C-302/07 J D Wetherspoon

Parties Grounds Operative part

In Case C‑302/07,

REFERENCE for a preliminary ruling under Article 234 EC from the VAT and Duties Tribunal, London (United Kingdom), made by decision of 26 June 2007, received at the Court on 29 June 2007, in the proceedings

J D Wetherspoon plc

v

The Commissioners for Her Majesty’s Revenue and Customs,

THE COURT (Fourth Chamber),

composed of K. Lenaerts, President of the Chamber, T. von Danwitz (Rapporteur), R. Silva de Lapuerta, E. Juhász and G. Arestis, Judges,

Advocate General: E. Sharpston,

Registrar: R. Şereş, Administrator,

having regard to the written procedure and further to the hearing on 9 October 2008,

after considering the observations submitted on behalf of:

– J D Wetherspoon plc, by M. Angiolini, Barrister, and A. Khan, Solicitor,

– the United Kingdom Government, by V. Jackson, acting as Agent, and R. Hill, Barrister,

– the Greek Government, by S. Alexandridou, V. Karra, K. Georgiadis and M. Apesos, acting as Agents,

– the Netherlands Government, by C. Wissels and M. de Grave, acting as Agents,

– the Commission of the European Communities, by M. Afonso and R. Lyal, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 20 November 2008,

gives the following

Judgment

Grounds

1This reference for a preliminary ruling concerns the interpretation of Article 2 of First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p. 14), as amended by Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation 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 First Directive’), along with Articles 11A(1)(a), 12(3)(a) and 22(3)(b) of Sixth Council Directive 77/388/EEC, as amended by Council Directive 2003/92/EC of 7 October 2003 (OJ 2003 L 260, p. 8) (‘the Sixth Directive’).

2The reference has been made in the context of proceedings between J D Wetherspoon plc (‘Wetherspoon’) and the Commissioners for Her Majesty’s Revenue and Customs (‘HMRC’) concerning the refusal by the latter of an application to allow Wetherspoon to round down the amount due in respect of value added tax (‘VAT’) payable at line level and at basket level.

Legal framework

Community legislation

3Article 2 of the First Directive states:

‘The principle of the common system of value added tax involves the application to goods and services of 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 tax is charged.

On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.

The common system of value added tax shall be applied up to and including the retail trade stage.’

4Article 10(2) of the Sixth Directive provides that the chargeable event occurs and the tax becomes chargeable, in principle, when the goods are delivered or the services are performed.

5Article11A(1)(a) of the Sixth Directive provides:

‘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’.

6According to Article 12(3)(a) of the Sixth Directive, the standard rate of VAT is to be fixed by each Member State as a percentage of the taxable amount and is to be the same for the supply of goods and for the supply of services. Except where one or two reduced rates apply, that percentage may not be less than 15%.

7Article 22 of the Sixth Directive, in the version resulting from Article 28h thereof (‘Article 22 of the Sixth Directive’), lays down the obligations of persons liable for payment of VAT under the internal system. The first subparagraph of Article 22(3)(a) and the first subparagraph, the tenth indent of the first subparagraph and the fourth subparagraph of Article 22(3)(b) state:

‘(a) Every taxable person shall ensure that an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party, in respect of goods or services which he has supplied or rendered to another taxable person or to a non-taxable legal person. ...

…

(b) Without prejudice to the specific arrangements laid down by this Directive, only the following details are required for VAT purposes on invoices issued under the first, second and third subparagraphs of point (a):

…

– the VAT amount payable, except where a specific arrangement is applied for which this Directive excludes such a detail,

…

The amounts which appear on the invoice may be expressed in any currency, provided that the amount of tax to be paid is expressed in the national currency of the Member State where the supply of goods or services takes place ...

…’

8Article 22(4)(a) and (b) and 22(5) of the Sixth Directive provides:

‘4. (a) Every taxable person shall submit a return by a deadline to be determined by Member States. ...

(b) The return shall set out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, where appropriate, and in so far as it seems necessary for the establishment of the basis of assessment, the total value of the transactions relative to such tax and deductions and the value of any exempt transactions.

…

5. Every taxable person shall pay the net amount of the value added tax when submitting the regular return. Member States may, however, set a different date for the payment of that amount or may demand an interim payment.’

9During the period 2004 to 2006, numerous amendments were made to the Sixth Directive. Of the provisions set out above, only the wording of Article 12(3) was amended. However, that amendment has no bearing on the answers to be given to the questions referred to the Court for a preliminary ruling.

National rules

10Regulation 13 of the Value Added Tax Regulations 1995 lays down the obligation to provide a VAT invoice when a taxable supply is made to another taxable person.

11According to regulation 16(1), a ‘retailer’ is not required to provide a VAT invoice unless the customer requests one. Where the consideration does not exceed GBP 100, it is possible to issue a ‘simplified VAT invoice’ indicating, inter alia, for each rate of VAT chargeable, the gross amount payable including VAT, and the rate of VAT applicable.

12HMRC published a guide to VAT for taxable persons entitled VAT Notice 700 – The VAT Guide – April 2002 (‘VAT Notice 700’).

13Paragraphs 17.5, 17.5.1 and 17.6 of VAT Notice 700 concern rounding of amounts of VAT. They provide:

‘17.5 Calculation of VAT on invoices – rounding of amounts

Note: The concession in this paragraph to round down amounts of VAT is designed for invoice traders and applies only where the VAT charged to customers and the VAT paid to Customs and Excise is the same. As a general rule, the concession to round down is not appropriate to retailers, who should see paragraph 17.6.

You may round down the total VAT payable on all goods and services shown on a VAT invoice to a whole penny. You can ignore any fraction of a penny.

17.5.1 Calculation based on lines of goods or services

If you wish to work out the VAT separately for a line of goods or services, which are included with other goods or services in the same invoice, you should calculate the separate amounts of VAT either by rounding:

– down to the nearest 0.1 p – for example, 86.76 p would be rounded down to 86.7 p; or

– to the nearest 1 p or 0.5 p – for example, 86.76 p would be rounded up to 87 p.

Whatever you decide, you must be consistent.

The final total amount of VAT payable may be rounded down to the nearest whole penny.

…

17.6 Calculation of VAT at retailers

Most retailers account for VAT using a retail scheme. If that is the way you account for VAT, this paragraph does not affect you.

Retailers are increasingly using sophisticated till technology to identify the VAT due on each transaction and issue an invoice. If you do not use a retail scheme, but instead calculate VAT at line level or invoice level, you must not round the VAT figure down. However, you may round (up and down) each VAT calculation.’

14VAT Notice 700 does not define ‘invoice traders’.

15Further guidance on rounding is provided in HMRC Manual V1‑24A: Trader’s records , which is a publicly available guide for revenue staff.

16Section 12.1 of that manual states that, when interpreting Paragraph 17.5 of VAT Notice 700, ‘it is important to note that it is in the context of rules for invoice traders where the rounding is tax neutral. This is because it will normally impact on both the output tax of the supplier and the input tax of the customer. This means that when an invoice trader calculates the VAT on net values, the amount charged and payable by the customer may be rounded down.’

