England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/06/2006

Mr Justice Lindsay :

Introduction

1. This appeal adds to the already great number of pages of judgments which deal with VAT and what, broadly speaking, can be called sales promotion schemes. As I shall need to explain more fully below, the Respondent to the appeal, Loyalty Management UK Ltd ("LMUK"), runs the "Nectar" scheme under which, by their dealings with identified large businesses, their customers acquire "Nectar" points which they may then "redeem" so as to acquire, as "rewards", goods or services provided to them by other suppliers at either no cost or at some discount. In the course of the scheme LMUK makes payments to those other suppliers calculated, where goods or services have been provided by those other suppliers respectively to the customers, by reference to the numbers of points which the customers have redeemed. The appeal raises these questions; what is the proper characteristic, for VAT purposes, of the payment made by LMUK to those other suppliers; is it a payment for a redemption service supplied to LMUK or is it the whole or part of the price paid for the provision by those other Suppliers of the rewards to the customers? Is there, for VAT purposes, a supply of a redemption service to LMUK or of goods or services to the customers?
2. The London Tribunal Centre (Dr. A.N. Brice and Mr R.L. Jennings) in their decision published on the 18^th May 2005 held there to have been a supply to LMUK and none to the customers. The Commissioners for H.M. Revenue & Customs, appearing by Mr Vajda Q.C. and Mrs Whipple, now appeal. LMUK, appearing by Mr Venables Q.C. and Mr Mullan, resist the appeal.
3. Apart from consideration of whether or not I should make a reference (and, if so, what reference) to the European Court of Justice, the argument I have heard is divisible to three parts. Firstly, there are what I call the main arguments. Secondly, there is a consideration of the Tribunal's decision. Both those two parts, it is accepted, are properly before me. But, thirdly, as is accepted not to be properly before me, there is an argument called "the Commissioners' alternative argument" which both sides ask me to deal with.
4. This is not an appeal in which, turning to the law and to one or two paragraphs of a Tribunal's decision, one party says that those paragraphs are mistaken and the other says that they are not. The Commissioners say that the Tribunal was comprehensively wrong in law and LMUK, whilst averring that the Tribunal's conclusion is correct, say that it was unhappily expressed, was too narrow, was in several ways inaccurate (ways which they then specify) and in part dealt with an issue which was not argued and not truly before it. In such circumstances it will not, I think, be profitable to turn initially to the Tribunal's decision to deal with the shortcomings as to the law which it is said to have; the better course, the facts occasioning no difficulty, is for me set out the facts and then to come to some provisional view by reference to the law as now argued before me and only after that to turn to the Tribunal's decision in any detail. That is the plan that I shall adopt.

The facts

5. Before the Tribunal there was a draft Statement of Agreed Facts supplemented by agreed documents and some brief unchallenged oral evidence. The facts remain uncontentious and the statement of them I am about to embark upon derives from the sources I have mentioned, from the Tribunal's decision and from examples given to me in the course of argument.
6. LMUK's business consists of the running of what is described as the "Nectar multi-participant customer loyalty rewards programme" ("the Programme") which involves 4 tiers of participants.
7. One tier consists of "Sponsors", generally large companies with extensive businesses which wish to encourage their customers to be loyal to them. Amongst the largest sponsors at the time material to this appeal were Sainsbury's Supermarkets Ltd., Debenhams Retail plc, Barclays Bank plc and BP Oil UK Ltd.. In the Tribunal's decision the Sponsors are referred to as "Retailers" but not all of them – for example Barclays Bank Ltd. - would ordinarily be spoken of as retailers and it avoids misdescription and confusion between them and the retailers in another tier to call them "Sponsors".
8. Sponsors enter into written "Sponsor Agreements" with LMUK whereunder each is granted a right to participate in the Programme. LMUK binds itself so that each Sponsor will become an exclusive licensee of the Programme in the primary market sector in which it operates. Under Sponsor Agreements customers choosing to join the Programme and buying from the Sponsors are awarded Nectar "points" that will give them a right to "redeem" the points in return for "rewards" in accordance with terms and conditions which are agreed between LMUK and the customer upon the customer, as I shall describe, registering with the Programme. Sponsors are obliged to pay LMUK a sum (specified separately as between each Sponsor respectively and LMUK) in respect of each point which is issued through that Sponsor to its customers irrespective of whether those particular points are redeemed. LMUK is guaranteed a minimum payment from each Sponsor irrespective of the aggregate number of points issued by the Sponsor in any given month. Most Sponsors are also obliged to LMUK to issue a minimum number of bonus points to their customers and all are bound also to make annual payments to LMUK in respect of the marketing, development and promotion of the Programme.
9. In the Sponsor Agreements LMUK binds itself to the Sponsors to meet specified target criteria relating to the rewards which the Programme will provide, including terms as to the range of goods and services and the cash discounts which will be available to customers upon their redemption of the Nectar points they shall have acquired. Sponsors become entitled to free use of all trademarks owned by or licensed to LMUK and which relate to the Programme. LMUK agrees to provide to Sponsors certain information from its database, for example as to points issued to the Sponsors' customers, offers taken up, as to the redemption by those customers of points and as to other behavioural data, all broadly intended to assist in the creation of targeted marketing initiatives by Sponsors or by LMUK in conjunction with Sponsors. Such access to LMUK's database is, though, controlled by LMUK and is subject to restrictions.
10. The next tier consists of LMUK, which not only contracts with Sponsors, as I have mentioned, but with retailers ("Suppliers") whose rôle is to provide goods or services to the Sponsors' customers when they come to redeem their Nectar points. In the Tribunal's decision these Suppliers are, in some references, called "Redeemers" but I shall hope consistently to call them "Suppliers" (although without intending thereby to beg any of the questions with which this appeal is concerned).
11. The third tier consists of those Suppliers. They, in general, contract with LMUK on terms described as "Standard Terms for Supply of Redemption Services to LMUK". The agreed terms include so-called "Commercial Terms" which vary in detail from one Supplier to another and which broadly regulate the kind of rewards to be offered by that Supplier to those who seek to redeem Nectar points, the amount the Supplier will receive for each Nectar point redeemed with him and the manner in which redemption is to be effected.
12. The "commercial terms" make reference to "Standard Terms for Supply of Redemption Services to LMUK" and I was referred to the terms applicable to the contract between LMUK and one particular Supplier as if those standard terms were typical. Under the heading "Application of these Terms" clause 1 provided that the terms and conditions were to apply to all contracts between LMUK and the particular supplier:-

"for the supply of redemption services to LMUK by way of the supply of goods, services and cash discounts as specified in the Commercial Terms as redemption options ("Rewards") in the LMUK Loyalty Programme ("Programme") to Programme Collectors ("Collectors") and the processing of Vouchers and/or points and/or redemption information for LMUK to assist LMUK to discharge obligations to Collectors. By way of consideration for such redemption services, LMUK will pay a fee ("Service Charge")."

