ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL
Strand, London, WC2A 2LL
B e f o r e :
|(1) Peugeot Motor Company Plc|
|(2) Citroen UK Limited||Appellants|
|The Commissioners of Customs and Excise||Respondent|
Rupert Anderson QC (instructed by Solicitors for Customs and Excise) for the Respondent
Hearing dates: 6, 7, 8, 9, 12 and 16 May 2003
Crown Copyright ©
Mr Justice Blackburne:
"B Other exemptions
Without prejudice to other Community provisions, Member States shall exempt the following under conditions, which they shall lay down for the purpose of ensuring the direct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;
(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;
The Directive has direct effect. The exemption also finds expression domestically in what is now group 2 of schedule 9 to the VAT Act 1994 (repeating, so far as material in identical terms, the provisions of schedule 6 to the VAT Act 1983) which includes within its scope "... the making of arrangements for the provision of any insurance or reinsurance ".
"1. The taxable amount shall be:
or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies ...
"13. CUK was the UK importer for Citroen cars from France. The cars were sold to final purchasers in the UK via a network of independent franchised Citroen dealers and wholly-owned retail dealers which latter were part of the VAT group. In respect of all retail sales since the merger in 1993, CUK sold the cars to the dealers via a wholesale finance company, PSA Wholesale Ltd ("Wholesale"), which was also a member of the VAT group; there was no evidence that a wholesale subsidiary was involved in Citroen sales before the merger. The assumption must be however that if there was a wholesale subsidiary it was part of a VAT group which included CUK together with any wholly-owned dealers.
14. The outputs with which the appeal was concerned were therefore sales by Wholesale (or before the merger by CUK or a wholesale company in the CUK group) to independent dealers and sales by group dealers to customers or the finance houses.
15. CUK accounted for output tax on sales of motor vehicles in respect of which free insurance was provided to final customers by paying output tax on the full selling price of the vehicles as invoiced to and paid by the independent dealers, or where relevant by the purchasers from group dealers, with no adjustment for the cost of the insurance.
16. Title to a new car sold after the merger ordinarily passed from CUK to Wholesale and then to the dealer immediately before the car was resold to the final customer or to a finance company entering into an agreement with the final customer.
17. CUK's sales and promotions incentives during the periods from 01/90 to 10/96 periodically included the provision of free insurance, offered by CUK and its dealers to eligible final customers in the UK in relation to specified Citroen models. The price paid by the independent dealer or by the customer or finance house remained the same whether or not a free insurance offer was taken up.
18. The terms and conditions of eligibility were set out in promotional brochures published by CUK, issued to its dealers and distributed by them to potential customers. The October 1996 brochure included the following terms and conditions:
'1. The models eligible for the offer are all new AX and Saxo petrol and diesel models
2. The cover is subject to the terms, conditions and exceptions of the Insurer's policy. All models will be subject to comprehensive insurance cover. The insurer for all models will be Direct Line Insurance Plc .
3. The insurance offer is available to every eligible private purchaser, provided he/she is the registered keeper of the car.
4. The cover applies to any driver within the following age groups: ... 17-75 years.
5. The scheme does not apply to drivers who have been convicted of major driving offences, as stipulated by the insurer, in the last 5 years.
10. The cover is not available for leased or company vehicles.
14. The offer applies only to the specified .models ordered after 30th September 1996 and registered by 31st October 1996'
19. The insurance cover for eligible customers was provided by Direct Line in accordance with agreements between Direct Line and CUK under which CUK paid specific agreed sums to Direct Line in respect of the premium payable for each customer accepted for cover. This sum, which might vary according to the model, was the same for all eligible customers and was computed by Direct Line using actuarial calculations based on demographic statistics of anticipated purchasers. The customers were unaware of the amount paid by CUK to Direct Line.
20. The exhibited agreement between CUK and Direct Line [one of a number of schemes during the period covered by the repayment claims] was dated 21 November 1994. It defined the Scheme as "the Scheme outlined in Appendix A" and continued, "In consideration of Direct Line agreeing to participate in the Scheme:" followed by six clauses. The first two clauses contained indemnities by CUK and Direct Line to each other and the third provided that any dealer breaking the rules would be omitted from future schemes. Clause 4 provided.
'4. Neither Citroen nor any of its Agents or Dealers shall offer or give any thing of whatever nature (including cash) to potential purchasers of new Citroen motor vehicles which fall within the Rules of the Scheme in lieu of the free insurance offered under the Scheme by way of incentive not to take the free insurance, or otherwise and Citroen shall use all best endeavours to ensure adherence by its dealers to this Agreement.
Citroen shall not offer or give anything of whatever nature (including cash) to any of its Agents or Dealers as an incentive to offer free insurance under the Scheme to eligible customers, or otherwise.'
It was provided that breach of that clause was fundamental.
The scheme provided for submission of a monthly bordereau, specified a fixed premium per vehicle with insurance premium tax of 2.5 per cent added. The scheme provided for Citroen to pay a minimum premium based on 50 per cent of the anticipated sales specified in the scheme. There was provision for renewal notices to customers with varying no claims discounts. In relation to advertising it provided,
'All advertising and/or promotional material and/or documentation Citroen wishes to use in relation to the Scheme must be approved by Direct Line prior to its publication.'
21. When a contract to buy a Citroen had been agreed between the customer and the dealer, the customer would be given an insurance form to complete. The attractions of free insurance and the terms would already have been explained by the dealer's salesman. The terms and conditions on the reverse of the proposal form for October 1996 reproduced those on the brochure set out above. The proposal form contained the normal details. It contained a declaration (inter alia)
'I am the owner and registered keeper of the vehicle ...'