17Section 12.2 of Manual V1‑24A: Trader’s records provides:

‘Sophisticated accounting packages allow retailers the possibility of identifying VAT at line level and/or providing VAT invoices. …

As a general rule the concession to round down is not appropriate for retailers. This is because the effect of rounding down the VAT charged to final consumers is not to reduce the VAT payable (which is the VAT fraction [multiplied by] the consideration) but only to reduce the tax accounted to HMRC.

Most retailers continue to account for VAT using a retail scheme. The problem of rounding only arises for retailers whose accounting systems allow them to identify tax at line level and to issue invoices. …

If a retailer genuinely sets prices on a VAT-exclusive basis – so that the VAT charged to the customer and the VAT accounted to HMRC are the same – the existing rounding concession may be appropriate. In considering such a system, you should examine how prices are actually set. If the retailer genuinely arrives at a tax inclusive selling price by starting with a net value expressed in whole pennies, then the existing concession may be appropriate. …’

18Section 12.3 of Manual V1‑24A: Trader’s records explains the arithmetical method for rounding and states, in its third subparagraph, that ‘if a trader proposes an alternative rounding method then it should be considered and allowed if it produces an acceptable and reasonable result’.

The dispute in the main proceedings and the questions referred for a preliminary ruling

19Wetherspoon operates a chain of more than 670 pubs throughout the United Kingdom. The majority of its revenue is generated by retail sales of food and beverages to final consumers.

20Wetherspoon displays retail selling prices inclusive of VAT to its customers. It does not issue them with full VAT invoices although, in respect of orders for food or hot beverages, it routinely provides them with till receipts indicating its VAT registration number. For other beverages, including alcoholic ones, it provides a till receipt only if the consumer requests one.

21Until 2004, Wetherspoon calculated the VAT due on each transaction subject to the standard rate of VAT of 17.5% with an individual customer by multiplying the total amount of the sale by 7/47. The result was rounded up or down arithmetically, to the nearest penny.

22Since modernising its electronic point-of-sale till system in August 2004, Wetherspoon has been able to calculate the VAT at ‘line’ level, that is, on each separately identified product where the transaction involves more than one product. In order to do so, Wetherspoon calculates and rounds down the VAT to three decimal places, namely, down to the nearest tenth of a penny, at the product line level. It then aggregates those amounts of VAT and rounds down the total to the nearest whole penny, at the level of the transaction (‘basket level’).

23Between September 2004 and January 2005, Wetherspoon negotiated with HMRC with a view to agreeing a bespoke scheme for retailers. However, the scheme proposed by Wetherspoon was never approved by HMRC and Wetherspoon never implemented it.

24By letter of 23 March 2006, HMRC refused to allow Wetherspoon to round down the VAT payable on each transaction. Accordingly, on 7 April 2006, Wetherspoon lodged a notice of appeal against that refusal. On 7 September 2006, it lodged two other actions, on the same grounds, against two assessment notices issued on 8 and 17 August 2006.

25Wetherspoon claims that it is entitled to apply the method of rounding down provided for in Paragraph 17.5.1 of VAT Notice 700. HMRC contend that Wetherspoon should, on the contrary, round arithmetically at either line level or basket level.

26The national tribunal, before which those actions have been brought, states that neither Community law, on the one hand, nor the Value Added Tax Act 1994 or the Value Added Tax Regulations 1995, on the other, lay down clear rules concerning the method of rounding to be used where the application of the normal rate of VAT leads to an amount which includes a fraction of the smallest currency unit available, in this case one penny. According to that tribunal, two methods of rounding are possible. It is possible systematically to round down or to round arithmetically, by rounding down fractions of less than 0.5 penny to the nearest whole penny and by rounding up fractions equal to or greater than 0.5 to the nearest whole penny.

27The national tribunal also points out that neither the directives nor the United Kingdom legislation specify at what stage or level rounding should take place. Accordingly, where a customer purchases several products at the same time, the VAT invoiced could be rounded for each item separately or, where multiple items of the same product are purchased, for each line of goods. Likewise, rounding could occur at the level of the total transaction with the customer, at the moment of the VAT declaration at the end of the relevant accounting period or, finally, at some other level, such as that of daily gross taking per outlet or for all of the trader’s retail outlets.

28Taking the view that it is not clear whether Community law requires any particular form of rounding and, if so, how the principle of fiscal neutrality is to be applied in that context, the national tribunal decided to stay the proceedings and to refer the following four questions to the Court for a preliminary ruling:

‘(1) Is the rounding off of VAT amounts governed solely by national law, or instead governed by Community law? In particular, do the first and second paragraphs of Article 2 of the First Directive and Articles 11A(l)(a) and/or 12(3)(a) and/or Article 22(3)(b) (version as at 1 January 2004) of the Sixth Directive confirm that rounding off is a matter of Community law?

(2) In particular:

(i) Does Community law prevent the application of a national rule or practice of the national taxing authority which requires rounding up of any given VAT amount whenever the fraction of the smallest unit of currency concerned is at or above 0.50 (for example, 0.5 pence is required to be rounded up to the nearest whole pence)?

(ii) Does Community law require that the taxpayers be allowed to round down any VAT amount which includes a fraction of the smallest unit of currency available?

(3) In a VAT inclusive sale, at which level does Community law require rounding off to be applied for the purpose of calculating the VAT due: at the level of each individual item, each line of goods, each supply (if more than one supply is included in the same basket), each transaction/basket total, or each VAT accounting period or some other level?

(4) Is the answer to any of the questions affected by the Community law principles of equal treatment and fiscal neutrality, particularly by reference to the existence, in the United Kingdom, of a concession by the relevant taxing authorities allowing only certain traders to round down the VAT amounts to be accounted for?’

The questions referred for a preliminary ruling

The first and second questions

29By its first two questions, which it is appropriate to examine together, the national tribunal asks, essentially, whether the rounding of amounts of VAT comes within the scope of national or Community law and, more specifically, whether Community law includes rules on the rounding method, whether precluding arithmetical rounding or requiring Member States to authorise taxable persons systematically to round down, when the application of the standard rate of VAT leads to an amount of VAT which includes a fraction of the smallest unit of national currency.

30In that regard, the Court has already held that the provisions of the First and Sixth Directives contain no explicit rule concerning rounding of amounts of VAT. In particular, the Sixth Directive is silent on that matter (Case C‑484/06 Koninklijke Ahold [2008] ECR I‑0000, paragraph 24).

31Moreover, it cannot be inferred either from the wording of Articles 11A(1)(a), 22(3)(b), 22(4) and 22(5) of the Sixth Directive or from their objectives that a specific method of rounding has been laid down by Community law (see, to that effect, Koninklijke Ahold , paragraphs 27 to 30).

32Consequently, in the absence of any specific Community legislation, it is for the legal systems of the Member States to determine, within the limits of Community law, the method and rules for rounding of an amount declared by way of VAT (see Koninklijke Ahold , paragraph 31).

