milne QC, the United Kingdom Government, represented by Kenneth Parker QC, the Greek Government, represented by Michail Apessos and Fokion Georgakopoulos, Legal Adviser in the State Legal Service, acting as Agent, and Anna Rokofyllou, and the Commission, represented by Peter Oliver and Enrico Traversa, at the hearing on 25 April 1996, after hearing the Opinion of the Advocate General at the sitting on 27 June 1996,

gives the following

Judgment

Grounds

1By order of 26 September 1994, received at the Court Registry on 25 October 1994, the VAT and Duties Tribunal, London, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty three questions on the interpretation of the Sixth Directive, 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 have been raised in proceedings brought by Argos Distributors Ltd (hereinafter 'Argos') against the Commissioners of Customs and Excise (hereinafter 'the Commissioners'), who are responsible for collecting value added tax (hereinafter 'VAT'), in which Argos seeks a refund of sums paid by Argos to the United Kingdom Government in respect of VAT.

3According to the order for reference and the documents accompanying it, Argos is a retailer which lists its goods in a catalogue and sells them from its showrooms. It has more than 300 outlets of that kind throughout the United Kingdom.

4Goods purchased can be paid for by means of vouchers issued and sold by Argos under its incentive scheme. Each voucher is in the form of a printed note and has a face value of £1, £5, £10, £20 or £25. According to the conditions for use of the vouchers, they may be used, at the value shown, for part or full payment for goods or services purchased in Argos showrooms but cannot be redeemed for cash.

5Argos sells its vouchers either at face value or at a discount. The size of the discount depends on the value of the order. The normal discount is 5% of the face value of the vouchers where the order amounts to £500 or more. There is a retroactive additional discount of 1% or 2.5% for orders exceeding £10 000 and £50 000 respectively within one year.

6The main buyers of the vouchers are companies which distribute them to their staff or representatives by way of incentive, and financial services companies which resell them to the public at or below face value. The last recipient of a voucher does not necessarily know who originally bought it or whether a discount from face value was granted.

7Any customer making a purchase in an Argos shop may present a voucher in full or partial payment of the price of the goods up to the face value of the voucher. If the face value of the voucher exceeds the value of the purchase, the surplus is not repaid in cash. If stolen, vouchers can be cancelled and replaced. Following use in an Argos shop, the voucher is cancelled and destroyed.

8By using that system, Argos attracts the holders of vouchers into its showrooms, makes itself more widely known to the public and increases its turnover. It also benefits from improved cash flow.

9The dispute in the main proceedings concerns calculation of the VAT which Argos, as a taxable person, must pay on its receipts from sales of goods paid for by means of vouchers. The Commissioners take the view that the face value of the voucher constitutes the consideration for the supply of the goods for the purpose of fixing the taxable amount, regardless of whether, when the voucher was initially purchased, the buyer was granted a discount.

10Argos, on the other hand, considers that it does not receive the full face value of the vouchers but only the difference between that figure and the discount granted to the first buyer of them, so that that sum constitutes the taxable amount. It therefore applied to the Commissioners for a refund of £1 363 245, representing part of the VAT paid between 1 April 1983 and 27 March 1993. That application was rejected. Argos then appealed to the Value Added Tax Tribunal (now the VAT and Duties Tribunal), London.

11The tribunal considered that, to determine the taxable amount for VAT purposes, the essential question was the meaning of the term 'consideration' used in Article 11(A)(1)(a) of the Sixth Directive, which provides:

'1. The taxable amount shall be:

(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, 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 including subsidies directly linked to the price of such supplies;

(b) ...'.

12The tribunal considered that the issue in this case was to assess the value of the consideration represented by a voucher when it was presented by way of payment in an Argos shop by a final user who was not the person who had initially bought it at a discount. In view of the wording of Article 11(A)(3)(b), according to which discounts are to be allowed to the customer and accounted for at the time of the supply, a link must be established, for the purposes of applying the provision in question, between the initial purchase of the voucher, when a discount was allowed, and its final use. It was also necessary, in order to apply that provision, to determine whether a discount may extend to the full price of a particular item of goods in view of the fact that a voucher may cover the full price.

13Entertaining doubts as to how the dispute should be decided, the VAT and Duties Tribunal stayed proceedings pending a preliminary ruling from the Court on the following questions:

'1. Is Article 11(A)(3)(b) of the Sixth Directive to be interpreted so that the expression "price discounts and rebates" is capable of applying in circumstances where the face value of a voucher issued by the supplier of goods covers or is available to cover the entirety of the supplier's normal retail selling price?

2. In circumstances where a supplier of goods has sold to a purchaser at a discount a voucher which is subsequently presented in whole or (more commonly) in part payment for goods by a customer who was not the purchaser of the voucher and docs not normally know what sum was paid for the voucher, is Article 11(A)(3)(b) of the Sixth Council Directive to be interpreted so that the expression "price discounts and rebates allowed to the customer and accounted for at the time of supply" covers,

(a) the difference between the face value of the vouchers and the price charged by the supplier to the original purchaser of the voucher; or

(b) the entire face value of the voucher; or

(c) neither?

