C-86/99 Freemans

FREEMAN'S

JUDGMENT OF THE COURT (Sixth Chamber)

29 May 2001 *

In Case C-86/99,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234 EC) by the VAT and Duties Tribunal, London (United Kingdom) for a preliminary ruling in the proceedings pending before that court between

Freemans plc

and

Commissioners of Customs and Excise,

on the interpretation of Article HA(3)b and C(l) of the 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),

* Language of the case: English.

THE COURT (Sixth Chamber),

composed of: C. Gulmann, President of the Chamber, V. Skouris, R. Schintgen, F. Macken and N. Colneric (Rapporteur), Judges,

Advocate General: J. Mischo, Registrar: D. Louterman-Hubeau, Head of Division,

after considering the written observations submitted on behalf of:

— Freemans pic, by P. Trevett QC, and F. Fitzpatrick, Barrister, instructed by Herbert Smith, Solicitors,

— the United Kingdom Government, by R. Magrill, acting as Agent, assisted by K. Parker QC,

— the Greek Government, by M. Apessos and E. Mamouna, acting as Agents,

— the Commission of the European Communities, by E. Traversa and F. Riddy, acting as Agents,

having regard to the Report for the Hearing, FREEMANS

after hearing the oral observations of Freemans plc, represented by P. Trevett and F. Fitzpatrick, of the United Kingdom Government, represented by K. Parker, of the Greek Government, represented by M. Apessos, and the Commission, represented by R. Lyal, acting as Agent, at the hearing on 9 November 2000,

after hearing the Opinion of the Advocate General at the sitting on 11 January 2001,

gives the following

Judgment

Legal context and the dispute

1By order of 14 January 1999, which was received at the Court on 12 March 1999, the VAT and Duties Tribunal, London, referred to the Court for a preliminary ruling under Article 177 of the EC Treaty (now Article 234 EC) a question on the interpretation of Article 11A(3)b and C(1) of the 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, hereinafter 'the Sixth Directive').

2That question has been raised in proceedings between Freemans plc ('Freemans') and the Commissioners of Customs and Excise ('the Commissioners'), the competent authority in the United Kingdom for collecting value added tax ('VAT'), relating to the determination of the taxable amount, for VAT purposes, in the case of goods supplied in the course of a sales promotion scheme established by Freemans.

The Community rules

3In Title V ('Taxable transactions'), Article 5(1) of the Sixth Directive provides as follows:

'"Supply of goods" shall mean the transfer of the right to dispose of tangible property as owner.'

4Article 11A(1)(a) and (3)(b) of the Sixth Directive provide:

'A. Within the territory of the country

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;

FREEMAN'S

3. The taxable amount shall not include:

(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply.'

5Article 11C(1), first subparagraph, of the Sixth Directive provides:

'C. Miscellaneous provisions

1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.'

6Article 27 of the Sixth Directive, which constitutes Title XV, 'Simplification procedures', provides as follows in its first paragraph:

'1. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the amount of tax due at the final consumption stage.'

The national rules

7Pursuant to Article 27 of the Sixth Directive the United Kingdom has introduced special schemes for retailers allowing them to calculate their output VAT by reference to the overall value of taxable supplies made during an accounting period, using the concept of 'daily gross takings' rather than by reference to the value of each individual supply.

8Until 28 February 1997, the United Kingdom allowed retailers to calculate their daily gross takings by means of the standard method of gross takings ('the SMGT'), which was based on payments received by a retailer in an accounting period. From 1 March 1997, the United Kingdom withdrew the SMGT and required retailers to calculate their gross takings under a new system using the optional method of calculating gross takings ('the OMGT'). The OMGT is based on the total amount invoiced by the retailer.