13. There was no definition of the expression "redemption services". Under the heading "Provision of Rewards", clause 3.1 provided that "the Supplier shall supply Rewards to any Collector redeeming points and/or Vouchers … in the same manner and to the same quality, as apply to customers who pay for such items in cash or by any other method". Clause 3.1 provided also that the Supplier "will provide the Reward on this basis subject only to payment of the balance of the price normally applicable in similar circumstances". Clause 3.2 provided that the Supplier had to provide LMUK with accurate information of the kind there described and clause 3.3 that "the Supplier shall be responsible for all aspects of the supply of the Rewards". In clause 3.4 the Supplier became obliged to deal properly and promptly with complaints and to replace faulty or sub-standard goods and to re-perform defective services at the request of Collectors or of LMUK. All returns or cancellations of rewards had to be dealt with in accordance with the Suppliers' contracts with other customers, namely its normal returns policy. Clause 6, under the heading "Charges and payment" required that the Service Charge should be "the sole fees for the redemption services". The Supplier was to provide LMUK with a VAT invoice and supporting documentation for the total amount due in respect of rewards that it had supplied in the previous month by the 10^th day of each next month. By clause 6.2 LMUK obliged itself to pay all amounts properly due and which had been supported by a statement and, where relevant, by redeemed Vouchers (which I shall explain below) within 30 days after the end of the month in which the relevant invoice, statement and any redeemed Voucher had been received.
14. "Rewards Fees" are prescribed in the agreements between LMUK and Suppliers; they are sums, so much per point redeemed, which determine what is payable by LMUK to the Supplier in respect of each particular reward that is made available for, and then supplied, wholly or in part, by way of or including a redemption of points. The "Service Charge" payable periodically by LMUK to the particular Supplier is the aggregate of the Reward Fees in respect of all rewards given out by that Supplier as part of the Programme during the specified period in question.
15. Suppliers in general are, as I have mentioned in relation to the particular contract to which I have referred, obliged by their contracts with LMUK to provide rewards on redemption of points on the same terms, so far as concerns the customers seeking to redeem, as those available to customers paying by cash or by any other method and corresponding provisions require that the quality, availability and other characteristics of the goods or services supplied by a Supplier in redemption cases shall be the same as is provided, in respect of those goods or services, to its customers generally. As for the information to be supplied, each Supplier is required to provide LMUK with accurate information in relation to rewards and as to any problems or potential problems with the quality or availability of any rewards. Data relating to the Programme collected by Suppliers is, by contract with LMUK, to be used only for the purpose of providing rewards. Each Supplier is by contract obliged to provide to LMUK regular reports setting out details and an analysis of redemptions made with that Supplier. Such reports are required to be in a format and to be provided to time-scales reasonably specified by LMUK from time to time. LMUK is, by contract, enabled to make use of the data which is collected and made available to it by Suppliers as, in its sole discretion, it shall think fit.
16. Mr Venables rightly points out that as Suppliers are obliged to send returns of information to LMUK on any footing it is not only in respect of the goods or services provided by Suppliers to Collectors that the Service Charge is paid. However, the Service Charge does not have within it any identified or identifiable part which reflects the provision of information by the Supplier to LMUK and the Service Charge, fixed by reference to points and Vouchers (collections of points) redeemed in a relevant period, would not be other than zero if, in that period, no points were redeemed with the Supplier in question. Whilst the information it receives from Suppliers is, no doubt, useful to LMUK it seems to me, as I shall return to below, so ancillary and minor a component of the overall provisions between Suppliers and LMUK as not to be capable of affecting the overall legal and financial characteristics of those provisions.
17. The fourth tier of the Programme consists of those who collect Nectar points and who register with it. They largely consist of members of the public (usually either not taxable persons for VAT purposes or not buying in that capacity) who buy goods or services from the Sponsors in transactions in which they sometimes bear VAT on the purchase (for example, upon buying, say, kitchen units from Magnet Limited, one of the Sponsors) but sometimes do not (for example, upon buying zero-rated groceries at Sainsbury's). There will be cases in which the purchaser is a taxable person who is acquiring for the purposes of his business (for example, an individual trader who buys petrol for his business from BP or a lawyer who buys a desk at Debenhams for use in his practice) but they are likely to be in the minority both in number and amount. Consumers, having encountered publicity as to the Programme and how to join it, then act upon that, collect a "Nectar Card" (which has a unique card number for him or her on it) and then register with the Programme by post or by the Internet. Upon registration he or she agrees to be bound by the "Nectar Collector Rules" which amount to a contract with LMUK and which set out the terms upon which points may be collected and used. A person who has not registered his or her details with LMUK is not entitled to redeem the points earned, although it is said that in practice from time to time they may be permitted to do so. It is convenient to call those who have Nectar Cards and who have registered as "Collectors".
18. Amongst the Nectar Collector Rules one finds, at Rule 5, so far as relevant, the following:-

"Nectar has Sponsors through whom you earn points. We award points when one of our Sponsors tells us that [a Collector] has undertaken a relevant transaction with them. Nectar Suppliers are companies with whom a [Collector] can redeem Points to obtain goods and services or discounts ("Rewards")."