A letter from Direct Line stated that, if the vehicle was subject to finance, the purchaser (by which it must mean proposer) was still considered to be the owner and the same procedures applied. After filling in the proposal form the customer (not the dealer) telephoned Direct Line with his insurance details so that his application for cover could be processed. Direct Line processed the application on the telephone .
22. [According to the unchallenged evidence of a Mr Soloman] CUK's sales and marketing divisions had a variable budget for offers which he described as 'taken from profit margins'. These offers were used as tactical tools at various times during the year depending on the state of the market. The nature of an offer depended on the type of car and the market segment at which it was aimed. Some cars were more attractive to younger buyers for whom free insurance offers were particularly appealing. Other cars were more popular among older drivers who were more interested in low cost finance. Market research showed that customers saw free insurance as having a substantial, albeit varying, monetary value. Mr Soloman considered that offers of the type in question were equivalent to a discount in that more money was provided to the target market in order to promote sales. The cost of the offers was expended from what would ordinarily be part of the profit margin. Expenditure of this type was viable provided sales increased. He regarded the cost of free insurance for a customer as in effect a discount to the customer who would otherwise have to pay for his own insurance.
23. Mr Flitton [owner of a franchised Citroen dealer] said that his company would emphasise the value to the customer of free insurance and would if necessary telephone a broker for a quotation with the customer present. He said that if a customer did not want free insurance, his company might if pressed offer another incentive, perhaps an enhanced trade-in value. Such other incentive would be at the dealer's expense".
"26. PMC provided cars to dealers on a consignment basis for display in the showroom while still remaining PMC's property. If the cars were not sold with the consignment period (usually 180 days) the dealers were obliged to purchase the cars. Some dealers were part of Robins & Day Ltd which was a member of PMC's VAT group, but most dealers were not.
27. When a dealer ordered a car from PMC, PMC sold the car to Wholesale and Wholesale sold it to the dealer.
28. In the vast majority of cases, cars provided to dealers on consignment were sold within the consignment period and title passed from PMC to Wholesale and then to the dealer immediately before title passed to the final purchaser or to the finance house as the case might be. The finance company used by PMC was PSA Finance Plc (trading as Peugeot Finance) which was not a member of the VAT group; Peugeot Finance used a conditional sale agreement under which it retained ownership until all payments were made and under which the customer was obliged to insure.
29. From time to time PMC made free insurance offers to encourage sales. The insurance cover was provided to customers by Orion for a charge which was paid by the Appellant. The offers were advertised to the public on television and in the press. The offers were also promoted by dealers to whom PMC provided brochures and instructions".
30. [The Tribunal then referred to two specimen proposal forms and continued:] "... Both were to be faxed both to Peugeot Insurance Centre and to Orion, whose address appeared at the bottom of the forms. The policies of insurance were issued by Orion.
32. Although from 1993 the ultimate holding company of both PMC and CUK was Peugeot SA and they were members of the same VAT group, they operated independently as is demonstrated by the involvement of different firms of chartered accountants. Although the details of the free insurance offers were not identical and were varied by each company, the appeal was conducted on the footing that there was no material difference for the purposes of the appeal ... although there was no copy of an agreement between PMC and Orion, the inference is that the agreements were similar to those between Citroen and Direct Line apart from the fact that the initial insurance was not arranged by telephone, the proposal form being faxed; the arrangements for insuring the individual customers were similar. The arrangements for sales effected via Wholesale were presumably the same.
33. The Tribunal was told that most sales both of Citroen and Peugeot were by independent dealers ... . The majority of sales involved credit.
34. According to Mr Smith's statement [a company secretary in the Peugeot Group] at all material times finance for ultimate customers of Peugeot cars was provided by PSA Finance, a subsidiary of Wholesale. PSA Finance was not a member of the VAT group to which PMC belonged.
35. All agreements were based on PSA Finance's standard form Conditional Sale agreement regulated by the Customer Credit Act 1974. Clause 2 of the agreement provided as follows:
'You will become the owner of the goods if you comply with the terms of this agreement and when you have paid the total amount payable under the agreement. Until then the goods will belong to us even though you have possession.'
Under clause 5 the customer was obliged to insure the vehicle and pay all insurance premiums on time. The same agreement was used whether the dealer was within the Peugeot group or was independent.
36. The car was sold by the dealer to PSA Finance a few days prior to the actual conditional sale agreement. It would of course have previously been sold by Wholesale to the dealer. The documentation of the insurance arrangements does not appear to have been affected by the fact that PSA Finance was involved.
37. Since the merger, all finance for CUK sales has been provided through PSA Finance. It appears from Mr Smith's statement that Citroen sales were financed by PSA Finance before the merger but there is no evidence for how long this was the case. Nor was there any evidence as to Citroen's prior arrangements. It seems reasonable to assume that any finance company would have been outside CUK's VAT group."
"73. In the Peugeot case, PMC sold the cars to Wholesale which sold them to the dealers. There was no evidence as to the price charged to Wholesale which presumably took a turn to cover its costs. Ignoring for the present sales involving finance companies, the dealers sold to customers who were the final consumers unless themselves taxable persons. The price paid by the dealers was the same whether or not free insurance was involved; so presumably was the price charged to dealers since Wholesale was not involved in the insurance offers in any way. Because of the restrictions on retail price maintenance dealers were not obliged to sell at the published price, however they were debarred from offering anything including cash as an incentive not to take up free insurance.
74. The dealers used the free insurance offers as an inducement to customers to buy cars. In my judgment they warranted to the customers that the insurance would be provided so long as the purchaser was eligible.
75. The insurance contract was between the insurer and the customer. In my judgment the contractual consideration provided by the customer was the purchase of the car which entitled the insurer to a payment from PMC.
76. In my judgment there was a contract between PMC and the dealer under which in return for the dealer marketing the car and administering the offer PMC undertook to pay the premium for free insurance taken up. In my judgment there was also a collateral contract between PMC and the customer under which in return for the customer buying the car, PMC undertook to pay the premium.