The main proceedings and the question referred for a preliminary ruling

9Freemans sells its goods to customers by means of mail order, using catalogues which it sends to individuals in order that they may act as its agents. It has approximately 900 000 active agents, who order goods either for themselves FREEMANS

('agents' own purchases') or for other customers. Purchases are paid for under a self-financed credit scheme established by Freemans, the agents paying for the goods at the price set out in the catalogue ('the catalogue price') in instalments, generally spread over a period of 50 weeks. Freemans has created in its books a separate credit account for the agents to which a sum equal to 10% of each payment made by an agent to Freemans is credited to her automatically, that sum comprising more precisely a 10% discount in respect of the agent's own purchases (hereinafter referred to as 'AOP discount') and a 10% commission in respect of purchases made for other customers (hereinafter 'commission').

10The agent may withdraw the amount credited to her account at any time by cheque, by post office giro or by national lottery vouchers; she may also set off that amount against outstanding balances owed by herself or a customer, or use it against new purchases, which will entitle her to a further 10% discount. However, agents are not entitled to pay, from the outset, the catalogue price less the AOP discount.

11If an agent does not pay an instalment due, the total balance owing on her account becomes immediately due and payable. In such a case, in principle, the AOP discount or commission cannot be paid out until the account is put in order.

12Where the amount credited to the agent's account is not claimed over a certain period, it is written off in Freemans books. However, in practice, even where agents delay in claiming their right to AOP discount and where that right is technically time-barred, they do not lose their entitlement to that right. In fact, a substantial amount of AOP discount remains unclaimed and is retained by Freemans.

13Under the SMGT, Freemans was entitled to make an immediate deduction of AOP discount from its daily gross takings. Since 1 March 1997, the date of application of the OMGT, Freemans is required to calculate its daily gross takings without deducting AOP discount, unless and until the discount is withdrawn by the agent in cash or set against the purchase price of goods.

14Despite the withdrawal of the SMGT, Freemans continued to calculate its VAT returns for the periods April and July 1997 on that basis, namely deducting the AOP discount from the catalogue price. The Commissioners nevertheless assessed Freemans' transactions according to the new method, the OMGT. Freemans appealed against those assessments to the VAT and Duties Tribunal, London.

15In the proceedings before that tribunal, Freemans submits that the taxable amount in respect of goods supplied to an agent for her own use is the catalogue price of those goods less the agent's own purchase discount, since Freemans is never in a contractual position in which it is entitled to receive the full catalogue price from the agent.

16The Commissioners contend, on the other hand, that upon a proper construction of the agreement between Freemans and its agent the consideration, within the meaning of Article HA(1)(a) of the Sixth Directive, is the full purchase price of the catalogue goods which the agent is contractually required to pay to Freemans.

17The VAT and Duties Tribunal points out that the Commissioners are not claiming from Freemans VAT on an amount greater than that actually paid by the final FREEMANS

consumer. It adds that the time of supply of the goods leading to the AOP discount is before payment for the goods which gives rise to that discount. In its view, that tends to suggest that Freemans' appeal should be dismissed.

18However, the VAT and Duties Tribunal concluded that the outcome of the dispute before it requires an interpretation of Article 11 of the Sixth Directive and decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:

'What, on a proper construction of Article 11A and 11C of the Sixth Directive, is the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use where the supplier in operating self-financed credit terms allows a discount from the catalogue price to the customer ("AOP discount") with the AOP discount being credited to the customer as and when instalment payments are made to the supplier (or use made of AOP discount in reducing or discharging an instalment payment) but where the AOP discount which has accrued on payments made is available for immediate withdrawal or use by the customer even though future instalment payments will be due from that customer?

Is the taxable amount:

(1) the full catalogue price of the goods sold to the customer less the AOP discount on that price; or

(2) the full catalogue price of the goods sold to the customer with a reduction as and when the AOP discount is credited to a customer; or (3) the full catalogue price of the goods sold to the customer with a reduction as and when the AOP discount is withdrawn or used by a customer; or

(4) some other, and if so what, amount?'