3. If Article 11(A)(3)(b) does not apply in the above circumstances, is Article 11(A)(1)(a) to be interpreted so that the part of the consideration represented by the voucher is:

(a) the face value of the voucher; or

(b) the sum actually obtained by the supplier of the goods from the sale of the voucher?'

The third question

14By its third question, which it is appropriate to consider first, the national court essentially seeks to ascertain whether, when a supplier has sold a voucher at a discount to a buyer and promised at a later stage to accept that voucher at face value in full or part payment of the price of goods purchased by a customer, who is not the buyer of the voucher, and who does not normally know the actual price at which the voucher was sold by the supplier, Article 11(A)(1)(a) of the Sixth Directive must be interpreted as meaning that the consideration represented by the voucher is its face value or the sum actually received by the supplier when it sold the voucher.

15It should be noted that the transaction at issue in this question is the transaction whereby Argos goods are bought in one of its shops, the price being paid by the buyer, in whole or in part, by means of a voucher. The transaction at issue is not the previous sale of vouchers by Argos.

16According to the Court's settled case-law, the taxable amount for the supply of goods or services is represented by the consideration actually received for them. That consideration is thus the subjective value, that is to say, the value actually received, in each specific case, and not a value estimated according to objective criteria (see Case 154/80 v Staatssecretaris Van Financiën Coöperatieve Aardappe-lenbewaarplats [1981] ECR 445; Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365; Case C-126/88 Boots v Commissioners of Customs and Excise [1990] ECR I-1235; and Case C-38/93 [1994] ECR I-1679).

Glawe

17According to the same case-law, that consideration, when not consisting of money, must be capable of being expressed in money (Cooperatieve Aardappelenbewaar-plats and Naturally Yours Cosmetics, cited above).

18In this case, the subjective consideration actually received by Argos for the sale of its goods is constituted wholly or in part by the vouchers presented by the buyer of the goods. Since Argos regards the voucher as representing such part of the catalogue price as is equal to its face value, the only question is as to the actual money equivalent of the voucher taken in payment by Argos.

19According to the terms of the transaction which involves the initial purchase of the voucher, that voucher, by its nature, is no more than a document evidencing the obligation assumed by Argos to accept the voucher, instead of money, at its face value (see, to that effect, Boots Company, cited above, paragraph 21).

20In order to ascertain the actual money equivalent accruing to Argos when it takes a voucher in payment, regard must be had only to the transaction which is relevant in that regard, namely the initial transaction comprising the sale of the voucher, at a discount or otherwise. In view of the nature of that transaction, the actual money equivalent which the voucher represents for Argos, when the latter accepts it in payment, is the sum of money which it received upon the sale of the voucher, namely its face value less any discount allowed.

21The fact that a buyer of Argos goods does not know the real money equivalent of the voucher used by him is irrelevant: the important issue in this case is to determine the actual money equivalent received by Argos when it accepts vouchers in payment for its goods, since only that actual equivalent can constitute the taxable amount.

22This interpretation is not invalidated by the fact that, in each transaction, the details of what Argos receives as consideration for the supply of goods are unknown. In that connection, it must be emphasized that in this case the burden of proof falls on the supplier. Argos claims, without having been contradicted, that as a result of the serial number appearing on each voucher, it is possible, when the voucher is presented in a shop, to identify the initial purchaser and to determine any discount allowed to him. Thus, it is not difficult to ascertain what proportion of Argos's total receipts is represented by the vouchers received (see, to that effect, Glawe, cited above).

23The answer to the third question must therefore be that Article 11(A)(1)(a) of the Sixth Directive is to be interpreted as meaning that, when a supplier has sold a voucher to a buyer at a discount and promised subsequently to accept that voucher at its face value in full or part payment of the price of goods purchased by a customer who was not the buyer of the voucher, and who does not normally know the actual price at which the voucher was sold by the supplier, the consideration represented by the voucher is the sum actually received by the supplier upon the sale of the voucher.

The other questions

24In view of the answer given to the third question, it is unnecessary to answer the others.

Costs

Costs

25The costs incurred by the United Kingdom and Greek Governments 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 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 questions referred to it by the VAT and Duties Tribunal, London, by order of 26 September 1994, hereby rules:

Article 11(A)(1)(a) of the Sixth Directive, 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, must be interpreted as meaning that, when a supplier has sold a voucher to a buyer at a discount and promised subsequently to accept that voucher at its face value in full or part payment of the price of goods purchased by a customer who was not the buyer of the voucher, and who does not normally know the actual price at which the voucher was sold by the supplier, the consideration represented by the voucher is the sum actually received by the supplier upon the sale of the voucher.

Mancini Kakouris Hirsch

Delivered in open court in Luxembourg on 24 October 1996.

R. Grass G. F. Mancini

Registrar President of the Sixth Chamber

OPINION OF ADVOCATE GENERAL FENNELLY

delivered on 27 June 1996 ( *1 )

1This preliminary reference concerns the VAT treatment of vouchers issued by an undertaking for later use to buy goods selected from catalogues in its stores. These questions have been referred by the Value Added Tax Tribunal, London.