77. The above analysis involves direct sales to customers by dealers. It is clearly more complex when a finance company was involved. There was no evidence that such a company would have been aware of any insurance offer. However it seems to me that the individual customer contracting with the finance company would nevertheless have had enforceable rights against the insurer, the dealer and PMC.
78. The position of Citroen purchasers and CUK was in my judgment substantially the same, although Wholesale cannot have been involved before the merger. If there were no wholesale company interposed before the merger, the contractual links would have been more direct.
79. I readily accept that the commercial and economic effect of the free insurance schemes may have been little different from cash back schemes. It is also clear that in commercial and economic terms the schemes were a marketing tool and the costs were part of the cost of the sales. If the Appellants had been able to provide insurance themselves, perhaps reinsuring in full, the cost of the reinsurance would have been a cost component of the supplies of the cars provided the supplies were composite supplies and would have given rise to an input tax deduction apart from the fact that insurance is exempt."
"(1) The decision in Primback is not distinguishable on the facts in relation to sales by group dealers direct to customers ;
(2) Bally [Chaussures Bally SA v Belgium  STC 209, a decision of the ECJ] is distinguishable because in that case the third party supply in question was to the primary supplier rather than to the consumer ;
(3) The principle in Primback does not extend to supplies by a third party to intermediaries between the dealer and the ultimate consumer ;
(4) Although Elida Gibbs involved intermediaries, there was a single chain of supply and no third party supply; that decision does not support an extension of Primback to cases involving intermediaries in addition to third party supplies ...;
(5) Elida Gibbs is not incompatible with Primback in relation to direct supplies; the Tribunal is therefore bound by Primback in relation to such supplies ...;
(6) Primback does not apply where the direct nexus between supplier and the consumer receiving the third party supply is broken by the insertion of a finance company ...;
(7) (Glawe is not directed to cases involving third party supplies;
(8) The Appellants did not themselves make supplies of insurance; even if they did make such supplies, no element of the consideration received from independent dealers or finance houses was attributable to insurance; Card Protection does not assist the Appellants ...;
(9) A ruling from the ECJ is not necessary to enable the Tribunal to give judgment; even if it was necessary a more focused argument would be desirable prior to a reference ... ."
"The supplies by CUK and PMC to dealers were of goods only and did not include supplies of insurance by the insurers. I accept that CUK and PMC agreed with the dealer to pay the cost of any free insurance but the insurance was not supplied to the dealer; all the dealer needed was the assurance that the premium would be paid. It is difficult to see how the consideration for the supplies of cars to dealers could be affected by the separate supplies of insurance by the insurers to customers neither of whom were party to the supplies in question; I do not consider that this is affected by the existence of a separate collateral contract between CUK or PMC and the dealer under which CUK of PMC undertook to pay the premium for free insurance." (see paragraph 97).
"[The earlier decision], as I read it, has exactly the effect that it expresses and no more. It is a decision in principle; this was acknowledged in paragraph 6 of the Decision. It sets out the legal framework upon which the dispute is to be progressed. The key conclusion is that the Primback decision of the Court of Appeal is not distinguishable on the facts in relation to sales by group dealers direct to customers. The decision did not determine the matter and the next steps, therefore, lay with the parties."
"Overall it seems to me that the Tribunal that produced the 1999 Decision still has jurisdiction to complete that appeal and so to determine the amount payable by the Commissioners. The right course, therefore, is to re-list that appeal before Mr Theodore Wallace once the High Court has ruled on the correctness or otherwise of the 1999 Decision."
"No cross-appeal was made against the Tribunal's decision at the time, since the view was taken that the effect of the Tribunal's decision was simply to align that part of the case with the outcome of the outstanding reference to the European CJ in [Primback] ... . Accordingly the Commissioners took the view that if the effect of the judgment of the European CJ was to reverse the Court of Appeal in Primback, there would be no need to appeal that part of the Tribunal decision, since the money repaid to Peugeot in the meantime would be recoverable, pursuant to section 80 (4A) of the VAT Act 1994."
The grounds of appeal
The taxpayers' contentions: the insurance supply point
"20... CPP acknowledges that it merely promised its customers to do what was necessary for insurance to be provided to them by a third party, and that it did not itself undertake to provide insurance cover. In this respect, the Commission has pointed out that CPP is the holder of a group policy for its customers.
21. In those circumstances, it must be noted that CPP is the holder of a block insurance policy under which its customers are the insured. It procures for those customers, for payment, in its own name and on its own account, to the extent of the services mentioned in the continental policy, insurance cover by having recourse to an insurer. Consequently, for the purposes of VAT, there is a supply of services between Continental and CPP on the one hand, and between CPP and its customers on the other, and the fact that Continental under the terms of its contract with CPP provides insurance cover directly to CPP's customers, is not material in this respect.
22. Such a supply of services by CPP constitutes an insurance transaction within the meaning of art 13B(a). It is true that the exemptions provided for by art. 13 of the Sixth Directive are to be construed strictly...however the expression 'insurance transactions' is broad enough in principle to include the provision of insurance cover by a taxable person who is not himself an insurer but, in the context of a block policy, procures such cover for his customers by making use of the supplies of an insurer who assumes the risk insured."
"The first is that anything done for a consideration which is not a supply for goods constitutes a supply of services. This makes it unnecessary to define the services in question. The second is that unless the services are rendered for a consideration, they cannot constitute the subject matter of a supply. In fact, of course, there can be no question of deducting input tax unless Redrow has incurred a liability to pay it as part of the consideration payable by him for a supply of goods and services.
In my opinion these two factors compel the conclusion that one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduct. Once the taxpayer has identified the payment, the question to be asked is: did he obtain anything - anything at all - used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer. But it may equally well consist of the right to have goods delivered or services rendered to a third party. The grant of such a right is of itself a supply of services.