33When Member States establish or accept a particular method of rounding, they are obliged to observe the principles governing the common system of VAT, such as those of fiscal neutrality and proportionality. It does not, however, follow from observance of those recognised principles of the Community legal system that the question as to which specific method of rounding should be used is itself within the scope of Community law ( Koninklijke Ahold , paragraph 32).

34One of the consequences of the principle of fiscal neutrality is that taxable persons effecting the same or similar economic transactions must not be treated differently with regard to the method of rounding applied when VAT is calculated (see, to that effect, Koninklijke Ahold , paragraph 36 and the case‑law cited). By virtue of the same principle, the amount of VAT to be collected by the tax authority must not be greater than that declared on the invoice and paid by the final consumer to the taxable person (see Case C‑317/94 Elida Gibbs [1996] ECR I‑5339, paragraph 24, and, to that effect, Koninklijke Ahold , paragraph 36).

35Accordingly, that principle does not entail any requirement that a particular method of rounding be applied, in so far as the method chosen by the Member State concerned ensures that the amount of VAT to be collected by the tax authority corresponds exactly to the amount of VAT paid by the final consumer to the taxable person (see Koninklijke Ahold , paragraph 37).

36With regard to the principle of proportionality, the Court has held that, while observance of that principle requires that any rounded amount should correspond as closely as possible to that arising from application of the rate in force, the fact remains that that requirement must be reconciled with the practical needs of the effective application of the common system of VAT and that, in view of the technical nature of rounding, more than one single method of rounding could satisfy those requirements (see, to that effect, Koninklijke Ahold , paragraphs 39 to 41).

37It follows from the foregoing that Community law, in particular the provisions of the First and Sixth Directives and the principles of fiscal neutrality and proportionality, contains no specific requirement concerning the method of rounding amounts of VAT (see, to that effect, Koninklijke Ahold , paragraph 42).

38Accordingly, the answer to the first and second questions is that Community law, as it currently stands, contains no specific requirement concerning the method of rounding amounts of VAT. In the absence of specific Community legislation, it is for Member States to decide on the rules and methods for rounding amounts of VAT, although those States must, when so deciding, observe the principles underpinning the common system of that tax, particularly the principles of fiscal neutrality and proportionality. In particular, Community law, first, does not preclude the application of a national rule which requires an amount of VAT to be rounded up whenever the fraction of the smallest unit of currency concerned is at or above 0.50, and, second, does not require that taxable persons be allowed to round down any amount of VAT which includes a fraction of the smallest unit of national currency.

The third question

39By this question, the national tribunal asks whether, in a sale at a price inclusive of VAT, Community law requires that rounding for the purpose of calculating the VAT due should occur at a particular level, for example at one of those referred to in paragraph 27 above.

40In the view of the United Kingdom Government, Community law requires rounding of VAT only at the stage at which it requires VAT accounting as a sum of money. Accordingly, the lowest level would be either the invoice issued pursuant to Article 22(3) of the Sixth Directive, or the periodic VAT return. However, Member States retain a certain discretion to authorise rounding at an earlier stage if they consider this to be appropriate.

41The Commission of the European Communities is also of the view that it may be considered necessary to indicate the VAT due in round figures when an invoice is issued in accordance with Article 22(3) of the Sixth Directive. However, in the case of a retail sale at prices inclusive of VAT, it would only be at the stage of the periodic VAT return that the need would arise to express the amount due in round figures.

42Wetherspoon, by contrast, takes the view that rounding practised only at the end of the relevant VAT accounting period would be incompatible with the rules of the First and Sixth Directives and with the principles of fiscal neutrality and legal certainty. As the obligation to declare VAT to the tax authorities for supplies effected arises in respect of each transaction, it would be necessary to identify the exact amount of VAT that the customer is required to pay and which the supplier is required to declare, at the latest, at basket level.

43First, it must be stated that the provisions of the First and Sixth Directives, in particular those set out by the national tribunal, do not include any express rule fixing the level at which the rounding of amounts of VAT including a fraction of the smallest unit of national currency may or must be carried out.

44In particular, Article 11A(1)(a) of the Sixth Directive restricts itself to determining the taxable amount and it refers only to the price of the goods supplied and the services performed as consideration for the price ( Koninklijke Ahold , paragraph 26).

45Article 22(3)(b) of the Sixth Directive, it is true, provides that, where an invoice is issued, the amount of tax to be paid must appear on the invoice and be expressed in the national currency of the Member State concerned. However, it does not follow from these requirements that that provision requires the use of whole units of national currency for that information.

46That finding is in no way brought into question by the objectives and context of either of the provisions referred to in the two preceding paragraphs. The purpose of those provisions is to guarantee uniformity of the taxable amount in Member States and to ensure that the internal market functions properly (see Koninklijke Ahold , paragraphs 28 and 29).

47It follows that the inference cannot be drawn from either the wording of those provisions or their objectives that a particular level of rounding has been laid down by Community legislation.

48Accordingly, in the absence of any specific Community rules, it is for the legal systems of the Member States to determine, within the limits established by Community law, the stage at which the rounding of an amount of VAT may or must be carried out.

49As is clear from paragraph 33 above, Member States, when they determine that stage, are obliged to observe the principles of fiscal neutrality and proportionality governing the common system of VAT (see, in that regard, paragraphs 34 to 36 above). However, because of the technical nature of rounding, those principles are not such as to contain requirements from which it can be inferred that only one level of rounding, namely that effected at item level or line level, is capable of satisfying the principles.

50Furthermore, it is necessary to distinguish possible requirements of Community law on rounding from the practical need to round an amount of VAT which includes a fraction of the smallest unit of national currency. With regard to transactions at a price inclusive of VAT, the imperative need to round the amount of VAT to a whole unit of that currency unit does not exist at this stage, as the Advocate General has stated at point 42 of her Opinion. In such a case, it is only at the end of the periodic VAT return that it is absolutely necessary to arrive at an amount which can actually be paid and which, consequently, may not include a fraction of the smallest unit of currency.

51Having regard to all of the foregoing considerations, the answer to the third question is that, in a sale at a price inclusive of VAT, in the absence of specific Community legislation, each Member State is obliged to determine, within the limits of Community law, in particular in compliance with the principles of fiscal neutrality and proportionality, the level at which the rounding of an amount of VAT which includes a fraction of the smallest unit of national currency may or must occur.

The fourth question

52By this question, the national tribunal asks, essentially, whether a ‘retailer’ may, in reliance on the Community principles of equal treatment and fiscal neutrality, claim the right to apply the same method of rounding amounts of VAT due as that which national law grants to certain taxable persons, namely ‘invoice traders’, in other words, to round down the amount due in respect of VAT at line level and basket level.

53Wetherspoon is of the view that it is incompatible with the principle of fiscal neutrality to deny retailers the concession granted to invoice traders. Such exclusion, it argues, has the result that supplies of similar goods and services which are in competition with each other are treated differently for VAT purposes. In addition, in the absence of any definition of ‘invoice traders’ in the national rules mentioned above, the distinction in question is arbitrary.