Grounds

The question referred for a preliminary ruling

19First of all, it should be remembered that each time that it is necessary, as in the main proceedings, to decide whether an element of the price may be included in the taxable amount or, conversely, may be expressly excluded from that amount, it is first necessary to examine whether the element in question falls within one of the categories referred to in Article 11A(2) and (3) of the Sixth Directive and it is only when the answer to that question is in the negative that reference must be made to the general concept of taxable amount referred to in Article 11A(1)(a) of that directive (see Case C-126/88 Boots Company [1990] ECR I-1235, paragraph 16).

20The Commission submits that the wording of Article 11A(3)(b) of the Sixth Directive, particularly in the French version, suggests that price discounts and rebates are 'accounted for' within the meaning of that provision as soon as the purchaser acquires a legal entitlement to them. Since, in the present case, the agent is entitled to an AOP discount at the time when she buys the goods, that provision is applicable so that the taxable amount is from the outset the catalogue price less the discount.

FREEMAN'S

21The United Kingdom and Greek Governments do not accept that the existence of such a right to a discount suffices to render Article HA(3)(b) of the Sixth Directive applicable. They contend that at the time of the supply of the goods purchased the consideration is the full catalogue price, because that is what the agent must pay to Freemans.

22It should be pointed out that, according to the wording of Article HA(3)(b) of the Sixth Directive, price discounts allowed to the customer and accounted for at the time of supply are not to be included in the taxable amount. As regards the supply of goods, the time of the supply within the meaning of that provision is, according to Article 5(1) of the Sixth Directive, the time when the right to dispose of the goods purchased is transferred, that is to say, in the case in point, the time when the products are adopted by the agent.

23If, at the time of that transfer, the customers paid a reduced price, they would receive a discount; if the seller refunded to them part of the price already paid, the customers would receive a rebate within the meaning of Article HA(3)(b) of the Sixth Directive (see, to that effect, the judgment in Boots Company, cited above, paragraph 18).

24However, that is not the case here. At the time of that transfer, agents must pay the full catalogue price in instalments, and Freemans is required to credit a separate account with a sum equal to 10% in respect of each payment which agents make. The sums which will thus have to be credited as and when those payments are made do not yet constitute discounts within the meaning of Article HA(3)(b) of the Sixth Directive.

25Contrary to the Commission's submissions, for Article HA(3)(b) to be applicable, it is not sufficient that the customer acquires at the time of the purchase, as in the main proceedings, a discount which she has a legal entitlement to receive.

26It is true that the French version of that provision might suggest that the term 'acquis' should be interpreted as meaning 'juridiquement acquis' ('legally acquired'). However the German version of the same provision ('erhält') suggests that the discount must actually be paid at the time of the supply. In any event, none of the language versions of Article HA(3)(b) contains the expressions 'legally acquired' or 'actually acquired', which would have been clear and unambiguous. The wording must therefore be interpreted in the light of the objectives of Article 11 of the Sixth Directive.

27It must be pointed out here that Article HA(3)(b) of the Sixth Directive is merely an application of the rule laid down in Article HA(l)(a) of that directive as interpreted by the Court in its decisions (see the judgment in Boots Company, cited above, paragraph 19). According to the latter provision, the taxable amount is, with regard to the supply of goods, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser. According to the Court's settled case-law, the definitive taxable amount for the supply of goods is the consideration actually received for them (see Case C-38/93 Glawe [1994] ECR I-1679, paragraph 8, and Case C-288/94 Argos Distributors [1996] ECR I-5311, paragraph 16). Article 11A(1)(a) thus ensures the neutrality of the tax, a principle inherent in the common system of VAT which must be observed when the provisions of the Sixth Directive are to be interpreted (see, to that effect, Case C-317/94 Elida Gibbs [1996] ECR I-5339, paragraphs 26 to 31).

