1. 

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

2.

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

3.

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

4.

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

5.

The Tribunal took the view that the interpretation of the notion of ‘consideration’ raised by the facts of the main proceedings required an interpretation of Article 11 (A) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (hereinafter ‘the Sixth Directive’) ( 4 ) and made the present reference. The relevant provisions of Article 11(A) are as follows:

‘Article 11

A. Within the territory of the country

1.   The taxable amount shall be:

...

3.   The taxable amount shall not include:

...

...’

6.

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

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

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

7.

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

8.

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

9.

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

10.

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

11.

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

12.

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

13.

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

14.

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

15.

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

16.

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

17.

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

18.

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

19.

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

20.

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

21.

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

22.

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

23.

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

24.

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

25.

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

26.

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

27.

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

28.

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

29.

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

30.

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

31.

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

32.

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

33.

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

34.

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

35.

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

36.

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

37.

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

38.

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

39.

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

40.

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

(1)

Article 11(A)(1)(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment is to be interpreted so that, in circumstances where a supplier of goods has sold to a purchaser at a discount a voucher which is subsequently presented in whole or in part payment for goods by a customer who was not the purchaser of the voucher and does not normally know what sum was paid for the voucher, the consideration represented by the voucher is equal to its face value.

(2)

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