19. Rule 6 provided that LMUK had no responsibility for the delivery, standard, quality or otherwise of any goods and services received or supplied or a failure of a Supplier to honour a redemption or make a specific reward available.
20. Collectors, as will have been seen, are issued points upon the purchase of goods or services from a Sponsor. An account of them is kept by LMUK as to each Collector and the points are issued to a Collector's account in two principal ways, one applicable to Sponsors who chiefly provide goods and the other to Sponsors who are chiefly Service Providers. In the case of the former class ("Retail Sponsors" such as Sainsbury's) a points credit is effected upon the Collector's Nectar Card being swiped at the till upon his payment for the goods. If the purchase is not made in person (for example, over the telephone or by the Internet) then the Collector's account number will be provided by him to enable points to be electronically credited to his points account. As for Sponsors who are or were chiefly Service Providers – for example Barclaycard – the Collector's Nectar account number is linked with his or her account with the Service Provider so that points can be automatically added to his Nectar account when his Service Provider's monthly or quarterly statement is issued.
21. LMUK issues points to the account of a Collector only after having been notified, one way or another, by a Sponsor of the points to be credited. The Collector is informed of the points he has earned from each Sponsor through quarterly updates provided by LMUK which show points credited, points redeemed and the points balance.
22. When a Collector is sent details of his points account it is likely to be accompanied by advertising or promotional material including a schedule setting out the names of Suppliers making rewards available, the type of offer which Suppliers are making, the number of points which particular rewards would require and the redemption method to be used. Thus, for example, "Money off your shopping" at identified Suppliers is offered in the "Shopping" category, free cinema tickets in the entertainment category, free entry by the named Suppliers providing theme parks and attractions and savings on hotel breaks in the "UK hotels" category, "Money off your meal" is a familiar type of offer in the "Eating out" category.
23. Points can be used to obtain rewards in one or more of three ways. Firstly, a Collector can in some cases obtain an ascertained amount of money off against the cost of a purchase from a Supplier (for example £2.50 off his or her shopping at, say, Sainsbury's or some other Supplier's for every 500 points redeemed). In such a case the Collector's points account is debited by a swipe of his Nectar card in the store. Secondly, a specified product or service might be provided free of charge (for example the rental of a video from Blockbuster, a Supplier, for 500 points or, from an airline-Supplier, a flight for, perhaps, 6,000 or more points). Thirdly, the reward can be obtained for points by way of a specified product or service being available to the Collector at a specified cash price plus points (for example a hotel room for £40 plus 2,500 points per night) or for a specified number of points without additional money. Some rewards are available only by use of LMUK's "Redemption Hotline". Use of points or of the Vouchers (which I shall come on to describe) in any of such ways triggers a later payment by LMUK to the Supplier concerned.
24. As evidence of one particular redemption the Tribunal accepted the evidence of Mrs Green, an officer of the Commissioners, that she had purchased petrol from Sainsbury's and had paid partly by a Nectar Voucher and partly by using her own credit card. She was asked at the time if she wanted a tax invoice and had said that she did. The tax invoice was generated automatically, was given to her and was for the full amount of her purchase (by which I understand that an ordinary "pump" price, unreduced by reference to her surrender of points, was stated in the tax invoice).
25. The available rewards, the number of points required to obtain them and the manner in which they can be obtained are set out on LMUK's website, in brochures available to Collectors upon registration and in brochures sent with points update mailings provided to Collectors by LMUK on a quarterly basis. As the Tribunal points out, the rewards available to Collectors are many and various. As I have already touched upon, they include free goods, groceries or wine, free meals at stated restaurants; free admissions to cinemas, free adventure trips and free days out to, say, a zoo or spa. Free stays in hotels are available, as are discounted holidays, free flights, free travel, free video hire or game rentals. Other rewards include free games of bowling and free admission to aquaria. Most of the rewards claimed by the Collectors are, by value, supplies of goods.
26. In some cases redemption is effected directly between the Collector and LMUK. For example, cases of wine from the Supplier Laithwaites may be obtained by way of the Collector giving details directly to LMUK of his Nectar account and of his request for the wine. LMUK there acts, as it is described, as an "interface" and the Collector is then connected to the Supplier who then takes the order, makes the booking and instructs LMUK to deduct the relevant number of points from the Collector's account by an electronic link between the Supplier's computer system and LMUK's.
27. If I may put a little more flesh on that outline, an example of a Nectar transaction, as was used in argument, can be seen to occur as follows, although the sums I mention must not be taken to be those used in real transactions, which are regarded as highly confidential as between the various tiers of participants and between them and their competitors. Thus a Collector who has obtained a Nectar Card and has duly registered himself into the Programme, then, by shopping at Sainsbury's for his groceries and buying his petrol at BP, acquires a number of Nectar points which are credited electronically to an account in his name at LMUK. He then sees and is attracted by a small television on sale at a list price of £100 (including VAT) at a Supplier's. As far as the Collector is concerned, the price would perhaps currently be seen as £85.11 plus £14.89 VAT. The Collector will have seen from Nectar material sent to him that at that Supplier's he can get "Money off your shopping" at the rate of £2.50 per 500 points. By his tendering his Nectar card and indicating that he wishes to surrender 20,000 points or by his handing over Vouchers, as I shall come on to, for 20,000 points, he will ascertain that all of the £100 apparent list price can be met by the points. At the same time either the appropriate number of points – 20,000 – will be debited electronically to his Nectar account or his Vouchers for 20,000 points will be handed to the Supplier. As I have understood the contracts, the Collector has the same guarantee and service rights as would a customer of that Supplier who had paid £100 for the set. The Supplier, of course, records that it has provided the TV set as a reward to a Collector, that the Collector used up by way of his Nectar card the 20,000 points which were redeemed or provided Vouchers of that number of points and the Supplier then adds the points used up for the TV set to the points for all other goods and services it has provided by way of reward to Collectors in the relevant period. The Supplier then by the stipulated date requires payment from LMUK of the Service Charge appropriate to those 20,000 points. My understanding is that the points are "worth" less as between the Supplier and LMUK than they are between the Supplier and the Collector so it may be, for example, that the Supplier can require from LMUK only £80 for the 20,000 points it has received for the TV set. LMUK then pays the £80 to the Supplier. That £80 includes VAT of £11.91 at the current rate and the Supplier accounts for that amount to the Commissioners as his output tax on the transaction. LMUK, of course, recovers from Sponsors in respect of points issued by them and in that way it may loosely be said that the costs of goods are passed on by LMUK to Sponsors.
28. It is the VAT element of what is paid by LMUK to Suppliers – the £11.91 in that example - that is in issue in this case. To anticipate the more detailed argument, the Commissioners say that the £80 is consideration provided by a third party, LMUK, for what has been a VAT supply by the Supplier to the Collector. On that basis there is no VAT supply to LMUK and hence no ability on LMUK's part to have the £11.91 treated as part of its input tax. By contrast, LMUK argue that the Supplier makes a VAT supply of a service to them by discharging their, LMUK's, obligations to their Collector. An alternative which, I apprehend, attracted the Tribunal was that, properly regarded, the VAT supply is directly or indirectly by LMUK to the Collector. Accordingly, says LMUK, either way, the £11.91 in the example is properly to be regarded as part of its input tax (and hence to be available for deduction). But before I go to the argument in more detail I should say a little more on the facts.
29. Points can be aggregated into the physical form of paper Vouchers. The reasons for Vouchers are largely historical and are concerned with the way in which the Programme has developed from other and earlier schemes. 500 points can, for example, be exchanged for one Nectar Voucher. In the various contracts provisions are made for the physical handling and surrender of Vouchers which are appropriate only to them but neither side before me has attached any significance to any distinction between Vouchers and points and it is more convenient to think of the Programme in terms of points. But the Vouchers (and, a fortiori, points) do not represent a right to receive goods or services to the value of any amount stated on or recorded in them as none is so stated or recorded although, as I have mentioned, other promotional material in some cases states a particular value per number of points as at particular Suppliers. The Vouchers tell their holder that "Vouchers can be used as part payment and so if the price of the goods and/or services exceeds their value, the balance must also be paid on purchase". This next cannot be described as an agreed fact but as there is no significant distinction asserted as between points and Vouchers I take it, as that citation as to Vouchers suggests, that where a price for goods is stated but where insufficient points are tendered for redemption in order to acquire them, then, there, too, "the balance" must also be paid on the purchase.
30. A Collector who seeks to use points at a shop, will, of course, be free to notice what the current shop list price is of whatever goods he is considering and will have seen from Nectar material that, for example, he could "Get £2.50 off your next purchase at [the Supplier's] for every 500 points". But a Collector who redeems by way of the Rewards Hotline may not know or be interested in knowing the ordinary list price of the goods he acquires; he may know only, for example, that the Electric Shaver he wants is "7600 points or 5200 points plus £12.50". Nor does the Collector know, in respect of whatever reduction there has been from a list price (whether specified to or ascertainable by the Collector or not), whether the Supplier is paid, either by LMUK or a Sponsor, exactly the amount of that reduction, or indeed, any other reduction or sum. Nor is the reduction from the list price per, say, each 500 points, a constant percentage from one Supplier or description of goods or services to the next. These terms are all highly confidential for obvious commercial reasons and vary from one Supplier to another. Moreover, points cannot be said to have a fixed value as, even leaving aside special promotions or bonuses, the value of a point can and does vary according to which Supplier they are surrendered, for what goods and services they are surrendered and even, in some cases, as to the time of the surrender. A flight to a holiday resort, albeit at a constant list price, might, for example, require more points during high season, when the aircraft is likely to be full or close to it, than at a low season when seats otherwise left empty might be more likely to occur.
31. It is for the Collector alone to decide whether to hoard, spend or ignore the points which his dealings with Sponsors lead to him being credited with in his electronic points account with LMUK. He decides also whether it is for goods or services that he will surrender them, to which Supplier he will surrender them and when and for or towards which rewards they will be surrendered.
32. No-one argues that under the Collector Rules LMUK is ever contractually bound to provide a Collector with any specific reward. Even if a promotion indicates that for a given number of points a Collector might find himself with a free flight to, say, Paris, then if, at the time he wishes to redeem the given number of points, the flights are no longer available, it is not said that he will have a contractual right to insist upon being given one. But LMUK say, with good reason as it seems to me, that they are at least obliged to provide rewards generally. Even if they were not, Mr Venables emphasises that the Nectar Programme would lose credibility and Sponsors would no longer be willing to pay LMUK to issue points if Collectors, in their dealings with Sponsors, did not have the additional incentive to purchase goods or services from those Sponsors which the Programme is plainly intended to confer. There are plainly good commercial reasons requiring LMUK to see to the honouring of the legitimate expectations of Collectors by providing or arranging the provision of rewards and, of course, also for LMUK then to honour their contracts with Suppliers by paying the Suppliers for having made rewards available to Collectors.
33. It is expressly provided that no partnership between LMUK and Suppliers arises out of the contractual arrangements which they make.
34. In the course of the argument before me no distinction has been sought to be drawn between the VAT consequences in 3 possible categories of dealings. The first is where there is an ordinary list price, where LMUK or the Supplier in promotional material attribute a value per point in Nectar dealings with that Supplier, where the Collector thus knows that value and where then, by the use of points, he obtains the goods or services for what he can see to be a price which is so much "off". The second is where no list price is stated by the Supplier, no specific reduction or value per point has been indicated to him as available from that Supplier and where the Collector pays either only by surrendering points or partly also in money. There, although he may trust that he is doing well, say, in getting the electric razor for 7600 points or for 5200 points plus £12.50, it might not be common for the Collector to compute the acquisition as being at so much "off" that Supplier's ordinary publicised price, assuming there is one. The third category is where the goods or services, on the surrender of the specified number of points, are supplied free to the Collector, such as a cinema ticket or entry into a theme park. There the Collector should be able to see at a glance from the Supplier's notices to its other customers what, in money terms, he has saved by the use of his points.
35. Although, at some points in the main arguments, there have been different routes taken to the ultimate answer dependent upon whether, for example, it had been goods or services that were provided to the Collector as reward, I have not understood either side to press in the main arguments for an overall VAT answer to be given where there had been one of those 2 basic forms of supply to Collectors that was not to be given to where there had been the other.

Relevant legislation

36. I shall leave to later the legislation relevant to the alternative argument. The legislation as to the main arguments is as follows. Article 5 of the 6^th VAT Directive (EC/77/388) states that a supply of goods shall mean the "transfer of the right to dispose of tangible property as owner".

Article 6 of the 6^th Directive states that supply of services shall mean "any transaction which does not constitute a supply of goods within the meaning of Article 5". To avoid that having far too wide a meaning, words, immediately after "any transaction", such as "being a supply" or "being, for the purposes of VAT, a supply" need to read in.

In our domestic legislation section 5 (2) of the Value Added Tax Act 1994 ("the VATA") provides, so far as relevant, that:-

"(a) Supply in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

(b) Anything which is not a supply of goods but is done for a consideration ...... is a supply of services."

37. As for input tax, Article 2 of the 1^st VAT Directive establishes the basic principle of VAT being "a general tax on consumption exactly proportional to the price of the goods or services, whatever the number of transactions which take place in the production and distribution process before the stage at which the tax is charged".

Article 2 of the 6^th VAT Directive provides that "The supply of goods and services effected for consideration within the territory of the country by a taxable person acting as such" is subject to VAT.

38. Article 11 (1) (a) of the 6^th VAT Directive provides, so far as relevant (and with emphasis added) that:-

"The taxable amount shall be:

(a) in respect of supplies of goods and services …. everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies …."

"Consideration" is not defined. I have emphasised the reference to consideration coming from a third party as that becomes of importance in the main arguments. These provisions are implemented in our domestic law at section 5 (2) of VATA which provides that:-

"(a) Supply in this Act includes all forms of supply, but not anything done otherwise than for a consideration."

And, section 19, which sets out the value of a supply of goods or services, at sub-section (2) provides:-

"If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration."

39. Article 17 (2) of the 6^th VAT Directive provides to a taxable person a right of deduction (from the VAT which is liable to be paid) of VAT due or paid "….in respect of goods or services supplied or to be supplied to him by another taxable person".