28In the present case, Freemans, by calculating VAT from the outset on the catalogue price less the amounts to be credited by it, would obtain, if its customers subsequently did not use the amounts credited, a sum corresponding to FREEMANS

a part of the sales price that is the consideration for the goods delivered, but that sum would not be part of the taxable amount. Such a method of calculating VAT would therefore infringe Article HA(1)(a) of the Sixth Directive, interpreted in accordance with the principle of the neutrality of the tax.

29Consequently, a taxable person who uses a sales promotion scheme such as that at issue in the main proceedings is not entitled to claim that from the outset the consideration within the meaning of Article HA(1)(a) of the Sixth Directive is represented by the full price less the AOP discount.

30Admittedly, as Freemans rightly points out, the Court has held, with regard to gaming machines offering a chance of winning (slot machines), that the consideration is the total stakes inserted less the proportion corresponding to the winnings paid out to players (judgment in Glawe, cited above, paragraph 13). However, it must be pointed out, first, that gambling transactions do not lend themselves easily to the application of VAT, as the Commission stated in its proposal for a Sixth Directive (see Bulletin of the European Communities, Supplement 11/73, p. 16). It thus hardly appears to be appropriate to draw general conclusions from the taxation of those transactions in order to apply them to the taxation of ordinary supplies of goods. Next, it is necessary to take account of the fact that, in the case which gave rise to the judgment in Glawe, cited above, the proportion of stakes not included in the taxable amount was in fact repaid to players who won. The facts of Glawe were thus materially different from those in the present case, in which an element of the price paid by the final consumer is retained by the taxable person, if the consumer does not use it.

31Finally, it must be stated that Article 11C(1) of the Sixth Directive must be interpreted as meaning that, in a sales promotion scheme such as that at issue in the main proceedings, the taxable amount constituted by the full catalogue price must be reduced as soon as the agent withdraws or uses in another way the amount with which her separate account has been credited.

32Freemans and the Commission submit that Article 11C(1) of the Sixth Directive covers the cases in which the reduction in consideration arises from an amendment to the contract after the time of the supply. That provision is therefore not applicable where, as in the present case, the contractual relations giving rise to the supply provide from the very beginning for the grant of a discount, even though that discount is not actually accounted for until later. In that context, they rely upon paragraph 31 of the judgment in Elida Gibbs, cited above, in which the Court held that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently.

33In that regard, it suffices to state that the wording of Article 11C(1) of the Sixth Directive does not presuppose such a subsequent modification of the contractual relations in order for it to be applicable. In principle, it requires the Member States to reduce the taxable amount whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person (see Case C-330/95 Goldsmiths [1997] ECR I-3801, paragraphs 16, 17 and 18). Moreover, there is no indication that in its judgment in Elida Gibbs, cited above, the Court wished to restrict the scope of application of that provision. On the contrary, it is apparent from the facts of the Elida Gibbs case that there had been no modification of the contractual relations. Nevertheless, the Court held that Article 11C(1) of the Sixth Directive was applicable.

34In the alternative, Freemans contends that Article 11C(1) must be interpreted as meaning that, under the promotion scheme at issue in the main proceedings, the taxable amount must be reduced at the time when the amount paid as AOP discount is credited to an agent's account.

FREEMAN'S

35However, at the time when it credits the amount in question to the agent's account established in its books, Freemans has not yet actually paid the AOP discount to the agent. Where the agent does not use that amount, Freemans disposes of it by adding it to its profit and loss account. It is only when the customer uses the AOP discount that the discount is actually paid, so that, as Article 11C(1) of the Sixth Directive provides, the taxable amount for the corresponding purchase must be reduced accordingly under conditions to be determined by the Member States.

36The answer to be given to the national court's question is therefore that, upon a proper construction of Article 11A(3)(b) and C(l) of the Sixth Directive, the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use where the supplier allows the customer a discount from the catalogue price, a separate account being credited in the customer's favour with the amount of that discount as and when instalment payments are paid to the supplier — a discount which may then be immediately withdrawn or used in another way by the customer — is the full catalogue price of the goods sold to the customer, reduced accordingly by the amount of that discount at the time when it is withdrawn or used in another way by the customer.