54The United Kingdom Government takes the view, in that regard, that invoice traders do not make similar supplies to those of retailers and are not in competition with them, since retailers operate at a different level of the supply chain. Consequently, the principles of fiscal neutrality and elimination of distortion in competition do not require that those two groups of persons be treated in the same way for VAT purposes.

55According to the Commission, the principle of fiscal neutrality precludes the extension to retailers of a concession by a tax authority authorising certain operators, who normally apply prices exclusive of VAT and do not sell to end consumers, to round down the VAT amount to be declared.

56The Greek Government takes the view that rounding down to the lower figure has no bearing on the final amount collected by the State only if it applies solely to supplies to other taxable persons.

57In that regard, it must be pointed out, as is apparent from paragraph 34 above, that the principle of fiscal neutrality, which is the reflection in the field of VAT of the principle of equal treatment, precludes, inter alia, for taxable persons effecting the same transactions or similar economic transactions, different treatment with regard to the method of rounding applied when VAT is calculated (see to that effect, also, Case C‑162/07 Ampliscientifica and Amplifin [2008] ECR I‑0000, paragraph 25, and Case C‑132/06 Commission v Italy [2008] ECR I‑0000, paragraph 39).

58Thus, it is necessary to examine whether the ‘invoice traders’ and ‘retailers’ referred to by the rules at issue in the main proceedings effect the same transactions or similar economic transactions.

59In the present case, it follows from paragraph 17.5 of VAT Notice 700 and from sections 12.1 and 12.2 of the manual V1‑24A: Trader’s records that the term ‘invoice traders’ refers only to taxable persons who effect their supplies of goods and services at prices exclusive of VAT, to which VAT is added at the moment of invoicing.

60Where prices are fixed exclusive of VAT, the rounding occurs before the customer pays the consideration for the supply. The amount of tax collected by the taxable person from his customer and the amount subsequently paid by the taxable person to the State are identical, irrespective of the method of rounding applied.

61By contrast, where VAT is included in the price of goods or services, the systematic rounding down at a lower level than the periodic VAT return would result in the taxable person collecting from his customer the amount of the VAT actually due whilst systematically paying to the State a lower amount, retaining the difference for his own benefit. That result would be contrary to the principle that VAT is collected by taxable persons at each stage of the production or distribution process on behalf of the tax authorities, to which those taxable persons are required to pay it (see Case C‑291/03 MyTravel [2005] ECR I‑8477, paragraph 30).

62Moreover, the two situations mentioned above differ significantly from the point of view of the practical need to apply the common system of VAT effectively. In respect of prices exclusive of VAT, normally expressed in round figures, the rounding of VAT is indispensable if a total amount resulting from the addition of the price exclusive of VAT and the VAT due is to be obtained, which is capable of being actually paid. However, where the VAT is included in the price of the goods or service, rounding is not necessary in order to be able to pay the total price.

63Therefore, traders effecting their sales of goods or services at prices exclusive of VAT and those calculating the prices of those transactions by including the VAT are in different situations. Accordingly, the latter cannot, in reliance on the principle of fiscal neutrality, claim the right to be treated in the same way as operators applying prices exclusive of VAT with regard to the rounding of the amount due in respect of VAT.

64Consequently, the answer to the fourth question is that, in view of the fact that traders who calculate the price of their sales of goods and services inclusive of VAT are in a different situation to those effecting that same type of transactions at prices exclusive of VAT, the former cannot invoke the principle of fiscal neutrality in order to claim the right also to round down, at line level and basket level, the amounts of VAT due.

Costs

Costs

65Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national tribunal, the decision on costs is a matter for that tribunal. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Fourth Chamber) hereby rules:

1. Community law, as it currently stands, contains no specific requirement concerning the method of rounding amounts of value added tax. In the absence of specific Community legislation, it is for Member States to decide on the rules and methods for rounding amounts of value added tax, although those States must, when so deciding, observe the principles underpinning the common system of that tax, particularly the principles of fiscal neutrality and proportionality. In particular, Community law, first, does not preclude the application of a national rule which requires an amount of value added tax to be rounded up whenever the fraction of the smallest unit of currency concerned is at or above 0.50, and, second, does not require that taxable persons be allowed to round down any amount of value added tax which includes a fraction of the smallest unit of national currency.

2. In a sale at a price inclusive of value added tax, in the absence of specific Community legislation, each Member State is obliged to determine, within the limits of Community law, in particular in compliance with the principles of fiscal neutrality and proportionality, the level at which the rounding of an amount of value added tax which includes a fraction of the smallest unit of national currency may or must occur.

3. In view of the fact that traders who calculate the price of their sales of goods and services inclusive of value added tax are in a different situation to those effecting that same type of transactions at prices exclusive of value added tax, the former cannot invoke the principle of fiscal neutrality in order to claim the right also to round down, at line level and basket level, the amounts of value added tax due.

Opinion of the Advocate-General

1Whatever the rate of VAT charged on transactions, there will be cases in which the amount due comprises a fraction of the smallest currency unit used in payment. In such cases, a need for rounding will arise, and may call for regulation.

2In Koninklijke Ahold , (2) in answer to two questions from the Netherlands Hoge Raad (Supreme Court), the Court ruled essentially that, provided that the principles of fiscal neutrality and proportionality are observed, it is for Member States to regulate such rounding, and Community law does not oblige them to allow taxable persons to round the amount down for each item supplied.

3The present reference for a preliminary ruling from the VAT and Duties Tribunal, London, poses two questions similar to those recently answered in Koninklijke Ahold , together with two further questions of a more detailed nature. In these, it asks first whether Community law requires rounding at a particular level (such as each item supplied, or each transaction, or some other level). Second, it seeks clarification of the effect of the principles of equal treatment and fiscal neutrality, by reference to a national concession allowing only certain traders to round VAT amounts down.

Relevant Community law

4The period relevant to the main proceedings stretches from 2004 to 2006. Consequently, the applicable Community law was to be found in the First and Sixth VAT Directives. (3) I have cited the relevant provisions in points 3 to 12 of my Opinion in Koninklijke Ahold , to which I refer. It is, however, helpful to recall them.

5Under the first and second paragraphs of Article 2 of the First VAT Directive, the principle of the VAT system involves the application to goods and services of a general tax on consumption exactly proportional to their price, whatever the number of transactions in the production and distribution process. VAT at the applicable rate is charged on each transaction after deduction of the amount of VAT borne directly by the various cost components.

6Article 2(1) of the Sixth VAT Directive states that the supply of goods for consideration, by a taxable person acting as such, is to be subject to VAT.

7Under Article 10(1) and (2), the chargeable event is the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled, namely when the tax authority becomes entitled to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred. That occurs in principle when goods are delivered or services performed.

8Article 11A lays down the general rule that the taxable amount is, essentially, the whole consideration obtained by the supplier for the supply, whether from the customer or from any other source.

9Article 12(3)(a) provides that the standard rate of VAT is to be fixed by each Member State as a percentage of the taxable amount, at not less than 15%, and that Member States may also apply either one or two reduced rates.