In the present case, Redrow did not merely derive a benefit from the services which the agents supplied to the householders and for which it paid. It chose the agents and instructed them. In return for the payment of their fees, it obtained a contractual right to have the householder's homes valued and marketed, to monitor the agents' performance and maintain pressure for a quick sale, and to override any alteration in the agents' instructions which the householders might be minded to give. Everything which the agents did was done at Redrow's request and in accordance with its instructions and, in the events which happened, at its expense. The doing of those acts constituted a supply of services to Redrow."
"67. To sum up: there were three distinct supplies in the present case, and it is necessary to identify the particular supply for which the payment made by the customer was the consideration: (i) the supply by Parcelforce to Plantiflor of the service of delivering its customers' goods. This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor. It is (or, if Parcelforce were a private carrier, would be) a taxable supply. (ii) The supply by Parcelforce to the customer of the service of delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and, even if Parcelforce were a private carrier, would not be) a taxable supply. (iii) The supply by Plantiflor to the customer of an arrangement service for which Plantiflor charged £1.63 per parcel. Whatever else was included in the supply, it was not the service of actual delivery. That was supplied by Parcelforce. What the customer received for his money was the benefit of the arrangements, which Plantiflor had made with Parcelforce to deliver its customers' goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply."
i) The insurance exemption extends not simply to the actual insurer, whether or not authorised by law to insure, but also to any transaction, whether or not by the actual insurer, whereby a promise of insurance cover is made. See Card Protection  STC 270 at paragraphs 20-22. Moreover, given the wide wording of article 13B(a), in particular the words appearing after 'insurance and reinsurance transactions' and the reference in the domestic law enactment of the exemption (as it existed at the relevant time) extending the exemption to 'the making of arrangements for the provision of any insurance or reinsurance...' it extends to persons who, while not themselves undertaking to insure, make arrangements for a contract of insurance to come into existence. Nor is there any requirement as to the identity of the recipient of the supply. The exemption therefore extends to the case where for consideration A warrants to B that C will provide cover and also to the case where for consideration A warrants to D that C will provide cover to B. In the first case there is an exempt insurance supply by A to B; in the second by A to D.
ii) The findings of the Tribunal (set out in paragraphs 19, 74 and 76 of the decision) amount to findings as to the existence of the following insurance-related supplies made in the course of the car sales by Peugeot (assuming the end-user was eligible):
a) by Orion to Peugeot, namely the promise to provide the end-user with insurance in return for the appropriate premium (see paragraph 32);
b) by Peugeot to the end-user, namely '... a collateral contract between PMC and the customer under which in return for the customer buying the car, PMC undertook to pay the premium ...' (see paragraph 76);
c) by Peugeot to the independent dealers, namely '... a contract between PMC and the dealer under which, in return for the dealer marketing the car and administering the offer, PMC undertook to pay the premium for free insurance taken up ...' (see paragraph 76);
d) by the dealer to the end-user, namely '... they [the dealers] warranted to the customer that the insurance would be provided so long as the purchaser was eligible ...' (see paragraph 74);
e) by the insurer to the end-user, namely the actual insurance cover following completion of an appropriate proposal and payment by Peugeot of the premium (see paragraph 75).
iii) The Tribunal also made a finding that the position with regard to the sale of Citroen cars was the same: see paragraph 78.
iv) The supplies described in (ii)(a) to (c) are, for VAT purposes, exempt supplies as being within the scope of the insurance exemption described in (i) above. See the reasoning of the ECJ in Card Protection and the decisions of the House of Lords in Redrow and Plantiflor. So also is the supply described in (ii)(d) above. This follows from the nature of the supplies which are all insurance-related, the fact that consideration for each supply was given by the person to whom the supply was made and the breadth of the insurance exemption. It is questionable, but irrelevant to the argument, whether the supply described in (ii)(e) is, for VAT purposes, a supply (exempt or otherwise) since the end-user does not have a liability to the insurance company to pay the premium: the premium has come from a separate source, namely Peugeot/Citroen. See Plantiflor at paragraph 67(ii).
v) The Tribunal fell into error, in the case of indirect sales, in failing to accord the correct VAT status to the various supplies described in (ii) above. Thus, at paragraph 122 of its decision, the Tribunal said this:
"122. It is clear that in Card Protection the ECJ proceeded on the basis that Card Protection was supplying insurance services to its customers. In my view it does not follow that the Appellants themselves made supplies of insurance in the present case. Although the Appellants were liable to pay for the insurance, the proposal forms were signed by the customers who were bound by the terms of the policies. In my judgment they received the supplies direct from the insurers".
As paragraph 21 of the judgment in Card Protection shows, the mere fact that there was a direct contractual relationship between customer and insurer did not preclude the taxpayer from making supplies of insurance in the wide sense allowed by the exemption. Moreover, it is irrelevant whether, for VAT purposes, there was an insurance supply by the insurers to the customer, ie the end-user. In tripartite situations (ie where A pays B to make a supply to C) the VAT supply is by B to the party who is the paymaster, ie A, not to C. See Redrow and Plantiflor.
vi) The Tribunal also fell into error in paragraph 123 where it stated:
"123. Even if the Appellants did otherwise supply insurance to the final customers, a supply for VAT purposes involves consideration. Except in the case of sales by group dealers to customers direct, the Appellants received no consideration from the customers. The consideration which the Appellants received was from the independent dealers or the finance houses. That consideration was for the supply of cars not insurance services. It could be argued that the supply to the independent dealers included a warranty to procure or arrange the supply of insurance to eligible customers, however, these are not the same as supplying insurance. In my judgment Card Protection does not assist the Appellants in cases where independent dealers or finance houses were involved. In cases of sales by group dealers direct to customers, the Appellants do not need to invoke Card Protection unless Primback is reversed on appeal. Even in such cases the problem remains that the supply of insurance to the customers was by the insurers rather than by the Appellants."