Costs

Costs

37The costs incurred by the United Kingdom and Greek Governments and by the Commission, 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 question referred to it by the VAT and Duties Tribunal, London, by order of 14 January 1999, hereby rules:

Upon a proper construction of Article 11A(3)(b) and C(1) of the 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, the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use where the supplier allows the customer a discount from the catalogue price, a separate account being credited in the customer's favour with the amount of that discount as and when instalment payments are paid to the supplier — a discount which may then be immediately withdrawn or used in another way by the customer — is the full catalogue price of the goods sold to the customer, reduced accordingly by the amount of that discount at the time when it is withdrawn or used in another way by the customer.

Gulmann Skouris Schintgen

Macken Colneric

Delivered in open court in Luxembourg on 29 May 2001.

R. Grass C. Gulmann

Registrar President of the Sixth Chamber

OPINION OF ADVOCATE GENERAL MISCHO delivered on 11 January 2001

1The VAT & Duties Tribunal, London (United Kingdom) has to decide on a dispute between the United Kingdom tax authority, the Commissioners of Customs and Excise ('the Commissioners'), and a mail order company, Freemans pic ('Freemans'). It relates to the manner in which the taxable amount is to be determined in respect of part of Freemans' sales. That taxable amount is the basis on which Freemans' liability to value added tax ('VAT') must be calculated.

2Freemans' sales system is based on the use of more than 900 000 agents to whom it sends its catalogue.

3The agents order products illustrated in the catalogue, either for third parties or for their own account. They pay for the purchases in instalments over several weeks under a self-financed credit scheme established by Freemans.

4As an inducement, Freemans credits each agent, in her account with Freemans, with an amount equal to 10% of each payment she has made.

5The amount credited constitutes commission in the case of a purchase made for a third party and a discount in the case of the agent's own purchases.

6At any time the agent may use the amount credited to her account. She can have it paid by cheque or post office giro or in the form of national lottery vouchers; it may also be used to reduce the outstanding balance which she owes to Freemans.

7Each time an agent uses an amount credited to her as payment for the purchase of an article from the Freemans catalogue that payment in turn gives rise to a 10% discount on the purchase price, which is credited to the agent's account.

8Pursuant to Article 27 of the 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 the United Kingdom introduced special measures for retailers which allowed them to calculate their output VAT by reference to the overall value of their supplies during each accounting period on the basis of 'daily gross takings', rather than by reference to the value of each individual supply.

9Until 28 February 1997 the United Kingdom tax authority authorised retailers to calculate their daily gross takings according to 'the standard method of gross takings' (hereinafter 'the SMGT'), which was based on payments received during an accounting period.

10With effect from 1 March 1997 the tax authority required the use of a new method of calculating gross takings ('the optional method of gross takings', hereinafter 'the OMGT'), which is based on the total amount charged by the retailer.

11The dispute between Freemans and the Commissioners relates solely to the amounts credited by Freemans to its agents when they make purchases for their own account.

12When the SMGT applied, those amounts, which for ease of reference I will refer to as the 'agent's own purchases discount' ('AOP discount'), could be deducted immediately by Freemans from its daily gross takings.

13Since the introduction of the OMGT, Freemans should, according to the Commissioners, have amended its practice and have calculated its daily gross takings without deducting AOP discount unless and until the discount was withdrawn by the agent in cash or used against the purchase price of goods from Freemans.

14It is common ground that Freemans did not do so. The Commissioners therefore issued a tax assessment and Freemans appealed against it to the VAT and Duties Tribunal.