10Article 17(1) and (2) gives taxable persons the right to deduct from the output tax for which they must account the amount of VAT they have paid on input supplies used for the purposes of their taxable output transactions. Under Article 18(1)(a), in order to deduct the taxable person must hold an invoice drawn up in accordance with Article 22(3).

11Article 22(3)(a) requires taxable persons to ensure that an invoice is issued in respect of each taxable supply they make to another taxable person or to a non-taxable legal person (by implication, there is no such requirement for supplies to final consumers who are natural persons), and Article 22(3)(b) requires that invoice to include, among other information, the taxable amount, the VAT rate applied, the VAT amount payable and the customer’s full name and address. Article 22(9)(d), however, allows Member States to provide that certain invoices, in particular those for smaller sums, need not contain all the information usually required; they must always indicate, none the less, ‘the tax due or the information needed to calculate it’.

12Article 22(5) requires every taxable person to pay the net amount of VAT (that is to say, output tax minus input tax) when submitting the regular return for each tax period.

13Mention may be made also of Directive 98/6/EC, (4) whose purpose is to stipulate indication of the selling price and the price per unit of measurement of products offered by traders to consumers in order to improve consumer information and to facilitate comparison of prices (Article 1). Article 2 defines (a) ‘selling price’ as the final price per unit or given quantity of a product, including VAT and all other taxes, and (e) ‘consumer’ as any natural person who buys a product for purposes that do not fall within the sphere of his commercial or professional activity. Article 3(1) requires the selling price to be indicated for all products offered by traders to consumers.

Relevant United Kingdom provisions

14Under the Value Added Tax Regulations 1995 (‘the VAT Regulations’), it is only if the customer is another taxable person (5) that VAT-registered traders must provide a VAT invoice for taxable supplies. All VAT-registered traders may nevertheless issue a VAT invoice to all customers if they so wish. A full VAT invoice must contain a number of particulars, including the customer’s name and address. (6) A ‘less detailed VAT invoice’ may be issued for VAT-inclusive amounts of up to GBP 100; such invoices need not indicate the customer’s particulars but must show, for each applicable rate, ‘the gross amount payable including VAT, and the VAT rate applicable’. (7)

15The Commissioners for Her Majesty’s Revenue & Customs (‘HMRC’) have issued a VAT Guide (Notice 700) for taxable persons. Paragraphs 17.5 and 17.6 concern rounding, and read as follows:

‘17.5 Calculation of VAT on invoices – rounding of amounts

Note: The concession in this paragraph to round down amounts of VAT is designed for invoice traders and applies only where the VAT charged to customers and the VAT paid to Customs and Excise is the same. As a general rule, the concession to round down is not appropriate to retailers, who should see paragraph 17.6.

You may round down the total VAT payable on all goods and services shown on a VAT invoice to a whole penny. You can ignore any fraction of a penny.

17.5.1 Calculation based on lines of goods or services

If you wish to work out the VAT separately for a line of goods or services which are included with other goods or services in the same invoice, you should calculate the separate amounts of VAT either by rounding:

– down to the nearest 0.1p – for example, 86.76p would be rounded down to 86.7p; or

– to the nearest 1p or 0.5p – for example, 86.76p would be rounded up to 87p.

Whatever you decide, you must be consistent.

The final total amount of VAT payable may be rounded down to the nearest whole penny.

17.6 Calculation of VAT at retailers

Most retailers account for VAT using a retail scheme. If that is the way you account for VAT, this paragraph does not affect you.

Retailers are increasingly using sophisticated till technology to identify the VAT due on each transaction and issue an invoice. If you do not use a retail scheme but instead calculate VAT at line level [(8) ] or invoice level you must not round the VAT figure down. However, you may round (up and down) each VAT calculation.’

16That notice does not define ‘invoice traders’. However, section 12 of HMRC Manual V1-24A, ‘Trader’s records’ (which contains guidance for HMRC staff but is freely available to the public), provides indications of what is understood by the distinction between invoice traders and retailers.

17Section 12.1 of that manual states that, when interpreting paragraph 17.5 of Notice 700, ‘it is important to note that it is in the context of rules for invoice traders where the rounding is tax neutral. This is because it will normally impact on both the output tax of the supplier and the input tax of the customer. This means that when an invoice trader calculates the VAT on net values, the amount charged and payable by the customer may be rounded down.’

18Section 12.2 of the manual states, inter alia:

‘Sophisticated accounting packages allow retailers the possibility of identifying VAT at line level and/or providing VAT invoices. ...

As a general rule the concession to round down is not appropriate for retailers. This is because the effect of rounding down the VAT charged to final consumers is not to reduce the VAT payable (which is the VAT fraction x the consideration) but only to reduce the tax accounted to HMRC.

Most retailers continue to account for VAT using a retail scheme. The problem of rounding only arises for retailers whose accounting systems allow them to identify tax at line level and to issue invoices. …

…

If a retailer genuinely sets prices on a VAT-exclusive basis – so that the VAT charged to the customer and the VAT accounted to HMRC are the same – the existing rounding concession may be appropriate. In considering such a system, you should examine how prices are actually set. If the retailer genuinely arrives at a tax inclusive selling price by starting with a net value expressed in whole pennies, then the existing concession may be appropriate. …’

19According to the order for reference, most large retailers in the United Kingdom have an individual agreement with HMRC as to how they calculate their VAT (a ‘retail scheme’ as referred to in the VAT Guide and Manual V1-24A). In such agreements, HMRC are prepared to allow arithmetic rounding (up or down to the nearest penny) at either line or basket level. However, section 12.3 of Manual V1-24A states that, ‘if a trader proposes an alternative rounding method then it should be considered and allowed if it produces an acceptable and reasonable result’.

Facts, procedure and questions referred

20J D Wetherspoon PLC (‘J D Wetherspoon’) operates over 670 pubs throughout the United Kingdom. The majority of its sales are retail sales of food and beverages to final consumers.

21It displays a VAT-inclusive selling price of its retail products to its customers. It does not issue full VAT invoices to customers, but provides receipts which qualify as less detailed VAT invoices for food and hot drinks, and for other drinks when requested by the customer.

22Until 2004, J D Wetherspoon accounted for VAT by identifying the VAT liability of each sale and calculating the VAT payable at basket level. It calculated the VAT payable on each standard-rated transaction at 7/47 ths (9) of the total amount due and rounded up or down arithmetically to the nearest penny. Those amounts of VAT were totalled at the end of the day for each pub and became the VAT payable to HMRC on the periodic VAT returns.

23Since then, J D Wetherspoon has calculated and rounded down the VAT to the nearest tenth of a penny at line level for each separately identified product. It then aggregates those amounts of VAT and rounds down the total to the nearest penny at basket level.

24HMRC refused to allow J D Wetherspoon to round down the VAT payable on each transaction. J D Wetherspoon appealed against that refusal and against two notices of assessment issued pursuant to it.