That passage is in error in its assumption that the only relevant insurance supply was that by the insurer to the end-user. It is in error because the Tribunal failed to have regard to the other supplies which it had earlier identified (set out at (ii)(b) to (d) above). For example, it failed to appreciate that the warranty to which it referred in the first sentence of that paragraph is itself an insurance-related supply which, being for a consideration, is exempt. Similarly, in the case of the insurance-related supply by Peugeot direct to the end-user identified in (ii)(c) above. Both were exempt supplies by Peugeot.
vii) On the basis of the foregoing it follows that when Peugeot/Citroen sells a car, whether that sale is direct or indirect, it also supplies an exempt service, namely a promise to secure motor insurance. Nothing in the ECJ's decision in Primback is inconsistent with this analysis.
The taxpayers' contentions: the Elida Gibbs point
"The basic principle of the VAT system is that it is intended to tax only the final consumer. Consequently 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 at paragraph 20 that:
"... one of the principles on which the VAT system was based was neutrality, in the sense that within each country similar goods should bear the same tax burden whatever the length of the production and distribution chain."
At paragraph 22 the court pointed out that:
"It is not, in fact, the taxable persons who themselves bear the burden of VAT. The sole requirement imposed on them, when they take part in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved, is that, at each stage of the process they collect the tax on behalf of the tax authorities and account for it to them."
The court went on, in paragraphs 23 and 24, to explain by reference to earlier authority that:
"23. ... a basic feature of the VAT system is that VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the cost of the various price components of the goods and services. The procedure for deduction is so arranged that only taxable persons are authorised to deduct from the VAT for which they are liable, the VAT which the goods and services have already borne.
24. It follows that, having regard in each case to the machinery of the VAT system, its operation and the role of the intermediaries, the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer."
"26. By virtue of article 11A(1)(a) of the Sixth Directive, the taxable amount for supplies of goods and services within the territory of a state comprises all sums which make up the consideration which has been or is to be obtained by the supply from the purchaser.
27. 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 "
It then referred to authority and continued:
"28. In circumstances such as those in the main proceedings, the manufacturer, who has refunded the value of the money-off coupon to the retailer or the value of the cash-back coupon to the final consumer, receives, on completion of the transaction, a sum corresponding to the sale price paid by the wholesalers or retailers for his goods, less the value of the coupons. It would not therefore be in conformity with the directive for the taxable amount used to calculate the VAT chargeable to the manufacturer as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, whom the manufacturer is one, would not be complied with.
29. Consequently, the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of those coupons.
30. That interpretation is borne out by article 11C(1) of the Sixth Directive which, in order to ensure the neutrality of the taxable person's position, provides that, 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 is to be reduced accordingly under conditions to be determined by the member states.
31. It is true that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently. The fact remains, however, that the provision is an expression of the principle, emphasised above, that the position of taxable persons must be neutral. It follows, therefore, from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount of VAT, of situations where a taxable person who, having no contractual relationship with the final consumer, but being the first link in a chain of transactions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person."
"In my judgment the whole reasoning in Elida Gibbs was based on a single chain of supply. It is not in my view legitimate for this Tribunal to extend that decision so as to cover supplies by a third party where intermediaries are involved."
and to paragraph 108 in which the Tribunal stated:
"Once no intermediary is involved in the primary supply to the consumer, it seems to me that different considerations apply. Both parties are not only aware of the third party supply but are directly involved: the consumer is the recipient of the third party supply and the primary supplier pays the consideration thererfor. It is in effect a tripartite transaction. It is true that in the present case there were VAT groups and the contractual sellers of the cars were different companies from those paying for the insurance, however, section 43(1)(b) [of the VAT Act 1994] requires any supply by or to a member of the group to be treated as being by or to the representative member. When arriving at the subjective consideration obtained by the supplier from the consumer, there is nothing inherently illogical in taking account of an amount which the supplier is obliged to pay to a third party in return for a supply by that third party to the consumer. It seems to me that Elida Gibbs was concerned with the problem of whether an adjustment should be made by reason of transactions between persons in the same chain of supply but separated by intermediaries. It was not directed at direct supplies with no chain and no intermediaries, albeit a third party involvement."
i) The main proposition to be derived from Elida Gibbs is that, where there is a chain of supply involving intermediaries, a transaction between the original supplier (at the head of the supply chain) and the end-user (at the end of the supply chain) can alter the VAT consequences of the initial supply between the original supplier and the person to whom that supplier made its supply.
ii) The Tribunal's view of the chain in the instant cases was fundamental to its reasons for holding that the principle to be derived from Elida Gibbs was irrelevant to the case of a supply by a third party to the end-user where intermediaries are involved (that is to say, in the instant cases, by Orion/Direct Line to the end-users). This is because of its view that the insurance supply by Orion/Direct Line to the end-user was by a different or parallel chain from that by which the car was supplied.
iii) But, by reason of the decisions in Redrow and Plantiflor, there is no parallel chain in relation to the insurance supply. There is in truth only one chain: the supplies both of the car and of (exempt) insurance move along the same chain. The Tribunal was in error in supposing that there were different chains.
iv) The significance of the principle to be derived from Elida Gibbs is that it enables Peugeot/Citroen to point to the promises made by them to the end-users that insurance cover would be provided in return for the car purchase as reducing the value of the supply made by Peugeot/Citroen to their immediate purchasers in indirect sales, namely to the independent dealers.