The main arguments: for the Commissioners

40. I shall first indicate the path that Mr Vajda's argument took. He first dealt with the possibility, where the reward to the Collector had been of goods, of there being a supply of goods by the Supplier to LMUK.
41. But before I go further into Mr Vajda's argument, I must enter a note of caution. It is dangerous to conclude a search for the identity of the recipient of particular goods or services independent of a simultaneous conclusion of a search for a true description of the goods or services supplied. If one concludes only as to the description of the goods or services in issue then it would be all too easy to have begged the issue of to whom the supply was made. Thus in Customs & Excise Commissioners –v- Redrow Group plc [1999] STC HL 161 at 171 Lord Millett described how the Commissioners had there begun by describing the services in question as the ordinary services of an estate agent instructed to market and sell a house. The Commissioners had then asked to whom had those services been supplied. Lord Millett pointed out that if that was the question the answer was inevitable: to the householder. The Commissioners' approach had begged the question to be decided. Lord Millett said:-

"The way in which the Commissioners described the services dictates the answer."

I need to guard against an inadvertent begging of the issue.

42. To revert to the argument, Mr Vajda referred to Article 5 of the 6^th Directive supra. It follows from the definition of the supply of goods, he says, that there has to be, in consequence of the supply which is in issue, a transferee who thereby obtains dominion over the goods as or as if owner of them – Staatssecretaris van Financien –v- Shipping & Forwarding Enterprise Safe BV Case C-320/88; [1991] STC 627; see paragraph 12 of the Advocate-General and paragraph 7 of the judgment.
43. Mr Venables, as I shall revert to below, argues that within Article 5 one can have a transaction which shifts dominion over goods and which is a supply for VAT purposes but without the recipient of the supply necessarily being the person who, by way of the supply, is the transferee of the right to dispose of the tangible property as owner. A, for example, can thus arrange with B a supply, paid for by B, which at B's request confers upon C rights as or as if owner of goods and which can, in appropriate circumstances, be a supply to B for VAT purposes. But whilst I see that as a possibility I would not see it as a supply of goods to B. B there gets a service; it is C that gets the goods. As I would read Article 5 without the benefit of authority, for a supply to be a supply of goods to a person, that person has thereby to become the transferee of the right to dispose of the tangible property as owner.
44. In point of the ordinary use of words it is not possible, argues Mr Vajda, to regard LMUK as having acquired any form of dominion (as or as if owner) over the goods which the Supplier provides to the Collector. It is, by contrast, easy enough to see that provision (to use a neutral word), he says, as a supply of goods by the Supplier to the Collector.
45. Under the Programme, that there should be any such provision depends on the will of the Collector. The particular reward chosen is chosen by the Collector. Who it is that is to provide the reward is selected by the Collector. Whilst there is a contract between LMUK and a Supplier as to provision in general to Collectors, a contract for any particular provision is in my view made and made only between the Collector and the Supplier. When the goods are delivered it will be delivery to the Collector or as he directs. LMUK has no rôle in determining what then becomes of the goods; that is a matter for the Collector alone. Whether the recompense for the provision is wholly money or wholly for points or Vouchers or for some combination of money, points or Vouchers is at the will of the Collector. Save, perhaps, where the Redemption Hotline is used, LMUK will have no knowledge in advance of the amount or form of recompense to the Supplier which the Collector selects and which the Supplier accepts. It may not know for up to 62 days thereafter, see paragraph 13 above. With the same exception, the provision to the Collector is a provision of which LMUK has no knowledge whatsoever until after it has been agreed between Supplier and Collector and, in all likelihood, until after it has been completed by delivery of the goods. By contract, as will have been seen, as between LMUK and the Supplier it is the Supplier alone that is responsible for all aspects of the supply of the rewards. By contract between LMUK and Collectors (the Nectar Collector Rules) LMUK and the Collector agree that LMUK has no responsibility for the delivery, standard and quality of any goods or services supplied or even in relation to the failure of a Supplier to provide what he had agreed. Against that background, it would not be possible, in my judgment, as a matter of ordinary language to regard goods provided as rewards as supplied to LMUK.
46. If, then, as a matter of ordinary language, there is no supply of goods to LMUK, is there such a supply by reason of some special approach to the issue which is dictated by VAT legislation or by the decided authorities? Here Mr Vajda refers to Auto Lease Holland BV –v- Bundesamt Für Finanzen Case-185/01; [2005] STC 598. Auto Lease leased motor vehicles. It had made contractual arrangements under which its lessees could, by way of a "fuel management agreement" acquire an Auto Lease pass-card and a fuel credit card issued by a German credit card company, DKV. An Auto Lease lessee who had chosen to take up the fuel management agreement was thereby enabled to pull up at a filling station, indicate his DKV credit card and Auto Lease pass-card and acquire fuel and oil by charging the cost to the DKV card in Auto Lease's name. How much fuel he obtained, which fuel he obtained and what he then did with it and whether he chose to pay by way of the fuel management agreement scheme or otherwise was all left entirely to the lessee, with Auto Lease having no say in such matters. But Auto Lease regularly accounted to DKV for the cost of the fuel which had been bought in its name and the lessee made monthly payments of 1/12^th of the lessee's estimated annual fuel costs to Auto Lease. At the end of the year the lessee and Auto Lease would settle up on the basis of actual rather than estimated consumption. The sums which Auto Lease paid DKV included the VAT element of the fuel price and Auto Lease paid VAT in its home country, the Netherlands, on, inter alia, the fuel cost charged up in its name. But some of the fuel had been bought in Germany and Auto Lease sought a refund from the German VAT authority of the VAT charged on fuel provided in Germany. Many questions could arise: had there been a supply of goods – the fuel – between lessee and filling station or did the filling station provide a service to Auto Lease? Or, bearing in mind that Auto Lease paid for the fuel, did the filling station supply fuel to Auto Lease? There was an earlier authority, which, for convenience, can be called Intiem – Case 165/86 [1988] ECR 1471 – which had seemed to suggest that the supply, upon filling up a vehicle, was not necessarily from the filling station to the car owner or driver who asked for it or to he who paid the price for it there and then at the filling station. Auto Lease sought to say that, correspondingly, the supply in its case was not necessarily to the lessee who had asked for it. The Advocate-General rejected the analogy with Intiem; that had been a case where an employer paid for fuel put into employees' vehicles and no others and for use not for their own needs but exclusively for their professional activities – paragraphs 31-33; the Court took the same view, see paragraph 27 of the judgment in Auto Lease. The Court in Auto Lease held that as the lessee became empowered to deal with the fuel as if he were its owner and as Auto Lease, conversely, had no right to decide in what way the fuel was to be used or for what purpose, there was not a supply of fuel by the filling station to Auto Lease but to the lessee. It was not accepted that, as the fuel was bought in the name of Auto Lease and as its (initial) expense was borne by Auto Lease, there had been a supply to Auto Lease. The supply had only ostensibly been at Auto Lease's expense as there were monthly payments by the lessee and an annual settling up. Auto Lease was held not to have purchased fuel; it was the lessee who did that under the fuel management agreement. Auto Lease was merely a supplier of credit to the lessee.
47. In Auto Lease there was thus a skein of contracts and actions. The lessee contracted with Auto Lease; Auto Lease had contracted with DKV. The lessee contracted with the filling station and either or both of Auto Lease and DKV had, presumably, made some prior arrangement with filling stations whereby the Auto Lease pass-card and DKV credit card would enable purchases to be made. The Court, says Mr Vajda, unravelled the skein and, looking not to domestic provisions as to transfer of ownership but recognising the need for uniformity over all member states, saw a supply of goods to be such as to require a transfer of tangible property by one party which empowered the other to dispose of it as if the transferee were owner – paragraph 32. Hence the Court held that the lessee, who was in that position whereas Auto Lease was not, was the recipient of the supply and, inferentially, the filling station had been the supplier.
48. For the reasons to which I have already alluded, it cannot be said, where the provision of a reward to a Collector is of goods, that anyone but the Collector becomes empowered to dispose of the goods as or as if owner. Auto Lease thus precludes there having been a VAT supply of goods to LMUK.