15Two conflicting submissions have been made to the VAT and Duties Tribunal. Freemans submits that the taxable amount in respect of goods supplied to an agent for her own use is the catalogue price of those FREEMAN'S goods less the agent's own purchases discount, as Freemans is never in a contractual position whereby it is entitled to receive the full catalogue price from the agent.

16The Commissioners contend that, on a proper construction of the agreement between Freemans and its agent, the consideration, within the meaning of Article 11A(1)(a) of the Sixth Directive, is the full purchase price of the goods, as set out in the catalogue, which the agent is contractually required to pay to Freemans.

17In order to reach a decision on the issue, the VAT and Duties Tribunal has referred the following question to the Court of Justice for a preliminary ruling:

'What, on a proper construction of Article 11A and 11C of the Sixth Directive, is the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use where the supplier in operating self-financed credit terms allows a discount from the catalogue price to the customer ("AOP discount") with the AOP discount being credited to the customer as and when instalment payments are made to the supplier (or use made of AOP discount in reducing or discharging an instalment payment) but where the AOP discount which has accrued on payments made is available for immediate withdrawal or use by the customer even though future instalment payments will be due from that customer? Is the taxable amount:

(1) the full catalogue price of the goods sold to the customer less the AOP discount on that price; or

(2) the full catalogue price of the goods sold to the customer with a reduction as and when the AOP discount is credited to a customer; or

(3) the full catalogue price of the goods sold to the customer with a reduction as and when the AOP discount is withdrawn or used by a customer; or

(4) some other, and if so what, amount?'

18The VAT and Duties Tribunal correctly considers that the answer to the dispute is to be found in Article 11 of the Sixth Directive, which deals solely with determination of the taxable amount.

19Let me therefore set out the provisions of Article 11 over which Freemans and the Commissioners take issue.

Article 11 provides that:

'A. Within the territory of the country

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;

3. The taxable amount shall not include:

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

C. Miscellaneous provisions

1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

...'

20The first and third of the answers envisaged by the VAT and Duties Tribunal FREEMAN'S correspond to the positions of Freemans and the Commissioners respectively, whereas the second, which neither of the parties defends but which Freemans would wish to see adopted if the Court of Justice were to reject the first answer, seems to be favoured by the VAT and Duties Tribunal.

21The VAT and Duties Tribunal also envisages that none of the three answers may be correct in the light of the requirements of Article 11 of the Sixth Directive and that it may be necessary for the Court to adopt another approach rather than choose one of the specific answers suggested to it.

22However, the latter course will be necessary only if, after examining the three different methods of determining the taxable amount envisaged by the VAT and Duties Tribunal, it were to be concluded that none of them is authorised by the provisions of Article 11.

23I must therefore first examine the three approaches proposed by the VAT and Duties Tribunal. However, before beginning my examination, I should point out that the Court of Justice has already had to consider the problem of determining the taxable amount in the case of the supply of goods. It has extracted, both from the logic underlying the Community VAT scheme and from Article HA(1)(a) of the Sixth Directive, the principles which apply in all circumstances to the determination of the taxable amount.

24Thus it follows from the judgment in Elida Gibbs v Commissioners of Customs and Excise 3 that 'the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him' and that 'according to the Court's settled case-law, that consideration is the "subjective" value, that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria (... Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365, paragraph 16, and Case C-126/88 Boots Company v Commissioners of Customs and Excise [1990] ECR I-1235, paragraph 19).'

25Those principles have never been called in question in the written and oral submissions to the Court. At issue is solely the question of how those principles should be applied in the present case.

26Freemans submits that Article HA(1)(a) itself can supply the answer to the national court's question, since the consideration obtained by it when it supplies goods to an agent for the agent's own use is equal to the catalogue price less the AOP discount which it allows to the agent.

27It observes that 'consideration' should not be confused with the sum paid by the purchaser. It refers to the judgment in Glawe, 4 in which the Court held that 'in the case of gaming machines offering the possibility of winning, the taxable amount does not include the statutorily prescribed proportion of the total stakes inserted which corresponds to the winnings paid out to the players.'