v) The insurance supply by Peugeot/Citroen direct to the end-user has that effect because its economic and commercial effect is the same as if, instead of itself arranging and paying the premium to Orion/Direct Line, thereby providing the end-user with insurance cover, it had provided, say, a voucher which the independent dealer, on the car sale, handed to the end-user enabling that purchaser to recover his cost of himself insuring with Orion/Direct Line.
vi) The fact that it was Peugeot/Citroen which procured and paid for the insurance, rather than the end-user who then has a right to recover the cost from Peugeot/Citroen, should make no difference to the VAT consequences of the transaction: had it taken that form, Elida Gibbs would have operated to reduce the consideration for the supply from Peugeot/Citroen to the independent dealer. It cannot matter that the transaction was differently structured - in the way that in fact occurred - if in economic terms the net result is exactly the same.
vii) In Goldsmith Jewellers Ltd v Customs and Excise Commissioners  STC 1073 the ECJ held (in paragraph 23 of the judgment) that, for the purpose of article 11A(1)(a) there was no distinction between consideration in money and consideration in kind (in that case jewels) provided the consideration is capable of being expressed in money since "the two situations are economically and commercially identical".
viii) Moreover, the Tribunal itself (in paragraph 79) accepted that 'the commercial and economic effect of the free insurance schemes [operated by Peugeot and Citroen] may have been little different from the cash-back schemes."
The Crown's contentions
"26 By its first two questions, which should be taken together, the national court essentially asks with reference to a plan such as that offered by CPP to its customers, what the appropriate criteria are for deciding, for VAT purposes, whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately.
28. Where the transaction in question comprises a bundle of features and acts, regard must first be had to all the circumstances in which that transaction takes place.
29. In this respect, taking into account, first, that it flows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from an economic point of view, should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical customer, with several distinct principal services or with a single service.
30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied
31. In those circumstances, the fact that a single price is charged is not decisive. Admittedly, if the service provided to customers consists of several elements for a single price, the single price may suggest that there is a single service. However, notwithstanding the single price, if circumstances... indicated that the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event.
"21 By its questions, which it is appropriate to examine together, the national court is essentially asking whether on a proper construction of article 11A(1)(a) of the Sixth Directive, where a supply of goods for consideration has the following features: (i) a retail trader sells goods in return for payment of the advertised price which he invoices to the purchaser and which does not vary according to whether the customer pays in cash or by way of credit; (ii) should the purchaser so request, the acquisition of the goods is financed by the provision to him of interest-free credit by a finance company distinct from the seller; (iii) the finance company gives an undertaking to the purchaser that it will pay to the seller on the purchaser's behalf the sales price advertised and invoiced by the seller; (iv) the finance company in fact pays to the seller, pursuant to agreements concluded with the seller, but of which the purchaser is unaware, a sum less than the price advertised and invoiced; and (v) the purchaser repays to the finance company a sum equal to the price advertised and invoiced, the taxable amount for the purposes of calculating the VAT payable on the sale of the goods consists only of the amount actually received by the seller, or whether on the contrary, the taxable amount consists of the full amount payable by the purchaser.
22. In order to reply to the questions thus reformulated, it must be noted at the outset that, although the situation in issue in the main proceedings involves several transactions, of which one, namely the supply of credit by a finance company, is in principle exempt from VAT pursuant to article 13B(d)(1) of the Sixth Directive, and another, namely that by which a retail trader supplies goods to a final consumer for a price which includes an option for a customer to receive free credit supplied by a third party, is in contrast, subject to VAT, the questions submitted by the national court seek solely to determine the taxable amount for the purposes of calculating the VAT payable by a taxable person such as Primback in respect of the second of those transactions."
"26. In the case in the main proceedings, the parties to the contract of sale agreed that the consideration for the goods would be their price as advertised, known in advance by the customer and invoiced to him by Primback, there being, moreover, no variation in their price according to whether the customer pays in cash or makes use of the credit offered by the retailer and provided by a finance house."
"27. Further, as the court has already held, article 11(A)(1)(a) of the Sixth Directive must be interpreted as meaning that where, in the context of a transaction of sale, the price of the goods is met by the purchaser by means of a credit card and paid to the supplier by the organisation issuing the card, after deduction of a percentage as commission in payment for the service rendered by the latter to the supplier of the goods, the sum so deducted must be included in the taxable amount on which the supplier, as the taxable person, must pay tax to the revenue authorities (see .... Bally . . .para 18).
28. In para 14 of Bally ... the court held that the harmonisation sought by article 11A(1)(a) of the Sixth Directive could not be achieved if the taxable amount varied according to whether the calculation was for the VAT to be borne by the final consumer or for determining the sum to be paid to the revenue authorities by the taxable person.
29. In paras 9, 10 and 16 of Bally ... the court also held that retention by the organisation issuing the credit card of a percentage calculated on the percentage price agreed between the supplier and the purchasers represents the consideration for a service rendered to the supplier by the card-issuing organisation, consisting in particular in the guarantee of payment for the goods, this service being the subject of a VAT - exempt transaction which is distinct and independent and in respect of which the purchaser is a third party, and which is not capable of affecting the taxable amount of the sales transaction between the supplier and the purchaser,
30. Finally, the court added, in paragraph 17 of Bally ... that the method of payment used in the relations between the purchaser and the supplier cannot alter that taxable amount.
31. ... the reasoning in Bally can also be applied in a situation such as that in point in the present case, since, for the purposes of charging VAT, payments made by credit card and payments made by way of interest-free credit offered by the seller and provided by a third party should be treated as equivalent. A feature common to Bally and the present case pending before the House of Lords is the fact that the customer in each case concluded a contract with a third party, a finance house, which, after deducting commission, paid directly to the seller the price of the goods purchased, thereby guaranteeing to the seller payment for those goods. Moreover, a customer who pays by credit card, like a customer who purchases goods on credit, does not have to pay for his purchase in cash at the time of sale since he benefits from a credit line opened by a specialised body.