I — Factual and legal context

2Argos Distributors Ltd, the appellant in the main proceedings (hereinafter ‘Argos’), is a catalogue retailer which lists its goods in a catalogue and sells them from its more than 300 showrooms to customers who make their choice on the basis of the catalogue. Those customers may pay for goods in a variety of ways, one of which is by using vouchers issued by Argos and sold either for their face value or, depending on the quantity, at a discount to third parties who organize their distribution to individuals who in turn use them to buy goods from Argos. The discount is 5% of the face value of the vouchers where the nominal value of the order is at least UK £500. In addition, a retroactive discount of 1% or 2.5% is given on voucher purchases exceeding UK £10000 and UK £50000 respectively in any given year. ¹

3Vouchers are issued in the form of a note imprinted with a face value in pounds sterling and a serial number. This number would, in principle, enable Argos, at the moment when a voucher is used, to trace through its computerized cash registers the price at which it was originally sold. The vouchers are sold by Argos cither to undertakings which distribute them to their employees or agents as incentives, or to financial services undertakings which, though their methods of operation vary, resell them to customers for full consideration. It is only in exceptional cases that such customers will be aware of the amount of the discount obtained from Argos. Individuals may also purchase vouchers at any Argos showroom for their own use or as gift vouchers. ²

4The issue at the centre of the national proceedings concerns the output value added tax (hereinafter ‘VAT’) for which Argos is liable on the voucher element of sale of goods transactions effected using vouchers. In determining the taxable amount, the Commissioners for Customs and Excise, the respondent national tax authority in the main proceedings (hereinafter ‘the Commissioners’), have always taken the view that the face value of the voucher constitutes effective cash consideration for the supply of the goods, regardless of whether it was initially sold at a discount. Argos, claiming that it had received as consideration only the discounted and not the full face value of the vouchers, applied to the Commissioners on 14 May 1993 for a refund amounting to UK £1363245 of part of the VAT paid between 1 April 1983 and 27 March 1993. Following a rejection of its application by the Commissioners, Argos appealed to the Value Added Tax Tribunal, London (hereinafter ‘the Tribunal’). ³

5The Tribunal took the view that the interpretation of the notion of ‘consideration’ raised by the facts of the main proceedings required an interpretation of Article 11 (A) of the Sixth 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 (hereinafter ‘the Sixth Directive’) ⁴ and made the present reference. The relevant provisions of Article 11(A) are as follows:

A. Within the territory of the country

1. The taxable amount shall be:

in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, 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 including subsidies directly linked to the price of such supplies;

...

3. The taxable amount shall not include:

...

price discounts and rebates allowed to the customer and accounted for at the time of the supply;

...’

6The Sixth Directive is implemented in the United Kingdom by the Value Added Tax Act 1983, as amended. Section 10(2) provides that the value of the supply ‘shall be taken to be such amount as, with the addition of the tax chargeable, is equal to the consideration’. However, Section 10(2) is expressly made subject by Section 10(1), as amended, to the provisions of Schedule 4 to the Act. Paragraph 6 of that Schedule provides that: ⁵

‘Where a right to receive goods or services for an amount stated on any token, stamp or voucher, is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount.’

Thus, in the United Kingdom, no VAT is chargeable on the sale of vouchers. The only taxable transaction is the sale of the goods when the role of the voucher as consideration falls to be considered.

7The Tribunal states that the correct approach, following the Court's judgment in Boots Company, ⁶ is initially to decide whether the expression ‘price discounts and rebates allowed to the customer and accounted for at the time of supply’ in Article 11(A)(3)(b) of the Sixth Directive could apply when Argos accepts vouchers in total or partial satisfaction of the price otherwise payable for its goods. Referring to Argos' ‘ingenious argument’ that a direct link could be established between the sale of the voucher to the original purchaser and subsequent sales of goods to customers from its outlets, the Tribunal considers that ‘there are real difficulties in saying that the discount obtained by the original purchaser can be attributed to the customer so as to be “allowed to the customer” purchasing goods within Article 11(A)(3)(b)’.

8The Tribunal expresses doubts regarding the merits of the alternative argument advanced by Argos, based on Article 11(A)(1)(a), that the voucher element of the consideration is represented by its discounted sale price. Whilst acknowledging that third-party consideration is stated explicitly to be acceptable, the Tribunal inclines to the view that the value of such consideration must be that attributed to it by the parties to the transaction for the supply of goods, namely Argos and the customer presenting the voucher. The Tribunal finds as a fact that the customer is normally wholly unaware of the amount of the earlier payment for the voucher.

9The Tribunal concludes by stating that it ‘would accord with commercial reality’ to treat a voucher of this type as constituting consideration equal to its face value. Furthermore, it emphasizes the fact that Argos is required by Article 22(3) to supply invoices in respect of sales to taxable persons. These must, in its view, clearly state the price agreed by the parties, and cannot be subject to variation on the basis of knowledge available only to one of the parties to the transaction (i. e. Argos), and a fortiori cannot be subject to retrospective variations if a third party subsequently becomes entitled to an increased discount.