49. But does that, of itself, preclude there having been, in the very same transaction, a service supplied by the Supplier to LMUK? In Auto Lease questions as to a service could have arisen – see paragraphs 16 and 20 of the Advocate-General – but in the event did not. Even so, Auto Lease may provide some assistance; it showed that a robust assessment of the transaction, especially as viewed through the eyes of the ultimate consumer, is to be preferred to a legalistic analysis of the various contracts involved. Such an approach would assist the Commissioners in saying that what LMUK was required to pay to the Suppliers here was not recompense for a service provided to LMUK by the Supplier (perhaps discernible upon a close examination of the several contracts applicable when goods or services are supplied as rewards) but, more robustly regarded, especially as viewed by a Collector as the ultimate consumer, was no other than consideration, a payment by a third party, LMUK, of the whole or part of the price which was to be paid to the Supplier by or on behalf of the Collector to reflect that the Collector had obtained his reward. That mention of consideration from a third party led Mr Vajda to examine the line of cases which I will call "the coupon cases".
50. The coupon cases typically involve promotional schemes whereby a manufacturer supplies goods to wholesalers or retailers for onward supply to consumers but marked in some way to indicate that the consumer can acquire the same or other goods of a similar kind for less than the usual shop price. Typically there is a "money off" coupon attached to the goods, identifying a specific reduction in price, which can be detached and produced at the retailer's till so as to attract the lower price. The retailer is provided by the manufacturer with a mechanism by which he can claim recompense from the manufacturer for the coupons he has honoured upon his accepting the lower price from the consumer together, of course, with the relevant coupon. There is no need to examine the long line of coupon cases; it suffices to look at Commission –v- Germany [2003] STC 301. There the Advocate-General accepted the analysis that the refund which the manufacturer gave to the retailer on presentation of the coupons collected was properly to be regarded as consideration obtained from a third party in a transaction between the retailer and the consumer – paragraphs 66-67 and 95. The Court took the same view; the taxable amount of the trader who had accepted coupons was not to be less than the sum of money he actually received for the supply by him. Part of that was paid by the final consumer, part by the manufacturer. The coupons, to the extent of their face value, had to be treated as a means of payment – paragraphs 57-59. The fact that part of the consideration for the supply by the retailer to the consumer came from a third party, the manufacturer, was immaterial in determining the retailer's taxable amount – paragraph 46.
51. Mr Vajda argues that there is no true distinction in fact between the coupon cases and the Programme. The Supplier (as, I apprehend, Mr Venables agrees) has to include within his taxable amount everything he in fact receives for his provision of goods as reward to a Collector. There is nothing in VAT law that requires that "consideration" can be provided only by he who in fact receives the supply of the goods or services in question. Where A receives goods or services by way of an arrangement wholly or partly paid for by B, there is nothing in that which precludes there being a supply to A for consideration – see C & E Commissioners –v- First Choice Holidays plc [2003] STC ECJ at page 949 paragraph 28. The consideration is the subjective value "… that is to say, the value actually received in each specific case" – First Choice Holidays plc supra at paragraphs 29 and 30. Thus whether a Supplier's provision is wholly for points or partly for points, what he actually receives has to include what LMUK becomes obliged to pay him upon his having supplied the Collector. It seems right to treat the provision by the Supplier to the Collector, which triggers and qualifies any provision from Supplier to LMUK, as the supply which is prior. On that basis the Service Charge paid by LMUK to the Supplier is thus no other than third party consideration for that supply and, being so, it is, so to speak, already "franked" or "used up" for VAT purposes and hence cannot be "used" again as consideration for any supply, be it of goods or services, by the Supplier to LMUK.
52. That argument not only reinforces the conclusion that, where the rewards provided are goods, there is no supply of them to LMUK for VAT purposes but it also, if I have understood Mr Vajda, similarly answers the questions which would arise where the rewards provided were of services. The Supplier would, as with goods, have to bring into his taxable amount everything he actually received for his provision of services, including the third party consideration coming from LMUK by way of Service Charge and the Service Charge, thus already franked as third party consideration to the Supplier for his supply to the Collector, is not available as consideration in VAT terms for the supply of any service by the Supplier to LMUK. True it is that LMUK under contract so to do pays sums to Suppliers and that Suppliers provide what in ordinary language (indeed, in the relevant contracts) can be described as a service to LMUK. True also is it that in our domestic contract law the sums so paid are "consideration" for what Suppliers, by way of a package of benefits, provide under the Programme to LMUK. But that something ordinarily describable as a service is provided by the Supplier to LMUK and is provided for what, in our domestic contract law, is regarded as "consideration" for contract purposes, does not suffice necessarily to constitute a "supply" for consideration for VAT purposes. For there to be such a supply, says Mr Vajda, the provision has to be done for a consideration – section 5 (2) VATA – and consideration for VAT purposes is an autonomous concept of community law.
53. Mr Vajda, for that, points to Case 154/80 the Dutch potato case [1981] ECR 445 at paragraphs 9 and 10 of the judgment and see also Case-353/00 Keeping Newcastle Warm –v- CCE [2002] STC 943, paragraph 25. Mr Venables does not contest the proposition.
54. Then, next, Mr Vajda argues that, in order to determine whether a particular payment is consideration for a supply, it is necessary to show that the payment bears a direct link with the goods or services provided. For that proposition he relies upon Case 230/87 Naturally Yours Cosmetics Ltd –v- CCE [1988] STC 879, paragraph 11. Again that excites no resistance from Mr Venables and (so far as concerns a relationship between the Service Charges and the rewards provided by Suppliers to Collectors) I would see there to be such a direct link. The Service Charge payable by LMUK, by reference to points redeemed, is very closely linked to there being a provision and frequently also to the value of the provision by the Supplier to LMUK. But there is a correspondingly close link between the Service Charge and the service, if such there is, provided by a Supplier to LMUK so I do not see this limb of the argument as advancing the case.
55. Next Mr Vajda argues that for a payment to be consideration within the autonomous concept here relevant it is necessary to show that by way of a legal relationship (not necessarily amounting to an enforceable contract) the remuneration received by the provider of the service constitutes the value actually given in return for the service provided to the recipient – see Case C-16/93 Tolsma [1994] STC 509 paragraph 14 and Case C-498/99 Town & County Factors –v- CCE [2002] STC 1263 paragraph 24. I do not see that requirement as of itself denying the title of "consideration" to such payments as LMUK makes, under contract, to Suppliers.
56. Then Mr Vajda argues that in analysing a transaction from a VAT perspective, the contracts are not determinative. He cites a number of authorities including Eastbourne Town Radio Cars Association –v- CCE [2001] STC 606 paragraph 14 and WHA Ltd –v- CCE [2004] STC 1081 paragraph 29. I accept that to be the case and if Mr Vajda relies on this proposition to support a conclusion that the mere fact that there is a contract between LMUK and Suppliers under which payment is made by Suppliers to LMUK does not necessarily lead to the conclusion that there is a VAT supply to LMUK by the Suppliers then that, too, must be accepted.
57. Then Mr Vajda suggests that a reciprocity of arrangement or of performance, some quid pro quo, is required for there to be a supply for VAT purposes. Either way, I cannot see the notion, of itself, as excluding there being consideration, in the VAT sense, as between a Supplier and LMUK. They are bound together in contract and the more the Supplier provides for points to Collectors (to whom, also, LMUK is bound) the more LMUK has to pay the Supplier. There is, as it seems to me, reciprocity enough.
58. It is thus not, in my view, the requirements of a direct link or of reciprocity or even the nature of "consideration" as an autonomous concept differing from the meaning of the word in our domestic contract law that finally contributes to the conclusion at which Mr Vajda's argument seeks to arrive. Rather that contribution springs, as it seems to me, from the idea that an unapportioned and unapportionable payment made between two parties cannot simultaneously be consideration for VAT purposes in, so to speak, more than one direction. It cannot at one and the same time be "consideration" for different supplies as between different parties who are engaged in different arrangements. It cannot be consideration (albeit third party consideration) for which the provision between Supplier and Collector is "done" and yet at the same time be consideration for VAT purposes as between Supplier and LMUK. This notion, of what I might call the "once and one way only" nature of consideration, was not further developed by Mr Vajda nor was authority for it adduced. Perhaps, in either case, it was thought too trite to require statement or development but, if I have understood the argument right, it is a necessary step in one part of the Commissioners' argument. If it is right (and I shall need to return to it below) then, before I turn to Mr Venables' counter, I see real force in the Commissioners' case that what Suppliers do for LMUK is not done for consideration in VAT terms as the Service Charge is already used up as consideration for the Supplier's supply to the Collector and hence that there cannot, for VAT purposes, be a supply by the Suppliers to LMUK.