28Just as the taxable amount for an operator of gaming machines does not include the whole of the sums inserted by players into the machines, the taxable amount in respect of Freemans' sales should not include the part of the payments made by its agents which Freemans credits to them as and when they make those payments.

29The consideration for the supply of goods to an agent can only be the amount which Freemans is legally entitled to retain in the light of its agreement to allow AOP discount equal to 10% of the catalogue price.

30That line of argument, however interesting, does not seem to me to be the one which should be followed in the present case.

31In its judgment in Boots Company, cited above, 5 the Court held that 'each time the question of classifying a specific item arises, it is first necessary to examine whether the item falls within one of the categories referred to in paragraphs 2 and 3 and it is only when the answer to that question is in the negative that reference must be made to the general concept in paragraph 1(a)' (paragraph 16).

32In other words, before considering the lex generalis it must be examined whether the lex specialis may apply.

33The sums in discussion in the present case are characterised by the VAT and Duties Tribunal as an agent's 'own purchases discount'. Contrary to Freemans' suggestion, but as the Commission proposes, it is therefore necessary to begin by examining whether that discount is to be regarded as a discount which Article 11A(3)(b) expressly excludes from the taxable amount or, possibly, as a price reduction after the supply takes place, within the meaning of Article 11C(1), which authorises only a reduction of the taxable amount 'accordingly' under conditions determined by the Member States. In the case of the provisions adopted by the United Kingdom, that reduction is to be made ex post facto, at the moment when the AOP discount is remitted to the agent or used by her.

34Does the AOP discount scheme applied by Freemans therefore fall within the scope of Article HA(3)(b) or Article HC(l)?The latter possibility must be ruled out immediately in the light of the judgment in Elida Gibbs, cited above.

35In Elida Gibbs the Court held that Article 11C(1) is to be applied only where the price is reduced 'after the supply takes place' (paragraph 30).

36Under the Freemans sales scheme, although the AOP discount is credited to the agent only as and when she makes her payments, the grant of that discount is agreed from the moment when the goods are delivered. It is part of the sales terms offered by Freemans and accepted by the agent when contractual relations are entered into.

37Is it therefore a discount accounted for at the time of the supply, with the result that Article HA(3)(b) is applicable?

38The United Kingdom Government and the Greek Government submit that this is not the case, since the AOP discount is credited to the agent only as and when she makes the payments which she has agreed to make; the sales price, when the sale is concluded, is the catalogue price.

39In support of that contention, reliance is placed on the judgment in Boots Company, cited above, in which the Court held that:

'"Discounts and rebates" which, according to Article HA(3)(b) of the Sixth Directive, are not to be included in the taxable amount, constitute a reduction of the price at which an article is lawfully offered to the customer, since the seller agrees to forgo the sum represented by the rebate in order precisely to induce the customer to buy the article (paragraph 18).'

40Those governments argue that under the Freemans sales system there is no question of a waiver of the right to collect part of the sales price, since it is specifically the receipt of those payments which is the condition of the grant of the AOP discount.

41If the amounts which Freemans credits to her account as and when she makes her payments are not immediately used by the agent in order to reduce her subsequent payments, Freemans will in fact receive the full catalogue price.

42The agent will indeed have, in Freemans' account book, a credit equal to 10% of the amount which she has paid, but she will not actually benefit in concrete terms from the discount until Freemans has paid it to her in accordance with one of the methods referred to above or until she uses it to pay for a new purchase. However, such payment or use has an air of uncertainty, it being common ground that a not inconsiderable number of agents do not claim the discount to which their payments have entitled them.

43According to those governments, until the discount has been credited and actually paid to the agent or used by her, there cannot be any question of a discount that has been accounted for. Even if the agent acts quickly, the time at which she will be able to use the discount will inevitably be after the time when buyer and seller actually enter into contractual relations.