10The Tribunal, satisfied that the Court's judgment in Boots did not decide the issues of interpretation of Article 11(A) of the Sixth Directive raised by the present case, decided to refer the following questions to the Court:

Is Article 11(A)(3)(b) of the Sixth Directive to be interpreted so that the expression “price discounts and rebates” is capable of applying in circumstances where the face value of a voucher issued by the supplier of goods covers or is available to cover the entirety of the supplier's normal retail selling price?

2In circumstances where a supplier of goods has sold to a purchaser at a discount a voucher which is subsequently presented in whole or (more commonly) in part payment for goods by a customer who was not the purchaser of the voucher and does not normally know what sum was paid for the voucher, is Article 11(A)(3)(b) of the Sixth Council Directive to be interpreted so that the expression “price discounts and rebates allowed to the customer and accounted for at the time of supply” covers,

the difference between the face value of the vouchers and the price charged by the supplier to the original purchaser of the voucher; or

the entire face value of the voucher; or

neither?

3If Article 11(A)(3)(b) does not apply in the above circumstances, is Article 11(A)(1)(a) to be interpreted so that the part of the consideration represented by the voucher is:

the face value of the voucher; or

the sum actually obtained by the supplier of the goods from the sale of the voucher?’

II — Observations submitted to the Court

11Written and oral observations were submitted by Argos, the United Kingdom of Great Britain and Northern Ireland, the Hellenic Republic and the Commission.

III — Analysis of the questions referred to the Court

A — The third question

12I will begin with the third question referred by the Tribunal. This approach is consistent with the view of the Court that Article 11 (A)(3)(b) is merely an application of the rule laid down in Article 11(A)(1)(a), which is the subject of this question. ⁷ The question focuses on the role played by the voucher as consideration in the purchase of goods sold by Argos. Assuming that the voucher is something which, in part, at least, ‘constitutes the consideration’ for supplies of goods, the Tribunal raises the central issue in dispute, namely whether it represents its full face value or only the discounted amount obtained by Argos for its sale to a third party.

13Argos concentrates its arguments on this issue, which it calls ‘Analysis A’, on the totality of its transactions and says that VAT should be a tax only on its true turnover and not on what it calls some ‘higher fictitious figure’. It cites Article 2 of the First Council Directive 67/227/EEC of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes (hereinafter ‘the First Directive’) ⁸ which states that VAT involves ‘a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which the tax is charged’.

14It relies, for example, on the Glawe ⁹ case for the proposition that VAT is charged only on the real turnover — in that case of the provider of a service. The service was the installation and operation of gaming machines and the tax was to be charged only on the more or less fixed 40% of total stakes retained by the proprietor of the machines; the machines were set mechanically so as to pay out a minimum of 60% of the stakes to players.

15Argos claims that its real turnover is the sum of the amounts it receives for the sale of vouchers and for goods purchased in whole or in part with them. In this way, it claims the right to introduce the discounts allowed at the time of its voucher sale so as to reduce its global taxable turnover, whereas, in the United Kingdom, no tax is charged on the voucher sales. The only taxable transaction is the sale of goods which the United Kingdom taxes on their full face value. In its emphasis on supposed true turnover, Argos ignores the benefit to its cash flow resulting from the earlier sale of the vouchers, combined with the small percentage of unpresented vouchers.

16The correctness of this Argos argument depends on the interpretation of Article 11(A)(1)(a) of the Sixth Directive. ¹⁰ The voucher plays a part in two transactions. Firstly, it is the subject of an earlier independent sale by Argos to a third party. Secondly, it is itself used to represent, in part (or in whole), the purchase price of goods. In order to be taxed only on the discounted sale value of the vouchers, Argos would, in my view, logically have to claim that the sale price of the voucher constitutes ‘consideration which has been ... obtained by the supplier from ... a third party for such supplies ...’. Argos avoids this approach. It accepts, for the purpose of its argument relating to Question (3), that the voucher itself represents consideration for the sale of the goods, when it is presented in full or partial satisfaction of the price of the goods. It confines itself to saying that the value which it represents is the amount received by Argos for it at the time of its earlier sale.

17Argos is, of course, driven to avoid reliance on consideration received from a third party. The expression ‘for such supplies’ would preclude its application. ‘Such supplies’ are, in this context, the supplies of goods from Argos to its purchasers. Consideration for such supplies may, in principle, be received from a third party and, to that extent, it will be taxed. But it must be paid as consideration for ‘such supplies’. However, the price of the voucher is not paid as consideration for the supply of goods but for the voucher. It might, I acknowledge, be argued, as a matter of contract law, that it is also paid in consideration of the agreement of Argos to supply as yet unidentified goods from its catalogue to an as yet unidentified holder of the voucher. Argos binds itself to supply goods to the extent of its face value to any holder. However, it is the voucher rather than the voucher's earlier sale price which represents the consideration for the supplies of goods. The United Kingdom and Greece emphasize that the voucher represents consideration for the sale of the goods and Argos does not disagree. In the hands of a prospective buyer it represents a right to demand that Argos accept it at its face value against the catalogued price of advertised goods. Thus, it has value.