25The VAT and Duties Tribunal, hearing the appeal, observes that neither Community nor national legislation specifies the method of rounding where application of the normal rate produces a VAT amount which includes a fraction of the lowest unit of currency. The options are to round down in each case, or to round arithmetically. Nor does any legislation specify at what point rounding should take place. Where the same customer buys a number of items of goods at the same time, it is possible to round:

(a) at ‘item level’, for each item of each product in each transaction;

(b) at ‘line level’, for each product, where more than one item of that product is purchased in the same transaction;

(c) at ‘supply level’, for each supply, where a single transaction comprises a number of separate supplies for VAT purposes;

(d) at ‘basket level’, for the total transaction with each customer;

(e) at ‘VAT accounting period’ level, by adding together all the amounts of VAT received for standard-rated goods sold during the period and then rounding the total; or

(f) at some other level, such as that of the daily gross taking for each outlet or for all the trader’s outlets.

26The Tribunal therefore seeks a preliminary ruling on the following questions:

‘(1) Is the rounding off of VAT amounts governed solely by national law, or instead governed by Community law? In particular do the first and second paragraphs of Article 2 of the First Directive and Articles 11A(l)(a) and/or 12(3)(a) and/or Article 22(3)(b), (version as at 1 January 2004) of the Sixth Directive confirm that rounding off is a matter of Community law?

(2) In particular:

(i) Does Community law prevent the application of a national rule or practice of the national taxing authority which requires rounding up of any given VAT amount whenever the fraction of the smallest unit of currency is concerned is at or above 0.50 (for example, 0.5 pence is required to be rounded up to the nearest whole pence)?

(ii) Does Community law require that the taxpayers be allowed to round down any VAT amount which includes a fraction of the smallest unit of currency available?

(3) In a VAT inclusive sale at which level does Community law require rounding off to be applied for the purpose of calculating the VAT due: at the level of each individual item, each line of goods, each supply (if more than one supply is included in the same basket), each transaction/basket total, or each VAT accounting period or some other level?

(4) Is the answer to any of the questions affected by the Community law principles of equal treatment and fiscal neutrality, particularly by reference to the existence, in the United Kingdom, of a concession by the relevant taxing authorities allowing only certain traders to round down the VAT amounts to be accounted for?’

27Written observations have been submitted by J D Wetherspoon, by the United Kingdom, Greek and Netherlands Governments and by the Commission. J D Wetherspoon, the United Kingdom Government and the Commission presented oral argument at the hearing.

Assessment

The first question

28The first question – whether rounding of VAT amounts is governed by national or Community law – has, essentially, been answered by the Court in Koninklijke Ahold .

29At paragraphs 24 to 33 of that judgment, the Court found that the VAT Directives contain no explicit rule concerning rounding of amounts of VAT; that Articles 11A(1)(a) and 22(3)(b) of the Sixth Directive, in particular, did not lay down any express rule or specific method of rounding; and that, consequently, in the absence of any Community legislation, it is for the legal systems of the Member States to determine such rules or methods. It also specified, however, that when Member States establish or accept a particular method of rounding, they are obliged to observe the principles governing the common system of VAT, such as those of fiscal neutrality and proportionality. (10)

30In the present case, in addition to Articles 11A(1)(a) and 22(3)(b) of the Sixth Directive, the referring tribunal mentions the first two paragraphs of Article 2 of the First Directive, which set out the principles of the VAT system, in particular that of a tax exactly proportional to price, and Article 12(3)(a) of the Sixth Directive, which requires VAT rates to be fixed as a percentage of the taxable amount. It is clear that neither of those provisions lays down any specific rule or method as to the rounding of VAT amounts, but both express the principle of proportionality which the Member States must observe, as the Court ruled in Koninklijke Ahold .

The second question

31The VAT and Duties Tribunal asks essentially whether, where VAT amounts include a fraction of the smallest unit of currency available, Community law either (i) precludes any rule or practice requiring taxable persons to apply arithmetic rounding up or down, or (ii) requires them to be allowed to round down systematically.

32At paragraphs 34 to 43 of its judgment in Koninklijke Ahold , the Court reached the view that Community law, in particular the provisions of the First and Sixth Directives and the principles of fiscal neutrality and proportionality, contains no specific obligation for Member States to permit taxable persons to round the amount of VAT down per item.

33The Court noted, in particular, that fiscal neutrality does not require any particular method of rounding, as long as the amount of VAT collected by the tax authority corresponds exactly to the amount shown on the invoice and paid by the consumer to the taxable person, (11) and that, while the principle of proportionality requires any rounded amount to correspond as closely as possible to the amount determined by the applicable rate, that must be reconciled with the practical need for effective operation of a system based on taxable persons’ returns. (12) It was clear that more than one method – and in particular arithmetic rounding – could meet those requirements. (13)

34The ruling that Member States are not required to permit taxable persons to round the amount of VAT down per item answers to a large extent part (ii) of the national tribunal’s second question in the present case, and an answer to part (i) of that question can be derived from the observation to the effect that the arithmetic method is consistent with the requirements of Community law. It is true that the second question in Koninklijke Ahold concerned only rounding at item level, whereas in the present case it is not limited to that level. However, the Court’s reasoning is in no way specific to the level at which rounding is applied.

The third question

35The required level of rounding – if any – is the subject-matter of the third question referred in the present case.

36The question is asked with specific reference to sales at VAT-inclusive prices. Such prices are fixed by the trader at a selling price (which, in order to be payable, cannot include a fraction of the smallest available currency unit) of which a proportion (in the United Kingdom, 40/47 ths ) is the VAT-exclusive price and a proportion (in the United Kingdom, 7/47 ths ) is the amount of VAT. In many cases (in the United Kingdom, whenever the price is not a multiple of GBP 0.47), those proportions will involve a fraction of the smallest available currency unit. In the case of traders charging such prices, does Community law require that rounding take place at any particular level?

37As I pointed out in my Opinion in Koninklijke Ahold , (14) rounding will always produce a small distortion and, the lower the level at which it takes place (considering rounding per item to be the lowest level and rounding per VAT return to be the highest), the greater the likelihood that the aggregate distortion will be significant. I also pointed out (15) that rounding always up or always down will produce greater distortion, whereas arithmetic rounding will tend to reduce it (with amounts rounded up cancelling out others which are rounded down), and that other refinements can mitigate distortion even further.

38The type of distortion involved is a discrepancy between the exact proportion of the retail price which constitutes VAT and the amount of VAT which the trader declares and hands over to the tax authorities. Such discrepancies offend, by definition, against the requirement of exact proportionality. They involve either, in the case of rounding up, payment by the trader to the tax authority of a fraction of his profit in addition to the amount strictly due or, in the case of rounding down, retention by the trader of a fraction of the VAT strictly due – thus also offending against the principle that VAT should be neutral vis-à-vis taxable persons.

39It is clear that no provision of the Sixth, or any other, VAT Directive lays down any specific requirement as to the level at which rounding should take place. However, the principles of fiscal neutrality and proportionality (as those principles are to be understood in the context of VAT) require that distortion should be kept to a minimum. That can be achieved, on the one hand, by using a method of rounding which does not systematically entail distortion in only one direction but allows distortions to cancel each other out. On the other hand, in the specific context of the referring tribunal’s third question, it can be achieved by applying rounding at the level which entails the least danger of cumulative distortion because it involves the smallest number of individual rounding operations.