44The Commission submits that, in the light of the information given in the order for reference, the AOP discount is unquestionably a discount that has been 'accounted for' within the meaning of Article HA(3)(b).

45The term 'accounted for' should be interpreted in the sense of 'acquisition of a legal entitlement'. A discount must be considered to have been accounted for from the moment when the person to whom it has been allowed has a legal right to receive it.

46From the moment when the agent enters into a contract with Freemans for the purchase of goods she has a right to have her account at Freemans credited with 10% of each sum which she pays. The AOP discount is credited when the payments are made, but the right to obtain it comes into being before those payments are made. The payments trigger the crediting of the discount to the agent's account, but do not create the right to the discount. The instalment payments by the agent and the inclusion of the discount, in instalments, in her account take place in the course of the performance of the sales contract as concluded upon delivery of the goods; there is no subsequent amendment of that contract.

47In the Commission's view, to regard 'discount accounted for' (ristourne acquise) as meaning 'discount to which there is a legal entitlement', as suggested by the French language version of the Sixth Directive, is not inconsistent with the other language versions, including the English version.

48That line of argument by the Commission has convinced me and I endorse it all the more willingly because it is supported by other factors. First of all, there is the fact that, under the system whereby Freemans sells to its agents, the full catalogue price may well never be received by Freemans.

49It has been explained to us that as soon as the agent has made her first payment she is credited with an amount equal to 10% of that payment and she may use that amount to reduce her next payment.

50It cannot therefore be argued that the judgment in Boots Company, cited above, contradicts the Commission's argument. In agreeing to credit its agent with AOP discount, Freemans waives the right to collect the full catalogue price. In any event, the judgment in Glaive, cited above, clearly drew a distinction between what the seller collects and what he in fact receives, which alone constitutes the taxable amount.

51Secondly, there is the fact that the actual payment of the discount to the agent or her use of it are of no legal relevance, it being undisputed that the discount entered in the agent's account in Freemans' books is in fact at her disposal, just like an amount entered in her bank account. What she does with it is entirely up to her.

52It cannot be accepted that determination of the taxable amount can depend on the agent's entirely discretionary decision as to what she wishes to do with discount which she has definitely acquired.

53Thirdly and lastly, it must be noted that the conclusion which I have reached in applying Article 11A(3)(b) to the AOP discount is wholly in keeping with the Court's interpretation of Article 11A(1)(a), according to which the consideration for a sale, that is to say, the taxable amount, is the subjective value received by the seller, and not an objective value, namely, in the present case, the value indicated in the Freemans catalogue.

54Having thus reached the conclusion that, on a proper construction of Article 11 of the Sixth Directive, the first answer envisaged by the VAT and Duties Tribunal is the correct one, I have no need to consider the matter further. The correctness of that answer rules out any other answer. Conclusion

Conclusion

55Having completed my reasoning, I propose that the Court should answer the question submitted to it by the VAT and Duties Tribunal, London as follows:

Article 11A and 11C of the Sixth Council Directive 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, must be interpreted as meaning that the taxable amount in respect of goods supplied by mail order from a catalogue to a customer for the customer's own use, where the supplier in operating self-financed credit terms allows a discount from the catalogue price to the customer ('AOP discount') with the discount being credited to the customer as and when instalment payments are made to the supplier (or use made of the AOP discount in reducing or discharging an instalment payment) but where the AOP discount which has accrued on payments made is available for immediate withdrawal or use by the customer even though future instalments payments will be due from that customer, is the full catalogue price of the goods sold to the customer less the AOP discount on that price.

Notes

(1) Original language: French.

(2) OJ 1977 L 145, p. 1.

(3) Case C-317/94 Gibbs v Commissioners of Customs and Excise [1996] LCR I-5339, paragraphs 19 and 27.

(4) Case C-38/93 Glaive [1994] ECR I-1679, paragraph 13.

(5) See point 24 above.