18The fact that Argos promises at the time of the sale of the voucher to honour it at face value if subsequently presented for the purchase of goods may make that promise part of the consideration for the price paid by the purchaser of the voucher; but it does not answer the question as to what is the consideration for that subsequent sale of goods. That answer is provided by Article 11(A)(1)(a) as interpreted by the Court. Firstly, that provision lays down the rule ‘according to which the taxable amount is the consideration actually received’. ¹¹ More to the point, the Court in ‘Dutch Potatoes’, dealing with a service, said that it was taxable when ‘provided against payment and [that] the basis of assessment for such a service is everything which makes up the consideration for the service; there must therefore be a direct link between the service provided and the consideration received ...’. ¹² This rule has been constantly applied both to the supply of goods and services. Naturally Yours is instructive in this respect. ¹³ The taxpayer, a wholesaler of cosmetic products through beauty consultants, arranged for private hostesses to organize parties for the sale of its products. The beauty consultants were supplied with a pot of cream as a ‘dating gift’, at a reduced price, to enable them to reward the private hostesses. If for any reason the sales party did not take place, the gift had to be returned to Naturally Yours or paid for at the normal wholesale price. The Court examined the question of whether there was ‘a direct link between the goods supplied for a price lower than the normal price and the value of the service which must be provided by the beauty consultant’. ¹⁴ It concluded that there was such a link, and that the product should be taxed at the full price. In the present case this direct link is absent. The sales of vouchers and of goods take place independently.

19The earlier discount does not affect or enter in any way into the transaction for the sale of goods. The prices are listed in catalogues, from which goods can be selected by customers. Each customer fills in a ‘Customer Selection Form’ indicating the goods chosen, by a reference number, and the quantity required. A sales assistant, depending on the particular store, either completes the form or enters the details directly into a sales register. Although it is, in principle, possible to ascertain the discount on the original sale of the voucher, this is not done in practice. The Tribunal has found that the buyer only rarely has any knowledge of that discount. Clearly this would serve no purpose. The voucher is assigned its full face value. In payment for the goods purchased, it is as good as cash. If the vouchers then clearly constitute consideration received from the buyer of the goods and not from any third party, their value can, in my view, only be their face value and not their earlier discounted price in a transaction with a third party.

20At this point, I am in a position to comment on what seems to me to be misplaced emphasis by Argos on certain case-law of the Court. In ‘Dutch Potatoes’, the Court held that the value of the consideration actually received is ‘subjective’ and is not a value assessed according to objective criteria. ¹⁵ Referring to the Opinion of Advocate General Cruz Vilaça in Naturally Yours, Argos submits that the value of the consideration depends upon the facts of the individual contracts entered into rather than the state of mind of the customer. ¹⁶

21It is acknowledged in the observations submitted in this case that, in this context, the word ‘subjective’ is not used here in its normal sense, but rather to describe the value placed by the parties on key elements in a transaction; a meaning which is equally capable of being characterized as ‘Objective’. The effect of these cases is to distinguish and exclude, for the purpose of assessing the consideration for a sale, any supposed independent valuation, different from that adopted by the parties. ¹⁷ This issue is also decisively resolved by Naturally Yours.‘[T] he parties to the contract ha [d] reduced the wholesale price of the pot of cream by a specific amount.... In the circumstances, it [was] possible to ascertain the monetary value which the two parties to the contract attributed to [the] service...’. ¹⁸ That reasoning applies equally to the valuation of the voucher in this case. It represents consideration for the agreed, ‘subjective’ price of the goods to the full extent of its face value. In the sense thus intended, I agree with the United Kingdom that the attribution of face value to the vouchers is consistent with decisions such as Naturally Yours.

22The same result was reached by a slightly different route in Chaussures Bally v Belgian State ¹⁹ concerning a claim by the taxpayer to be taxed on a reduced turnover to the extent that customers paid for goods by credit card. In that case, the supplier received the price reduced by 5%, the commission charged by the credit card companies. The Court emphasized that the final price to the consumer included the amount of VAT effectively charged to him. The basis of imposition of the tax could not be varied when the seller made a return of his turnover to the tax authorities. This reasoning applies equally to the present case. Argos' customers pay the same price whether or not they use vouchers in the purchase.

23I think it is equally clear that Glawe does not assist Argos. That case was concerned essentially with transactions at a single taxable stage between two parties, the proprietors or operators of the gaming machines and those who played them. There was no need to value consideration by reference to earlier transactions. Argos, by emphasizing its general turnover and amounts actually received, fails correctly to address the issue of consideration and the goods for which it is furnished, namely at the retail stage between it and its customer.