40The highest possible level is that of the periodic VAT return. (16) In so far as traders are selling to final consumers and there is no requirement to issue an invoice indicating a specific amount of VAT, that level of rounding would seem to pose no practical problem. As I suggested in Koninklijke Ahold , (17) a till receipt of the kind commonly issued in such circumstances need not state the exact amount of VAT contained in the final price but may indicate simply the applicable rate; and, even if a rounded amount is given, it need not be binding as between the trader and the tax authority – by virtue of Article 18(1)(a) of the Sixth Directive, a mere till receipt which is neither a full nor a less detailed VAT invoice cannot be used in order to exercise the right to deduct. In the case of a less detailed VAT invoice (which can be used in order to deduct), I note that neither Article 22(9)(d) of the Sixth Directive nor Regulation 16(1) of the VAT Regulations requires any specific amount of VAT to be stated – only ‘the information needed to calculate it’ or ‘the VAT rate applicable’. (18)

41Does the situation change where a trader, selling at round VAT-inclusive prices, issues a full VAT invoice? (19)

42Where such an invoice is issued, it must state the taxable amount and the VAT amount payable. Clearly the two amounts must together come to a total capable of being paid to the supplier, which therefore cannot include a fraction of the smallest currency unit. However, I can find no specific requirement in the Sixth Directive that each separate amount must be a round multiple of that smallest unit. Nor, in fact, does there seem to be any imperative reason why rounding could not be postponed until the stage of the periodic VAT return. The supplier could aggregate all fractional amounts before rounding in his return – as could the customer, if he is a taxable person. And if the customer is not a taxable person, there is no requirement for him to account for VAT in rounded amounts – he merely has to be able to pay the VAT-inclusive price in such a form.

43It is true that national law or administrative regulation may require all amounts on VAT invoices to be stated in multiples of the smallest currency unit, (20) or may authorise traders to round to such units for ease of accounting and administration. Where such rounding is required or authorised, the amount stated ‘crystallises’ an actual amount of VAT, paid by the customer to the supplier and to be accounted for by the supplier to the tax authority. In such a case, the level of rounding which causes the least distortion will be that of the invoice for the whole transaction, which may of course comprise a number of separate items or supplies (this is the ‘basket level’ referred to by the national tribunal).

44Consequently, while the Community VAT legislation does not require rounding at a specific level and thus allows Member States a degree of latitude, that latitude must be exercised in accordance with the principles of proportionality and neutrality, which are best served by rounding at the latest stage which is consistent with the practical requirements of payment and accounting.

The fourth question

45The VAT and Duties Tribunal asks, essentially, whether the fact that the United Kingdom allows invoice traders to round down systematically has any implications for the practice which it must follow vis-à-vis retail traders (such as J D Wetherspoon), particularly in the light of the Community-law principles of equal treatment and fiscal neutrality.

46The differences, on the one hand, between supplies to taxable persons and supplies to final consumers and, on the other hand, between VAT-exclusive and VAT-inclusive prices are relevant to the consideration of the method and level of rounding appropriate in retail trade. I therefore considered the implications of those differences in my Opinion in Koninklijke Ahold , in particular at points 56 to 62, to which I refer.

47In the light of those considerations, and of those set out in points 37 to 42 in the same Opinion, I take the view that it is not incompatible with the principles of equal treatment and fiscal neutrality (a) to allow traders who fix VAT-exclusive prices in round figures, to which VAT is added, and who supply taxable persons with a right to deduct, to round the amount of VAT down systematically while at the same time (b) requiring traders who fix VAT-inclusive prices in round figures, from which the amount of embedded VAT must be calculated, and who supply final consumers, to round the amount of VAT arithmetically in all cases.

48In case (a), by virtue of the deduction mechanism, rounding (whether up, down or arithmetic) has no effect on the tax burden of either supplier or customer, nor does it affect the total amount of tax ultimately collected by the treasury. In case (b), systematic rounding up or down will lead to the trader being liable for, and to the treasury collecting, respectively more or less VAT than the exact proportion of the price which should result from application of the correct rate. That discrepancy is considerably reduced by arithmetic rounding (particularly rounding to even), thus ensuring greater equality of treatment as between cases (a) and (b) and greater fiscal neutrality in case (b).

49J D Wetherspoon submits, however, that to accept systematic rounding down for some traders whilst imposing arithmetic rounding for others leads to a distortion of competition as between the two classes of traders – on a basis which is entirely arbitrary, as the classes of invoice traders and retail traders are nowhere defined. It gives the example of two traders selling a can of paint at GBP 4.94, including VAT. For the invoice trader, that will be made up of a net price of GBP 4.21, plus VAT of GBP 0.73675, rounded down to GBP 0.73. The retail trader, however, will have to round the amount of VAT (which, at 7/47 ths of the VAT-inclusive price, I calculate as GBP 0.73574) arithmetically to GBP 0.74 and will receive a net price of only GBP 4.20. That, J D Wetherspoon contends, is contrary to the Court’s case-law to the effect that similar supplies, in competition with each other, must not be treated differently for VAT purposes, regardless of whether the distortion of competition is substantial or not. (21)

50First of all in that regard, it is a matter solely for the national tribunal to determine whether the classification of traders as invoice traders or retail traders is in any way uncertain or arbitrary. It is also for the national tribunal to determine whether, in fact, food and drinks similar to and, in competition with, those supplied by J D Wetherspoon are also supplied by invoice traders authorised to round down the amount of VAT where J D Wetherspoon is not allowed to do so. (22)

51On the assumption that the latter point can be established in fact, the question arises whether the difference in treatment in fact penalises one type of trader and not the other, and whether it results from the method of rounding or from the method of price construction (that is to say, whether the price in round figures from which one starts is VAT-exclusive or VAT-inclusive). Again, these are questions primarily for the national tribunal, but the following considerations may assist.

52The rounding concession which applies in the United Kingdom to invoice traders, and the method which J D Wetherspoon seeks to use, is based on rounding down at basket level to the smallest unit of currency, after rounding down at line level to 1/10 th of that unit. It is helpful, therefore, to compare the treatment not of single items (for example, the single can of paint cited by J D Wetherspoon) but of baskets of the same item (for example, 2, 5, 10 or more cans of paint).

53If, in J D Wetherspoon’s example, the trader sells more than a single can of paint, the picture changes. The invoice trader’s selling price, being based on a higher VAT-exclusive price, exceeds that of the retail trader as soon as even the second can is sold together with the first, and the differential increases with the number of cans. Beyond 10 cans sold together, the amount of VAT in the invoice trader’s price is higher than the amount in that of the retail trader, and again the differential increases with the number of cans.