The main arguments: for LMUK

59. LMUK accepts, as it did before the Tribunal, that if the Service Charge, properly regarded, is third party consideration provided by LMUK to the Supplier in respect of supplies made by the Supplier to Collectors then LMUK's case must fail. But, says Mr Venables, that is not so; Suppliers provide standard-rated "redemption services" to LMUK in return for the Service Charge and the arrangement is thus such that the input tax which LMUK bears as a component of the Service Charge is deductible in its computing its liability to account to the Commissioners for VAT.
60. Mr Venables begins by emphasising that the "redemption services" which Suppliers provide include obligations outside the supply of goods or services to Collectors. They include the obligation to provide specified information to LMUK, information valuable to that recipient. Plainly that provision is not to Collectors and is to no-one but to LMUK. How can that be consistent, he asks, with there being a supply by Suppliers for VAT purposes only to Collectors, as the Commissioners assert?
61. The answer, as I see it, is that it is not so consistent but that the inconsistency is not significant. It is a familiar principle of VAT cases that arrangements should be categorised by reference to their dominant characteristics and that ancillary and minor provisions within them may lose such colour as, had they been viewed on their own, they would have had. They take on, instead, the colour cast by the legal and financial characteristics of the arrangement looked at as a whole. I have referred above to LMUK's own description of the Programme as enabling points to be redeemed for goods or services and discounts, as to its offering "money off your shopping", free tickets or entry and money off meals if the Collector becomes a Collector by way of being a consumer at one or more of the Sponsors' branches. Vouchers, it was said, could be used as part payment and so also could points. Such features (although, of course, I am here looking at the overall arrangements chiefly as between Collectors and Suppliers) and the underpinnings needed to lead to them by way of contracts between Sponsors and LMUK and between LMUK and Suppliers surely provide the dominant legal and financial characteristics which dictate the colour of the whole. I have already touched on this above but, so regarded, it is not possible, in my view, to see the arrangement as to information as other than ancillary or minor or as other than such as to lose any individual colour that it might otherwise have had. Consistency is, no doubt, desirable but it is very often far from determinative even when more important principles are in issue – see paragraph 45 of the Advocate-General's Opinion in Commission –v- Germany supra. I am not able to attach any real weight to this first argument by LMUK
62. Next Mr Venables asserts that LMUK is the only person contractually entitled to the "redemption services". But a "supply" is not dependent on there being any contract at all, let alone a contractual entitlement. Mr Venables adds that LMUK is the only person who is contractually liable to pay for the redemption services but, leaving aside the comment that contractual liability to pay is not a necessary ingredient in any supply for this purpose, that argument verges upon a begging of the question of a Redrow type. If one firmly categorises whatever supply is in issue as of a redemption service one eases the path to a conclusion that the supply of it is to LMUK. If, conversely, one sees the relevant provision as being of such goods or services to the Collector as he obtains upon redemption of his points then one veers in the opposite direction. Given that, for reasons I have mentioned and as, orally, Mr Venables was content not to resist, the dominant characteristic of the Programme as a whole is its being a mechanism for the acquisition of rewards by Collectors in return for their fidelity as paying consumers to Sponsors, I would prefer, if I have to veer, to veer in the direction of seeing the rôle of Suppliers as supplying to Collectors rather than to LMUK. But in any event Auto Lease shows how an examination of the contracts involved in arrangements with several parties is not necessarily any guide. Just as, in Auto Lease, ultimately it was the lessee that was held to have paid for the petrol notwithstanding that it was bought in Auto Lease's name and initially had been paid for by Auto Lease, so also it can be said here, in a loose but, I hope, not too loose a sense, that it is the Collector who pays. Sponsors do not just give away points; a Collector pays when he acquires his points from the Sponsor with whom he deals and he pays again if the points he redeems are not sufficient to meet the price of whatever goods or services he chooses to obtain.
63. Mr Venables says that true third-party consideration is rare. He gave as an example an instance where part of a price is paid by way of a government subsidy. But I fail to see reason why such consideration should be limited beyond the limitation suggested by its own terms, namely that it should be consideration for a supply but provided other than by the supplier or the supplied.
64. Mr Venables' and Mr Mullan's argument ascribes crucial importance to there being, they say, no sale between Supplier and Collector at list price with the Collector then satisfying the whole or part of that price by a surrender of points. They argue that to be a material distinction between the case at hand and the coupon cases. I am quite unsure about that at a number of levels. In point of fact, I can see that there may be no contract between Collector and Supplier at list price. If the Supplier were to indicate an insistence on his initial receipt of the list price it could well be that the Collector would shy away; he might fear that he was not assuredly to receive the discount for points which he was expecting. But I would think that also to be the case at a contract level when, in a coupon case, the consumer is attracted by the prospect of, say, 15p off a tube of toothpaste. If the shop were to demand a full list price so as to put in doubt the 15p reduction the consumer might well bow out. Thus far I see no material difference between the Programme and the coupon cases. But LMUK argues that a proper analysis of the coupon cases should lead one to see that even if, in ordinary contractual terms, there has not been a contract at the full price, even so, for VAT purposes, the law treats the situation as if there had been, whereas it would not adopt that view in Programme cases. But (whether or not some such deeming process is invariably to be found in the coupon cases) I have failed to see why it should be required and be appropriate in coupon cases, if it is, and yet not be so in the case at hand. More basically, even if there is, for VAT purposes, no sale at list price under the Programme, I fear I have failed to see that to be a difference which affects the application of the relevant VAT principles. More particularly, as, for VAT purposes, one is not invariably circumscribed by contract, I do not see that the fact that Collectors never contract to acquire at full list price (if that is so) of itself denies to the payments which LMUK makes to Suppliers the description of their being payments on the Collectors' behalf, even were there to be no contractual obligation to pay either that full price or any sum for the points redeemed on the Collectors' part. After all, without the antecedent promises of LMUK to pay the Service Charges the provisions of rewards to Collectors on redemption would not take place as they do. I thus cannot ascribe to this point the importance which LMUK would wish to give it. I add that in the only transaction of which I understand detailed evidence to have been given, the purchase of petrol by Mrs Green, the invoice she was supplied with was for the full amount of her purchase, unreduced, as I have understood it, by reference to her surrender of points.
65. Then LMUK argues, with respect to redemption services, that LMUK is the only recipient of the de facto supply of them. This may be another notion close to a begging of the issues but, in any event, by using the expression "de facto" in relation to the redemption services Mr Venables indicates he is considering "supply" in a robust commonsense way rather than necessarily within the meaning of a supply for VAT purposes. But if it is not a supply for VAT purposes I am unsure what relevance it has and, at a commonsensical level, one might at least arguably and equally say that what LMUK pays to Suppliers was no other than the price or the balance of the price payable for goods or services provided by Suppliers to Collectors.
66. Next LMUK asserts that the Commissioners have failed to explain how the Service Charge payable by LMUK to a Supplier can constitute consideration for a supply for VAT purposes made by the Supplier to the Collector. But the Commissioners, in my view, have identified a respectable route – the notion of third party consideration - by which such a conclusion is possible. Article 11 (1) (a) of the 6^th Directive (as I indicated supra at paragraph 38 above) itself makes reference to consideration obtained by a supplier from a third party.
67. Next Mr Venables argues that the person to whom a supply for VAT purposes is made is, in the normal case, the person to whom the Supplier is legally liable to make the supply and who is legally liable to pay for it. If the recipient of the supply and the payor for it have to be one and the same then, as Mr Vajda points out, the concept of third party consideration, expressly contemplated by the 6^th Directive, would be virtually circumscribed out of existence. But Mr Venables refers to the Redrow case supra and also Customs & Excise Commissioners –v- Plantiflor Ltd [2002] UKHL 33 [2002] STC 1132 and it is to those cases that I therefore need to turn.
68. It is LMUK's argument that an application to the facts of this case of the approach required by reference to Redrow leads irresistibly to a conclusion in its favour. As Lord Hope, in his reasoned speech, agreed with Lord Millett's reasoning, I can examine the approach by reference to Lord Millett's speech.
69. In Redrow a house builder agreed, as a sales incentive scheme, to pay the fees of estate agents which it instructed in the sales of the existing houses of prospective purchasers of Redrow homes. It paid those fees only if and when the purchaser completed purchase of a Redrow home. The Court of Appeal had held that the agent's services had been supplied not to Redrow but to the home purchasers.
70. Lord Millett identifies the key concept in VAT as being that of supply – page 168g – and cited section 5 (2) (b) supra (then section 3 (2) (b)). At page 171e he continued:-

"Once the taxpayer has identified the payment the question to be asked is: did he receive 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 itself a supply of services."

At page 172c Lord Millett observed:-

"It is sufficient that Redrow obtained something of value in return for the payment of the agents' fees in those cases where it became liable to pay them and that what it obtained was obtained for the purposes of Redrow's business."

He continued (with my emphasis):-

"From Redrow's stand point, which is what matters, the agents' fees incurred in the sale are …… a necessary cost of and exclusively attributable to the sale of a Redrow home …"

71. Mr Venables then follows through that Redrow sequence. The payment in question is the Service Charge which LMUK pays to Suppliers. Did LMUK receive anything – anything at all – used or to be used for the purposes of its business in return for that payment? Assuredly yes, says Mr Venables; LMUK received from Suppliers a pro tanto discharge of those obligations to Collectors which it had incurred under the Collector Rules, a discharge manifestly for the purposes of its business in carrying on the Programme. Looking at the transaction from LMUK's stand point, which is what matters, the Service Charges were incurred as a necessary cost of and were exclusively attributable to that business of LMUK. Even if one were to moderate Lord Millett's initial mention of the receipt of "anything – anything at all -" to his later reference to "something of value", still, says Mr Venables, something of value was obtained by LMUK in return for payments of Service Charges.
72. This approach has the attraction not only of high authority but of apparent simplicity, but is it applicable? Mr Vajda draws attention to the very different facts of Redrow. There it was Redrow not the prospective house purchaser who chose the estate agents and gave instructions to them. Redrow obtained a contractual right as against the estate agents and could even prevent or override changes in the agents' instruction which the house purchasers might otherwise have been minded to make. Lord Millett said at page 171g-h:-

"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."