24The Commission argues that the sale of vouchers should be assessed to VAT as a separate transaction. However, it supports Argos' claim to have the full value of the voucher treated as a discount (the subject of the second question) rather than its approach under the third question. In my view it is important to deal only with the issue referred. I agree with the Commission that we are here dealing with two separate transactions. ²⁰ The issue whether or not the United Kingdom is correct in exempting the sale of vouchers from VAT is not raised by the questions referred in this case and need not therefore be addressed. The fact remains that, taxable or not, the sale of the voucher is a separate transaction; it is not the one at issue here, namely the sale of goods. I would agree with the approach suggested by Advocate General Gulmann in Bally. He noted the exemption from VAT of the transaction between Bally and the issuer of the credit card, but did not consider it necessary to resolve issues concerning relationships which were not raised before the Court. ²¹ If, indeed, there was a separate earlier taxable transaction concerning the sale of vouchers, it would not affect the liability to tax of the sale of goods. ²²

25Accordingly, it is clear in my opinion that, in the circumstances described, the consideration represented by the voucher is its face value. This is the value which is attributed to it by the parties to the transaction. If a customer wishes to purchase a product, he will have to produce consideration either by way of voucher or some other means of payment to the amount of the catalogue price. The goods will not be handed over unless that consideration is forthcoming. Thus, if a voucher is used, the consideration which it represents in that transaction is its full face value.

B — The second question

26I turn then to consider the second question which asks essentially whether the discount allowed by Argos to the original purchaser of the voucher is covered by the expression ‘price discounts and rebates allowed to the customer and accounted for at the time of supply’, for the purposes of Article 11(A)(3)(b) of the Sixth Directive.

27Argos described this as its preferred route before the Tribunal. It is the subject of ‘Analysis B’ in its written submissions and was the main subject of its oral arguments. It relies particularly on Boots. Argos is supported by the Commission in this argument.

28In Analysis B, Argos says that, if the voucher does not represent consideration upon the sale of goods as reduced by the discount on its sale price, then it should be treated as a discount from the price.

29So, simply put, the argument presents Argos with a serious dilemma. I shall leave aside, for the moment, the need for the discount to be accounted for at the time of the supply of goods. But what, in that case, is the amount of the discount? Argos first says it is the difference between the amount of money paid for the voucher and its face value; in other words, it is the discount allowed on sale of the voucher. However, it goes on to say that, alternatively, it could be the full face value of the voucher and suggests the latter analysis might be preferred in the light of Boots. In so doing it departs fundamentally, in my view, from the ‘true turnover’ argument which underlies its approach to the third question.

30It suggests also that the amount paid for the voucher, at the time it is purchased, is not consideration for any supply of goods: the purchaser of the goods does not pay any consideration to Argos to the extent of the face value of the voucher. I should say, at once, that this analysis is mistaken. So long as it is outstanding, the voucher represents a potential claim on Argos to supply goods for its face value. The consideration is its surrender at the point of sale.

31Nor do I accept that either of the two alternative versions of the discount mentioned at paragraph 29 above is sustainable. The discount allowed on the earlier sale of the vouchers plays no part in the sale of goods. The listed price from the catalogue is discharged in full either in cash or by vouchers at face value. Argos' computerized records are irrelevant to the price charged for the goods or the value, as consideration, assigned to the vouchers and, in any event, the buyer is unaware of this discount. This discount is not, therefore, ‘accounted for at the time of supply’.

32The alternative is to treat the vouchers as a discount to the extent of their full face value. This hypothesis presents a different problem. However, at least it is clear that it is accounted for at the time of supply. Consequently, Argos would be taxed on the price of the goods less the face value of any vouchers. If the vouchers were used to pay the full price, there would be no consideration, or, there would be a discount to the full value of the goods and consequently no VAT. ²³ The argument of Argos cannot be dismissed merely because such an outcome is unacceptable. Whether or not tax is payable depends on the correct interpretation of the Sixth Directive and, in this instance, calls for careful consideration of the decision of the Court in Boots.

33Boots is a very well-known chain of stores in the United Kingdom selling mainly medicinal and toiletry products. To promote sales, it distributed price reduction coupons in various ways, some in cut-out form in press advertisements, some in leaflets freely distributed and some printed on or added to the packaging of goods sold in Boots' stores. In all cases, a customer in a Boots' store could present a coupon so as to claim a reduction in price equal to the value printed on the coupon. ²⁴ The Commissioners (who were also the respondent tax authority in Boots) accepted that the use of the coupons distributed free led to a discount in price and VAT was paid only on the price as so reduced. The dispute concerned the use of coupons which had been obtained by the earlier purchase of goods in Boots' stores. The Commissioners took the view that the coupon obtained in such an earlier purchase should be treated as having been acquired for consideration and should be included for its face value in the consideration for the goods purchased with it.

