Case C‑305/16

Avon Cosmetics Ltd

v

Commissioners for Her Majesty’s Revenue and Customs

(Request for a preliminary ruling from the First-tier Tribunal (Tax Chamber))

(Reference for a preliminary ruling — Value added tax (VAT) — Sixth Directive 77/388/EEC — Article 11A(1)(a) — Taxable amount — Article 17 — Right to deduct — Article 27 — Special derogating measures — Decision 89/534/EEC — Marketing structure based on the supply of goods through non-taxable persons — Taxation on the open market value of the goods as determined at the final stage of the marketing chain — Inclusion of the costs incurred by those persons)

Summary — Judgment of the Court (Third Chamber), 14 December 2017

1. Harmonisation of fiscal legislation—Common system of value added tax—Taxable amount—National derogating measures—Decision 89/534 authorising the United Kingdom to derogate from Article 11A(1)(a) of the Sixth Directive—Marketing structure based on the supply of goods through non-taxable persons—Taxable amount of a direct sales company calculated on the basis of the open market value of the goods sold at the stage of final consumption—Lawfulness—Derogating measure not taking account of the tax paid by those resellers—Irrelevant

   (Council Directive 1977/388, as amended by Directive 2004/7, Arts 11A(1)(a), 17 and 27; Council Decision 89/534)

2. Harmonisation of fiscal legislation—Common system of value added tax—Taxable amount—National derogating measures—Decision 89/534 authorising the United Kingdom to derogate from Article 11A(1)(a) of the Sixth Directive—Validity—Infringement of the principles of proportionality and fiscal neutrality—No such infringement

   (Council Decision 77/388, as amended by Directive 2004/7, Arts 11A(1)(a) and 27(1); Council Decision 89/534)

3. Harmonisation of fiscal legislation—Common system of value added tax—Taxable amount—National derogating measures—Obligations owed by the Member State which makes the application for a derogation—Scope

   (Council Directive 1977/388, as amended by Directive 2004/7, Art. 11A(1)(a) and 27; Council Decision 89/534)

1.  Articles 17 and 27 of 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, as amended by Council Directive 2004/7/EC of 20 January 2004, must be interpreted as not precluding a measure, such as that at issue in the main proceedings, authorised by Council Decision 89/534/EEC of 24 May 1989 authorising the United Kingdom to apply, in respect of certain supplies to unregistered resellers, a measure derogating from Article 11A(1)(a) of the Sixth Directive, pursuant to Article 27 of that directive, which derogates from Article 11A(1)(a) of that directive and under which the taxable amount for valued added tax (VAT) purposes of a direct sales company is the open market value of the goods sold at the stage of final consumption, where those goods are marketed through resellers not subject to VAT, even if that derogating measure does not take account, in one way or another, of the input VAT relating to demonstration items purchased by those resellers from that company.

   (see para. 43, operative part 1)

2.  As regards the validity of Decision 89/534, first, it should be noted that, in order for an EU measure relating to the VAT system to be compatible with the principle of proportionality, the provisions which it contains must be considered to be appropriate and necessary for the attainment of the objectives which it pursues and to be such as to affect as little as possible the objectives and principles of the Sixth Directive (see, to that effect, judgments of 19 September 2000, Ampafrance and Sanofi, C‑177/99 and C‑181/99, EU:C:2000:470, paragraph 60, and of 29 April 2004, Sudholz, C‑17/01, EU:C:2004:242, paragraph 46).

   The Court has held that the concept of ‘tax avoidance’, within the meaning of Article 27(1) of the Sixth Directive, corresponds to a purely objective phenomenon and that that provision permits the adoption of a measure derogating from the basic rule set out in Article 11A(1)(a) of that directive even where the taxable person carries on business not with any intention of obtaining a tax advantage but for commercial reasons (see, to that effect, judgment of 12 July 1988, Direct Cosmetics and Laughtons Photographs, 138/86 and 139/86, EU:C:1988:383, paragraphs 21 and 24).

   It is true that Decision 89/534 does not permit account to be taken, in one way or another, of the input VAT relating to demonstration items purchased by non-taxable resellers from a direct sales company.

   However, as is apparent from paragraphs 40 and 41 of the present judgment, taking account of that input VAT in the taxable amount of the supplies referred to in Article 1 of Decision 89/534 would amount to an unauthorised derogation from Article 17(2) of the Sixth Directive.

   Secondly, it should be recalled that the principle of fiscal neutrality precludes, in particular, treating similar goods or supplies of services, which are thus in competition with each other, differently for VAT purposes (judgment of 10 November 2011, The Rank Group, C‑259/10 and C‑260/10, EU:C:2011:719, paragraph 32 and the case-law cited).

   The failure of Decision 89/534 to take account of the input VAT relating to demonstration items purchased by non-taxable resellers from a direct sales company, such as Avon in the main proceedings, results in the distribution chain of that company’s products bearing a greater VAT burden than its competitors’ products. However, such a circumstance is merely the consequence of the choice made by such a company to use the direct selling system to market its products.

   It follows from all the foregoing considerations that examination of the first question has disclosed no factor of such a kind as to affect the validity of Decision 89/534.

   (see paras 44, 46, 48, 49, 52, 53, 56, operative part 2)

3.  Article 27 of Sixth Directive 77/388, as amended by Directive 2004/7, must be interpreted as not requiring the Member State which seeks authorisation to derogate from Article 11A(1)(a) of that directive to inform the European Commission that non-taxable resellers incur VAT on purchases of demonstration items from a direct sales company that are used for the purposes of their economic activity, in order that account be taken, in one way or another, of that input tax in the detailed rules of the derogating measure.

   (see para. 69, operative part 3)