54It would be tedious to set out calculations for all possible different numbers of cans. However, based on J D Wetherspoon’s figures, an invoice trader rounding down systematically would sell 20 cans of paint for GBP 98.93, including VAT of GBP 14.73, whereas a retail trader rounding arithmetically would sell them for GBP 98.80, including VAT of GBP 14.71 (indeed, in this example, the retail trader’s figures would be the same even if he were allowed to round down – as will be the case whenever arithmetic rounding leads downwards). The VAT-exclusive price to the trade customer would thus be GBP 84.20 in the case of the invoice trader, and GBP 84.09 in the case of the retail trader.

55Consequently, the retail trader’s VAT-inclusive price could be more attractive to final consumers, and his VAT-exclusive price could be more attractive to taxable persons since each price is lower than its counterpart in the invoice trader’s price structure. Within the normal range of consumer expenditure, however, the differences are sufficiently slight to be perhaps unlikely to affect choice in themselves – considerations such as proximity or the availability of free delivery may have equal or greater weight. Retail traders may thus have scope to adjust their prices so as to offset any (equally slight) disadvantage in terms of net revenue without placing themselves at an overall competitive disadvantage.

56It thus seems that the effects of the difference in treatment between invoice traders and retail traders in the United Kingdom (a) are not necessarily such as to operate systematically to the detriment of retail traders and (b) may derive more from the difference between the use of VAT-exclusive and VAT-inclusive prices, each in round figures, as the basis for the calculation than from the method of rounding applied.

57In the latter regard, it must be remembered that Directive 98/6 requires a VAT-inclusive selling price – which is the only price that matters for the final consumer – to be indicated for all products offered by traders to natural persons buying them for purposes that do not fall within the sphere of their commercial or professional activity, whereas in trade between taxable persons entitled to deduct input tax the only price that matters is the VAT-exclusive price. There is therefore no apparent infringement of fiscal neutrality or equality of treatment in or deriving from the fact that different categories of trader construct their prices by different methods.

58Provided that the different methods of rounding are indeed applied on the basis of a distinction between the ways in which traders fix their prices, therefore, it seems to me that HMRC’s rounding-down concession for invoice traders has no material implications for the approach to rounding for retail traders such as J D Wetherspoon.

59In that regard, it is irrelevant that J D Wetherspoon, fixing VAT-inclusive prices, would have to account for significantly less VAT by systematic rounding down than by systematic arithmetic rounding. The relevant comparison is between invoice traders and retail traders, not between different rounding methods applied by retail traders. However, it would clearly be contrary to the requirement of equal treatment if, of a group of traders making similar and competing supplies based on round VAT-inclusive prices, some were allowed to round the VAT amount down systematically and others not. And, in that case, the traders allowed to round down would be retaining a fraction of the exact amount of VAT due, which would be contrary to the principle of fiscal neutrality.

Conclusion

Conclusion

60In the light of all the above considerations, I suggest that the Court should give the following answers to the questions raised by the VAT and Duties Tribunal, London:

(1) In the absence of specific Community legislation, it is for Member States to decide on the rules and methods of rounding amounts of VAT, provided that in doing so they observe the principles underpinning the common system of VAT, in particular those of fiscal neutrality and proportionality.

(2) Community law neither precludes Member States from requiring taxable persons to round the amount of VAT arithmetically in all cases nor requires them to permit such persons to round the amount down in all cases.

(3) Where sales are made at VAT-inclusive unit prices in round figures and the amount of VAT includes a fraction of the smallest available unit of currency, Community law does not require that amount to be rounded to a whole unit before the stage at which it must be expressed as a figure which does not include such a fraction, in particular in order to render it capable of payment as an independent sum.

(4) If traders making supplies based on VAT-exclusive unit prices in round figures, to which VAT must be added, are allowed to round the amount of VAT downwards on each invoice, the principles of equal treatment and fiscal neutrality do not preclude requiring traders who make supplies based on VAT-inclusive unit prices in round figures, from which the VAT component must be calculated, to round the amount of VAT arithmetically.

(1) .

(2) – Case C‑484/06 [2008] ECR I‑0000.

(3) – First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967 I, p. 14); Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation 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, amended on numerous occasions). With effect from 1 January 2007, both directives were repealed and replaced by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), whose aim is to present all the applicable Community VAT provisions clearly and rationally in a recast structure and wording without, in principle, bringing about material changes in the existing legislation.

(4) – Of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers (OJ 1998 L 80, p. 27).

(5) – And, where the supplier is a retail trader, only if the customer requests an invoice.

(6) – These particulars, set out in Regulation 14(1), are essentially the same as those required by Article 22(3)(b) of the Sixth Directive.

(7) – Regulation 16(1).

(8) – For an explanation of the terms ‘line’, ‘basket’ etc. level, see point 25 below.

(9) – The standard rate of VAT in the United Kingdom is 17.5%, or 7/40 ths , of the net (VAT-exclusive) price. The amount of VAT in a retail (VAT-inclusive) price is therefore 7/47 ths .

(10) – It should be borne in mind that, in this context, ‘fiscal neutrality’ refers to the requirement that VAT should be neutral in its effect both on and as between taxable persons, and the ‘principle of proportionality’ has the specific meaning of a requirement that the amount of tax be exactly proportional to the prices of goods and services (see Koninklijke Ahold , paragraphs 36 and 38).

(11) – Paragraph 37 of the judgment.

(12) – Paragraph 39.

(13) – Paragraphs 40 and 41, referring to point 47 of my Opinion in that case. At points 47 and 48, I discussed arithmetic rounding, indicating in footnote 29 that simple arithmetic rounding entails a slight upward bias (deftly airbrushed out of the calculations proposed by the United Kingdom Government in its observations in the present case) which could be mitigated by ‘rounding to even’.

(14) – In particular at points 37 to 42 and 49 to 51.

(15) – At points 42, 47 and 48, and footnote 29.

(16) – See points 49 to 51 of my Opinion in Koninklijke Ahold .

(17) – See, in particular, points 34 and 55 of my Opinion.

(18) – See points 11 and 14 above.

(19) – It may be recalled that full VAT invoices must contain a considerable amount of information (including the customer’s full name and address), which may render the practice less attractive to retailers with high-volume, low-value sales.

(20) – Regulation 14(1) of the VAT Regulations requires the amount of tax to be expressed in sterling, just as Article 22(3)(b) of the Sixth Directive requires it to be expressed in the national currency of the Member State concerned. Both provisions are silent on the question whether round units must be used.

(21) – It cites, in particular, Case C‑363/05 J P Morgan Fleming Claverhouse Investment Trust [2007] ECR I‑5517, paragraphs 46 and 47 and the case-law cited there, together with Case C‑141/00 Kügler [2002] ECR I‑6833, paragraphs 55 to 58, and Case C‑45/01 Christoph-Dornier-Stiftung [2003] ECR I‑12911, paragraphs 69 to 74.

(22) – At the hearing, J D Wetherspoon suggested that such a situation might exist as between itself and catering firms in the context of receptions and similar events which may be organised for both taxable persons and private individuals. Such firms, J D Wetherspoon asserts, are allowed to round down whereas it is required to round arithmetically.