34Boots concerned, then, the application of Article 11(A)(3)(b), with which the second question in the present case is concerned. Advocate General Van Gerven stated that this provision ‘lays down two conditions which must be fulfilled cumulatively: (a) there must be a price discount or price rebate allowed to the customer; (b) the price discount or rebate must be accounted for at the time of the purchase ...’. ²⁵ He pointed out that the second condition presented no difficulty in that case. As I have indicated, that is true here only if we are contemplating a discount equal to the face value of the vouchers. If we are dealing with a discount in the sense of the reduced price of the vouchers, it is, however, clearly not accounted for at the time of purchase of the goods. If the discount claimed is the full face value, we must see if there is a true discount.

35In Boots, as in the present case, an earlier transaction led to the issuing of the coupon or voucher. However, the coupon in Boots was an incidental product of that transaction. Advocate General Van Gerven assimilated it to the case of the coupon delivered free of charge in a leaflet. ²⁶ Because it constituted an obligation for the seller and not an advantage for him, the Advocate General thought it did not represent consideration on the subsequent sale of a product bought with it. He advised, and the Court agreed, that this was a case of a price discount. The Court's interpretation is important: ‘It is clear from the coupon's legal and economic characteristics ... that, although a “nominal value” is indicated on it, the coupon is not obtained by the purchaser for consideration and is nothing other than the obligation assured by Boots to allow to the bearer of the coupon, in exchange for it, a reduction at the time of purchase of the goods. Therefore, the “nominal value” expresses only the amount of the reduction promised’. These passages make it clear — and, indeed, the parties in Boots conceded as much — that the meaning to be assigned in Community law to ‘consideration’ is not determined by the specific role it plays in the law of contract of any one or more of the Member States. ²⁷ The Court thus took account of the economic as well as the legal character of the voucher in interpreting the Sixth Directive so as to ensure the uniform and neutral operation of the tax. ²⁸

36The present case is in any event very different. Firstly, the voucher is clearly acquired by its original purchaser for consideration. The supply of the voucher is the only consideration given by Argos for the receipt of money in that earlier transaction. It is not a merely ancillary aspect of an earlier transaction as in Boots. Full value is, in effect, given for the voucher. Although the present case concerns vouchers sold at a discount, Argos also sells them at face value. ²⁹ The discount is explained by the Tribunal in the order for reference. In all the cases involved in the main proceedings the vouchers, it says, ‘are or were sold at a discount to this face value for bulk orders’; more particularly, ‘there is a standard discount of 5% for orders of UK £500 or more’, with additional retrospective discounts for very large orders. The benefits to Argos do not only take the form of sales promotion, as in Boots. The Tribunal explains that it gains a cash flow benefit. Furthermore, a small percentage, estimated at 2%, is never presented. Finally, the discount is not ‘allowed to the customer’ under Article 11(A)(3)(b) but, rather, allowed to the purchaser of the voucher. ³⁰

37Once issued, a voucher is, according to Argos, fully and freely transferable. ³¹ Thus, it behaves as if it were a negotiable instrument. It is as valuable as cash when used at an Argos' store. Furthermore, vouchers may well be used to pay any proportion, even the full price, of Argos' goods. As the United Kingdom says, in its written observations, distinguishing between a means of payment and a right to a price reduction, it is quite similar to a book token, which equally is frequently used to pay in full for books. Indeed, as pointed out above, Argos operates its own scheme of gift vouchers. ³² The United Kingdom goes so far as to describe as nonsense the idea that, when Argos' vouchers are used to pay in full for goods, there is a discount equal to 100% of the price.

38I do not think the Argos' vouchers represent a discount on the price of goods purchased with them. It is not necessary to draw any fine distinctions with Boots. This case is entirely different because of the essential nature of vouchers. Since they are paid for in full and in money in circumstances where the discount represents merely a reduction for bulk purchase, they become tokens capable of performing a function entirely different from a discount. They become, in effect, a form of payment.

39Bally, as discussed in paragraph 22 above, provides an illuminating approach which further distinguishes Boots from the present case. In that case, the Court was not prepared to accept that customers could be charged an implicit amount of VAT in the price of goods, whereas the supplier would return a smaller amount to the tax authorities because it had itself received a smaller amount from the credit card company. The same could apply here. Argos could not, as stated above, have a different turnover in its supplies of goods depending on whether its customers paid in cash, by cheque or by credit or debit card, on the one hand, or by vouchers, on the other. Indeed the discrepancy would be greater here. The amount represented by the voucher need not be restricted to the 5% commission of the credit card company at issue in Bally. In Boots, on the other hand, there were only two parties to the transactions. The discount allowed to the buyer reduced his implicit VAT and Boots was entitled to make its tax returns on the same basis.

40Accordingly, I would also answer the second question in the negative. In the light of these views, the first question does not arise.

IV — Conclusion

Conclusion

I, therefore, propose that the Court reply as follows to the questions referred by the Value Added Tax Tribunal, London:

Article 11(A)(1)(a) of the Sixth 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 is to be interpreted so that, in circumstances where a supplier of goods has sold to a purchaser at a discount a voucher which is subsequently presented in whole or in part payment for goods by a customer who was not the purchaser of the voucher and does not normally know what sum was paid for the voucher, the consideration represented by the voucher is equal to its face value.