73. By contrast, says Mr Vajda, it was not LMUK that selected the particular goods or services enjoyed by way of reward by Collectors, nor, (in the sense that no Collector was bound to use points in all his acquisitions but could deal with retailers who were not Suppliers) was it LMUK that selected who it was that was to supply them. LMUK had no rôle in determining whether goods or services should be acquired by Collectors only by the use of points or wholly by cash or partly for one and partly for the other or in what proportions between the two forms of satisfaction. Nor is it the case that such provision as is made to Collectors is exclusively at LMUK's expense; in all cases where points alone did not suffice the Collectors, too, would bear some expense. In Redrow it was easy enough to see the legal and financial characteristics that were there being examined as pointing to a supply to Redrow but the overriding characteristics of the Programme suggest a provision to Collectors, says Mr Vajda, with third party consideration for that provision coming from LMUK. Moreover, Redrow was concerned only with a provision of services whereas in the case at hand most rewards are of goods. Where, as with goods, the key test is as to a transfer of dominion, the Redrow approach, said Mr Vajda, could not be used. I am left unpersuaded as to that last point; Lord Millett, in the citation I have given from page 171e, expressly contemplated a provision of goods to someone other than he who had paid for them nonetheless being a supply of a service to the payor. But I do see force in Mr Vajda's emphasis on the very different facts of Redrow.
74. Mr Venables' argument then moved on to the case of Customs & Excise Commissioners –v- Plantiflor Ltd supra. Plantiflor sold plants and other garden products, mainly using Parcelforce, an agency of the Post Office, to secure delivery to the customers. Plantiflor stated to the public that it was prepared to arrange delivery on the customers' behalf via Parcelforce, if required, in which case the customers were requested to include postage and handling charges in their order. There was a standing contract between Plantiflor and Parcelforce as to deliveries of customers' requirements. The standard charge which Plantiflor charged its customers for postage and handling was £2.50 which included a packing charge of 87p VAT on top of the postage charge of £1.63, thus totalling £2.50. In the speeches of the majority in the House of Lords in Plantiflor no doubt was thrown upon Redrow, rather Redrow was adopted at length in the reasoning. Lord Millett, giving one of the two reasoned speeches of the majority, summed up at page 1148 as follows:-

"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 customer's 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 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 this 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 customer's goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply."

75. Like Mr Vajda, I do not see Plantiflor as materially adding to Redrow so far as concerns applicability to the facts of the case at hand. Again, as in Redrow, the provision at issue was only one of a service.

The main arguments: a provisional conclusion

76. I indicated earlier that I would return to what I called the "once and one way only" nature of consideration when viewed as an autonomous concept for VAT purposes – see paragraph 58 above. I am far from sure that the principle of fiscal neutrality could operate if that were not so. That principle (asserted in their respective favour by both sides) requires that the taxable amount serving as a basis of the VAT to be collected cannot exceed the consideration actually paid by the ultimate consumer – see, e.g., Commission –v- Germany supra per Advocate-General Jacob at paragraph 14 – or, as I think one has to add, on the consumer's behalf. In my judgment consideration as such an autonomous concept does have the "once and one way only" nature which I have described. On that basis each side has produced to me a carefully reasoned argument, supported by authority, for a conclusion in its favour. The arguments, to borrow A-G Jacob's phrase, are not unevenly balanced.
77. Were I to decide as if afresh and by reference only to the argument I have heard I would prefer the Commissioners' argument. It seems to me that the attractive reasoning illustrated in Redrow is not available to me. Mr Venables was not alone in insisting on recognition of the sensitivity to their respective facts of decisions as to VAT and on the very different facts before me there can be no equivalent to the passage in Lord Millett's speech at page 171g-h which I have cited above and which I regard as crucial to his reasoning. The notion of third party consideration and the coupon cases played no part in Redrow, nor did the House of Lords have the benefit of any guidance from Auto Lease. I thus do not see Redrow as determinative of the case at hand. It cannot be the case (and Mr Venables does not assert) that merely because the putative supply in issue is described as "Redemption Services" for a "Service Charge" that what one is looking at is a supply of a service for VAT purposes. I have to look for the legal and financial characteristics of the transaction in issue – E.C. Commission –v- Germany supra at paragraph 57; Boots Co plc -v- C & E Commissioners [1990] STC 387 ECJ at paragraph 11. Mr Venables refers me to observations made by Arden LJ but it is not possible to regard her disapproval of "economic reality" as a guide to VAT liability as described in paragraph 83 of Telewest Communications plc and Another –v- Customs & Excise Commissioners [2005] STC 481 CA as intended to lessen the authority of the observations in Boots Co plc supra and EC Commission -v- Germany supra to which I have referred, if for no other reason than that Arden LJ plainly had no such intention, see her remarks at paragraphs 86 and 87 of Telewest as to "the reality of the situation".
78. There is no single touchstone, no reliable litmus paper, that assuredly reveals the characteristics for which I am looking but why I would prefer the Commissioners' argument is that it seems to me the more consistent with the requirements, illustrated in Auto Lease and the coupon cases, that one should stand back and look at the characteristics of the provision and payment in issue in a relatively robust and commonsensical way, not bound by a strict analysis of the mesh of the contracts or the language used in them. Whilst it is no part of the definition of the supply of a service for VAT purposes that it should have all or, indeed, any of the attributes of what, in ordinary usage, would be regarded as a service, it must, surely, tend against it as a service if it has only few or none. Here, the Service Charge does not reflect the time the server needs to employ to provide the service or the number or quality of the persons providing it. Nor does the Service Charge reflect the cost to the server of providing what it does to LMUK. Nor is any retainer paid to the Supplier for holding himself ready to provide rewards even where it transpires that he is not called upon to do so. Conversely, the Service Charge is related only to rewards fees, in turn to points redeemed, and, in turn again, to a provision by the Supplier to the Collector as reward. As may underline that the Service Charge is paid for the provision to the Collector, if a reward is returned by a Collector to a Supplier and is not replaced by that Supplier then the Service Charge is reduced accordingly on the Supplier's next invoice – Standard Term 4.2. As I have mentioned, if, in relation to a particular Supplier, he provides no reward over a given period, then for that period, he is paid nothing. No separate or separable fee can be discerned as the price for the provision to LMUK by the Supplier of whatever information the latter is obliged to supply.
79. In the light of the facts I have described, I would regard the Service Charges, so closely related to the occasions and often to the prices of provision by Suppliers to Collectors, as more having the characteristic of being a payment by LMUK for or towards the supply of goods or services by Suppliers to Collectors than being of any other nature. Were I left to decide only upon the argument I have thus far described, my judgment would be that the Service Charge is consideration for VAT purposes, third party consideration, for a VAT supply by Suppliers to Collectors. If the "once and one way only" point is right, it cannot simultaneously be consideration for VAT purposes for a service provided by the Suppliers to LMUK. But even if that point is not right, having regard to the dominant characteristics of the Programme and of the payments within it from LMUK to Suppliers, what I would take, for VAT purposes, to be supplied are rewards to Collectors rather than a service to LMUK. Thus, and, as yet, having paid no close attention to the reasoning of the Tribunal, I would provisionally have been of the view that I should allow the appeal. But I must now turn to an examination of the Tribunal's decision.

The Tribunal's decision

80. The Commissioners criticise the Tribunal's reasoning as to the supply of goods as rewards. The Tribunal took the view that in such cases the supply was of the rewards themselves and was from the Supplier to LMUK – see paragraphs 45 and 108 of the Tribunal's decision. But that would pre-suppose that in the course of the Programme LMUK acquired rights of dominion over the rewards, rights entitling it to act as or as if owner of them. I have dealt with that at paragraph 45 above; for the reasons I there gave I cannot regard this conclusion, which is at the heart of the Tribunal's reasoning, as other than an error of law on the Tribunal's part.
81. Mr Vajda criticises the Tribunal for its view that Intiem supra was very relevant; from that case the Tribunal derived support for a view that deductibility of input tax was appropriate to A where A incurred expense in procuring a provision to B. On some facts that can undoubtedly be so but I agree with Mr Vajda that in the light of, inter alia, Auto Lease, no proposition of such unqualified width exists and the reasoning in Intiem has to be confined to cases where a relationship of or akin to that of employer and employee can be found between the payor for the supply and the recipient of the supply and where the material supplied is exclusively for the purposes of the payor's business. By contrast, if one considers the Collector to be the recipient, in the case before me the Collector is left entirely free to do as he wishes with whatever is provided to him and no relationship such as between employer and employee can be found between either the Supplier and the Collector or LMUK and the Collector. If one instead considers LMUK as the recipient, there is no employment relationship between it and any Supplier.
82. At its paragraph 105 the Tribunal concluded:-

"Thus, in the light of Redrow and the other third party authorities, we conclude that, where a Collector obtains goods partly in return for points and partly in return for cash, there are two supplies; one to [LMUK] for the amount it pays and one to the [Collector] for the amount he pays."

Mr Vajda attacks that conclusion. If the second supply there spoken of was intended to be a supply for VAT purposes by LMUK to the Collector, it would not, in my view, be possible to see that conclusion as one which could be derived from Redrow, which in any event I have not understood to have been argued as a case involving the provision of third party consideration.