32. This must a fortiori be the position in the present case, where, as the national court has found, the purchaser was unaware of the existence of, and the arrangements under, the agreement concluded orally between the seller and a third-party finance company."
"33. It follows from all of the foregoing that, in a situation such as that in point in the main proceedings, the taxable amount of the taxable action consisting of the sale of goods concluded between the retail trader and the final consumer is the full amount advertised by the seller, invoiced to and payable by the purchaser.
"34. Primback, however, argues that, if the taxable amount for the purpose of calculating VAT were in this case to include the full price invoiced by the retail trader to the customer, without deduction of the commission retained by the finance company at the seller's expense, not only would the basis of assessment correspond to an amount greater than that actually received by the seller but, in particular, VAT would also be charged on the value of the credit included in the price advertised and invoiced to the purchaser, with the result that the tax would be charged on the provision of credit, contrary to the exemption of the latter under article 13B(d)(1) of the Sixth Directive.
35. According to Primback, the need to take account of the commercial reality leads inevitably to the conclusion that the different transactions between the parties involved cannot be analysed in isolation. Thus, in a situation where, as in the case in the main proceedings, a customer has the benefit, for a single price, of two supply transactions, effected by two separate traders, one of which is taxable and the other exempt, but neither of which can be treated as being ancillary to the other, the correct method for determining the basis of assessment for VAT would be to divide the consideration in an appropriate manner between the two supply transactions at issue. Since the provision of credit undoubtedly has a value and the price advertised and invoiced to the purchaser in fact covers the cost of the interest-free loan enjoyed by the purchaser, the logical view would be that the consideration for the actual value of the goods is the difference between the advertised sales price and the cost of the credit which the retailer must himself ultimately bear.
36. Primback adds, in the alternative, that the amount of commission retained by the finance house would amount to a discount or a rebate on the price within the meaning of article 11A(3)(b) of the Sixth Directive, which should therefore not be included in the taxable amount for determining the VAT payable by the retailer in respect of the supply of goods to the final consumer."
"37. The arguments put forward by Primback cannot be upheld.
38. First, as follows clearly from para 16 of Bally ... the relationships between seller and purchaser and between seller and finance house must be distinguished for the purpose of determining the basis for calculating VAT. Consequently, the fact that the supply of services by the finance house is, in principle, VAT-exempt has no bearing on the basis of assessment for the charging of VAT in respect of the transaction between seller and purchaser, which alone is in issue in the main proceedings.
39. For the same reason, Primback's alternative argument is irrelevant.
40. Second, with regard solely to the legal relationship between seller and purchaser, Primback cannot validly claim, that, for the purposes of determining the basis of assessment for VAT, one must break down the single price advertised and invoiced to the customer, distinguishing between the portion relating to the value of the goods and the portion relating to the cost of the credit ultimately borne by the retailer.
41. According to the order for reference, where a customer makes use of the possibility of paying for goods purchased by Primback by way of interest-free credit, that customer receives from the seller an invoice stating the price of the goods as advertised in the store at the time of the sale and concludes with a finance house a loan agreement for an amount equivalent to the cash sale price of the goods. The finance house undertakes to pay that amount directly to the seller, on the purchaser's behalf, in settlement of the price advertised and invoiced by that seller. The customer repays to the finance house only the amount of the loan.
42. It follows that, in the present case, the price agreed between the parties to the contract of sale and paid by the consumer was the same irrespective of the means by which the purchase of the goods was financed, with the result that Primback cannot reasonably argue that the price advertised in fact contained a component representing the value of the credit
43. It follows that, from the point of view of the final consumer, the transaction which, in this case, he concludes with Primback, is to be seen as a single transaction consisting in the sale of goods, by reason of the fact that the retailer supplies goods to his customers in return for payment of a single price advertised by the seller, invoiced to the purchaser and payable by him, but also offers at the same time, the possibility of credit described as credit free of interest or other costs to the consumer. That being so, the credit which Primback claims to have afforded the customer cannot be regarded as a transaction effected for consideration within the meaning of article 2 of the Sixth Directive."
"44. With regard to the transaction concluded between Primback and the final consumer, which alone is relevant in the main proceedings, it should be added that even if it were possible to distinguish the supply of services allegedly consisting in the supply of credit, from the supply of goods, the former supply would, in circumstances such as those in issue, in the main proceedings, have to be construed as being in any event ancillary to the principal transaction consisting of the sale of goods.
45. Indeed, it follows from the court's case law that, where a transaction consists of several elements, there is a single supply, particularly where one element is to be regarded as constituting the principal service, whilst another is to be regarded as an ancillary service sharing the tax treatment of the principal service; and a service is to be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied (see. . .Card Protection ... para 30)."
"48. By calculating VAT on the total price advertised and invoiced by the seller, the commissioners are not therefore charging a taxable person such as Primback an amount of tax exceeding that ultimately borne by the final customer (see Elida Gibbs ... at ... paras 24 and 31). In contrast, if the tax authorities were able to charge VAT only on a fraction of the price invoiced to the purchaser and payable by him, as Primback argues, the portion of the advertised price of the goods sold to the customer would not be subject to tax, with the result that the principle of fiscal neutrality would be infringed."
(1) The insurance supply point
(2) The free supply point
"26. Goods are supplied 'for consideration' within the meaning of article 2(1) of the Sixth Directive only if there is a legal relationship between the supplier and the purchaser entailing reciprocal performance, the price received by the supplier constituting the value actually given in return for the goods supplied...
27. It is for the national court to enquire whether, at the time of purchasing the fuel, the customers and Kuwait...had agreed - through the dealers, as the case may be - that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers or the redemption goods. There is nothing, however, in the documents before the court to suggest that there was in fact any such reciprocal performance by the parties concerned."