The use of a voucher in the circumstances described above does not give rise to a discount or rebate as envisaged by Article 11(A)(3)(b) of the Sixth Council Directive.

( *1 ) Original language: English.

¹ For very large orders, the Court is informed that the level of discount can be increased by negotiation.

² Clearly no discount would attach to such sales unless such individuals agreed to purchase vouchers at least to the value of UK £500.

³ The United Kingdom points out in its written observations that, since the reference was made, the Tribunal has been renamed the VAT and Duties Tribunal.

⁴ OJ 1977 L 145, p. 1.

⁵ The United Kingdom points out in its written observations that this paragraph has now been re-enacted in paragraph 5 of Schedule 6 to the Value Added Tax Act 1994.

⁶ Case C-126/88 [1990] ECR I-1235, hereinafter simply referred to as ‘Boots’.

⁷ Sec, lor example. Boots, paragraph 19 of the judgment.

⁸ OJ, English Special Edition 1967 (I), p. 14.

⁹ Case C-38/93 Glawe [1994] ECR I-1679.

¹⁰ As a provision of Community law, which docs not depend on the law of Member States, this Article must receive a Community interpretation. It docs not therefore depend on the contract law of any particular Member Stale. Sec, for example, Case 154/80 Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats [1981] ECR 445, hereinafter simply referred to as ‘Dutch Potatoes’, paragraph 9 of the judgment. While ‘Dutch Potatoes’ concerned the concept of ‘consideration’ under Article 8(a) of the Second Council Directive 67/228/EEC of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes —Structure and procedures for application of the common system of value added tax; OJ, English Special Edition 1967 (I), p. 16, the Court later ‘made clear that, having regard to the “same legislative aim” of the two directives, account must be taken, in interpreting the Sixth Directive, of the decisions of the Court on the Second Directive...’; sec the Opinion of Advocate General Cruz Vilaça in Case 230/87 Naturally Yours Cosmetics v Commissioners of Customs and Excise [1988] ECR 6365 (hereinafter simply referred to as ‘Naturally Yours’) where he refers to paragraph 10 of the judgment in Case 102/86 Apple and Pear Development Cannài v Commissioners of Customs and Excise [1988] ECR 1443.

¹¹ See Boots, paragraph 19 of the judgment.

¹² See ‘Dutch Potatoes’, paragraph 12 of the judgment and, in respect of the sale of goods, sec Naturally Yours.

¹³ In Naturally Yours, the Court states that ‘a direct link must also exist between the supply of goods and the consideration received within the meaning of Article 11(A)(1)(a) of the Sixth Directive’; paragraph 12 of the judgment.

¹⁴ Naturally Yours, paragraph 13 of the judgment.

¹⁵ ‘Dutch Potatoes’, paragraph 13 of the judgment.

¹⁶ Sec Naturally Yours, paragraph 26 of the Opinion.

¹⁷ For example, the special provision for ‘open market value’ in Article 11(A)(1)(d) in respect of services referred to in Article 6(3).

¹⁸ Paragraph 17 of the judgment.

¹⁹ Case C-18/92 [1993] ECR I-2871, paragraph 14 of the judgment, hereinafter simply referred to as ‘Bally’.

²⁰ This was how the Court analysed the facts in Bally; see paragraph 9 of the judgment. There, one transaction involved the sale of goods, the other involved the supply of services by the credit card company to the supplier.

²¹ See paragraphs 10 and 11 of the Opinion.

²² The Commission raises a point about double taxation if both the voucher and the sale of the goods arc taxable, but docs not refer to any relevant provision of the Sixth Directive. The issue does not arise here because there is no taxation on the sale of the voucher and docs not arise at all if the United Kingdom is right in exempting it.

²³ This, of course, would not be so if the transaction involving the sale of the voucher were taxable.

²⁴ The extent of the possible discount was unclear. Advocate General Van Gerven stated at paragraph 3 of his Opinion that it could range from 5% to 31% of the price. The United Kingdom in the present case says that the use of only one coupon per transaction was allowed ‘to obtain a specified reduction in the amount of cash that had to be paid’.

²⁵ Sec paragraph 9 of the Opinion.

²⁶ See paragraph 15 of the Opinion.

²⁷ The need for a Community interpretation has consistently been emphasized by the Court; sec footnote 10 above.

²⁸ The importance of this objective has been stressed in the Court's case-law; sec for example, Case C-281/91 Mttys' en De Winter's Bouw-en Aannemingsbedrijf v Staatssecretaris van Finanaėn [1993J ECR I-5405, paragraph 14 of the judgment and the Opinion of Advocate General Jacobs, which refers to ‘the fundamental principle of fiscal neutrality’ (paragraph 11).

²⁹ See paragraph 3 and the accompanying footnote 2 above.

³⁰ Who will almost certainly not be a retail customer, unless he buys at least UK £500 worth of vouchers and then goes to spend those vouchers in an Argos' store.

³¹ The serial numbers of stolen vouchers may be reported to Argos, who will issue new vouchers but refuse to honour stolen vouchers.

³² Sec paragraph 3 above.