"23... What has to be determined is whether, at the time of purchasing the premium goods, the customers and Kuwait Petroleum had agreed, directly or indirectly, that part of the price paid for the premium goods, whether identifiable or not, would constitute the value given in return for the redemption vouchers or the redemption goods. It would be insufficient to prove that Kuwait Petroleum alone thought that the redemption vouchers and redemption goods were being paid for by the customer through the price paid for the premium goods.
24. If the existence of such a consensus is the express and acknowledged view of the contracting parties, then the goods are not disposed of 'free of charge' and article 5(6) does not apply. However, here there was no such express and acknowledged view of the contracting parties. Both Mr Walters and Miss Whiple agree that in those circumstances the enquiry is to be answered objectively. That is to say the fact-finding tribunal has to determine what the ordinary customer (the driver of the Clapham Ford Sierra) and Kuwait Petroleum should be taken to have agreed to at the time the premium goods were being purchased. That determination depends upon the inferences to be drawn from all the circumstances surrounding the transactions on the forecourt of the petrol stations. It is what the tribunal did here."
"33. .... it must be borne in mind that the tribunal had to determine what both sides of the Kuwait Petroleum/retail customer transaction thought they were agreeing to. Thus, if the customers were led to believe, and reasonably did believe, that they were being given free vouchers and gifts, it is irrelevant that, as a matter of accounting, it can be shown that they were really paying for them. Were this not so, for all practical purposes there would never be circumstances where article 5(6) applied to commercial transactions because, like lunches, nothing is ever 'free'. One way or another, all the costs of running Kuwait Petroleum's business are funded in whole or in major part out of the money it realises from the sale of fuel. Thus, even if it be true that the promotion scheme 'caused' an increase in prices at the pump and 'supported' those prices, that does not address the question of what the customers thought they were agreeing to.
34. The invoices supplied by the customers at petrol stations and the way in which the promotion was run by Kuwait Petroleum and its participating agents were likely to reinforce each other and convey to the customers the marketing message that they were indeed getting something for nothing. As far as the customer was concerned, he would pay the same price for his fuel whether or not he accepted the vouchers and whether or not he collected sufficient of them over a period of time to redeem them for any one or more of the redemption goods. He paid the same for his fuel if there was nothing in the Kuwait Petroleum catalogue which he wanted to acquire... what counts is what the customers thought they were agreeing to. Kuwait Petroleum and its agents went out of their way to make customers think that they were being given free gifts. That largesse was to he repaid by customer loyalty. Kuwait Petroleum can hardly complain if customers believed what it was telling them. In the light of these considerations, there is no difficulty in dealing with Mr Walters' argument in relation to a promotion of the 'Buy One, Get One Free' kind. There is a limit to the reasonable gullibility of ordinary members of the public. A promotion of that kind would not persuade most customers that they were really getting half of their acquisitions free. They would think that they were receiving each of the products at half price and that they were paying for both. They would be likely to regard the vendor's assertion that one product was being given free as little more than a puff. In such circumstances, if one asks the question posed by the ECJ in Kuwait, one receives the answer that the parties to the transaction did not believe they were agreeing to a disposal free of charge. That cynicism does not apply here. It is not, and cannot be, suggested that in this case the value of the redemption vouchers and redemption goods was so high relative to the amount of fuel purchased that reasonable customers would instinctively disbelieve the assertion that they were being given away free."
(3) The ancillary supply point
"33. In my view it is clear that the transaction under which the dealer provides to the customer both the replacement car and three MOT vouchers ought to be treated for VAT purposes as a single transaction. That, I think, follows from the guidance given by the ECJ in Card Protection, paras 28-30 and from the decision of the House of Lords in Customs and Excise Commissioners v British Telecommunications Plc  STC 758 ... but, even if I were to take a different view (which I do not) I would not think it right to differ from the tribunal on a finding which it made after considering the evidence before it and directing itself correctly in the light of the authorities.
34. Nevertheless, I agree with the judge that a decision that the transaction is to be treated as a singly supply is not determinative of the question whether para 5 of Schedule 6 to the 1994 Act has any application. The single supply is plainly a supply of goods; and, if it were necessary to classify that supply, it would take its character from the dominant or principal element - the supply of the replacement car. But, as it seems to me, that does not lead to the conclusion that the goods supplied do not include the MOT vouchers, and so it remains necessary to consider whether the consideration for the single supply includes some separable element of consideration attributable to the vouchers. If it does, then that element if the consideration for the single supply must be disregarded except to the extent (if any) that it exceeds the amount of the face value of the vouchers. That is what para 5 of Sch. 6 requires.
35. In considering whether the MOT vouchers were supplied for consideration the tribunal asked itself whether, if Hartwell failed to honour the undertaking expressed in the vouchers (to provide an MOT test), the customer could enforce that undertaking. The tribunal thought that the customer could do so. In my view it was correct to reach that conclusion. But the conclusion that the undertaking to supply a service (the MOT test) in the future, would be enforceable - because that undertaking is supported by a consideration in the sense recognised by domestic law - does not answer the question whether anything which has been obtained by the dealer (Hartwell) for the single composite supply (within which the supply of the MOT vouchers is comprised), can be treated, for the purposes of art.11A(1)(a) of the Sixth Directive, as a separate consideration for the supply of the vouchers. In my view the commissioners are correct in their contention (raised, without objection, by their appellants' notice) that there is nothing which constitutes a separate consideration for the supply of the vouchers; and that no part of the consideration for the single composite supply can be attributable to the vouchers. It is, I think, significant, as the tribunal found, that no cost is shown on the order form against the item 'three MOT vouchers total value £96.33' and that the invoice includes the word 'included in the car price are three MOT inspection vouchers with a total value of £96.33'."
(4) The Elida Gibbs point
(6) The exempt financial services point