83. Both sides rely, as did the Tribunal, on the principle of fiscal neutrality. The Tribunal and Mr Venables say that it is offended if the Commissioners' argument succeeds, whereas Mr Vajda says that, when due recognition is given to there being third party consideration, there is no such offence. Mr Venables gave as an example a Collector who, using 2,000 points, obtains a reduction of £10 at a Supplier's on a small TV set that has a list price of £100. The Collector pays £90 to obtain the goods and, says Mr Venables, one would therefore expect the net overall VAT to be exigible on £90. But, reasonably, as I see it, Mr Vajda asks why is that to be expected as that would ignore the amount, say £8, which the Supplier would receive from LMUK in respect of the redemption of the 2,000 points that were deployed in the purchase of the set. Nor, I think, does Mr Venables' expectation coincide with what happened when Mrs Green bought petrol. I see force in Mr Vajda's interjection; I am unconvinced that there is the distortion, the breach of basic principle, which the Tribunal held and which Mr Venables asserts to be an inescapable consequence of the Commissioners' argument.
84. It is not, I think, necessary for me to delve into every criticism made of the Tribunal's decision, be they criticisms that could amount to error of law or, as LMUK would describe some of its complaints, inaccuracies or at least infelicities of expression. The matters that I have dealt with under this heading seem to me to suffice to indicate that the Tribunal's decision was in material error of law. I am thus free to decide the case by an adoption of the provisional view to which I would have arrived, as I have already indicated, on the argument before me. But there are two further headings which require consideration before I dispose of the case.
85. The first is an alternative argument raised by the Commissioners and the second is the question of a reference to the ECJ.

The Commissioners' alternative argument

86. Lest they should lose on their main arguments the Commissioners sought to raise before me an alternative argument not put before the Tribunal. Initially LMUK resisted any pursuit of the alternative argument but changed to requesting a ruling to be given upon it, however obiter and however much, strictly speaking, it was not properly before me. Both sides press me to overcome my reluctance in dealing with the alternative argument as they believe that costs may be saved if I do so and thus, albeit with misgivings, I shall deal with it.
87. It concerns only cases where there are goods provided to Collectors as rewards but which (it is to be assumed, upon the Tribunal's view of matters) are properly to be regarded as having been supplied to LMUK before being passed on to Collectors. It is said by the Commissioners that they would thus become, however briefly, assets of LMUK's business. Upon their disposal to Collectors LMUK receives nothing from the Collectors at that stage and certainly receives no "charge", a word used, as will be seen, in contradistinction to "consideration" in Article 5 (6)). Schedule 4 paragraph 5 (1) VATA, says Mr Vajda, requires a tax charge to arise upon such a gratuitous disposal (subject to paragraph 5 (2) thereof) – see Kuwait Petroleum (GB) Ltd –v- CCE [1999] STC 488, which dealt with "free gifts" provided to customers under a sales promotion scheme. Paragraph 5 (1) provides:-

"5 (1) Subject to sub-paragraph (2) below, where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, that is a supply by him of goods."

Paragraph 5 (2) disapplies 5 (1) in de minimis cases.

88. Notwithstanding that Kuwait and this alternative argument had not been put to the Tribunal, it ruled upon it to some extent and distinguished Kuwait – see the Tribunal's paragraph 109. It did so on the basis that whereas in Kuwait the whole sale promotion scheme was funded and funded only by its proponent, Kuwait Petroleum (GB) Ltd, in the case at hand the goods supplied to the Collectors were "funded indirectly by the [Sponsors] making payments to [LMUK]". Mr Vajda says that that is a difference without a distinction. It cannot, he says, affect liability under Schedule 4 paragraph 5 (1) or Article 5 (6), which so far as relevant, provides:-

"6. The application by a taxable person of goods forming part of his business assets for his private use or that of his staff, or the disposal thereof free of charge or more generally their application for the purposes other than those of his business, where the value added tax on the goods in question or the component parts thereof was wholly or partly deductible, shall be treated as supplies made for consideration. "

89. Mr Venables resists this alternative argument. First he says that title in the goods never passes to LMUK. They are thus, he says, never its assets and hence they are never goods forming part of the assets of the business as is required if section 5 (1) is to bite. But that, as it seems to me, confuses the acquisition of some domestically recognised title to the goods and, as is relevant to VAT, the acquisition of dominion as or as if owner of them. Whereas the latter has to be present if there has been a supply of goods to LMUK for VAT purposes (as is being here assumed), the former is not necessary. It is not as if it can be contemplated, on the assumptions made, that the assets would belong to anyone but LMUK for VAT purposes and if, as has to be assumed, LMUK, however briefly, has dominion over them as or as if owner, I fail to see why they should not in the circumstances be regarded, not necessarily for balance sheet but for VAT purposes, as goods forming part of the assets of its business.
90. Mr Venables, as I have mentioned, points out, rightly in my view, that it is no part of Article 5's definition of a supply of goods as involving a transfer of "the right to dispose of tangible property as owner" to require that it is necessarily only to the person who acquires that right to dispose that a supply can be taken to have been made. He says that Article 5 (1)'s function is to define what is a supply, not to identify its recipients. But the alternative argument with which, alone, I am dealing presupposes a supply to LMUK. It springs from the Tribunal's paragraph 108 that speaks of a supply "made to [LMUK] and not to the [Collectors]" and of LMUK as being in the chain of supply of the "secondary goods", those selected by the Collector. I take it that the Tribunal were there identifying LMUK as the person who, by way of a "supply" to it, acquired the dominion over those secondary goods. On that basis I see no reason not to take the goods to have formed part of the business assets of LMUK.
91. Mr Venables then switches tack and says that, even if paragraph 5 (1) were to apply, the value of the supply thus made by LMUK would have to be determined under section 19 or by reference to Schedule 6 VATA. Section 19 presents no difficulties to LMUK and Schedule 6 paragraph 6 (b), which LMUK would wish to escape, applies only where the supply of goods is "otherwise than for a consideration". But, says Mr Venables, LMUK receives fully taxable payment from Sponsors which is consideration for the supplies of goods by LMUK to the Collectors. It is now Mr Venables that is asserting third party consideration. That his conclusion is correct, says Mr Venables, is made clear by Customs & Excise Commissioners –v- Professional Footballers' Association (Enterprises) Ltd [1993] STC 86 HL. There it was accepted – see page 89e - that consideration does not have to move from a recipient; it is sufficient if consideration is provided by someone other than the recipient. There the PFA company organised dinners at which trophies would be awarded. Admission to the dinners was by ticket and was limited to members of the Association. The Tribunal had found that the award ceremony was an integral part of the supply made by the Association to the ticket holder and that the visible presentation of the awards was something which the company had obliged itself to and did organise in return for the price of each ticket. Nolan J at first instance and the Court of Appeal, by a majority, upheld that view. The House of Lords upheld the Tribunal's view that the receipts from the tickets contributed to meeting the costs of the function, including the provision of the awards, and that there was accordingly a sufficiently direct link between the sum the diners paid for their tickets and the supply of the awards. It followed that there was consideration for the presentation of the awards and no VAT was payable separately on the cost of provision of the awards.
92. In the House of Lords the issue was simply whether it could be said that there was a sufficiently direct link between the price of the dinner ticket (or part of it) and the provision of the awards – page 89f-g. The Tribunal had found that direct link and the House of Lords said that they were right to do so. But there some part of every ticket price could be and was taken to have contributed to some extent to the provision of the awards. On that basis it was not difficult to espy a sufficiently direct link. But in the case at hand the Sponsors pay for points whether or not they are ever redeemed. It cannot be said that every dealing with a Sponsor that generates points leads to any subsequent supply to a Collector and it will often be difficult, when a Collector redeems less than the totality of his points, to identify who was the Sponsor or who were the Sponsors dealings with whom had led to the issue of such points as the Collector redeemed on any particular transaction. There is, as it seems to me, no direct nexus between what LMUK receives from any particular Sponsor or, indeed, all Sponsors and what rewards are provided by Suppliers to any particular Collector or, indeed, to all Collectors.
93. I do not understand the Tribunal, in its brief dealings with the alternative argument, to have found that there was, in point of fact, a sufficiently direct link such as to make the (assumed) supply of goods from LMUK to Collectors a supply for consideration and, for my part, I would not see there to be a sufficiently direct link to enable that to be the case. I would thus see the value of the (assumed) supply as to be determined under Schedule 6 paragraph 6 VATA. Under paragraph 6 (2) that value has to be taken to be "such consideration in money as would be payable by the person making the supply if he were, at the time of the supply to purchase goods identical in every respect ….. to the goods concerned".

Reference to the ECJ

94. The Commissioners ask for a reference to be made to the ECJ only if their appeal is not allowed but they do frame a question for the ECJ should that be the case. LMUK takes the view that I should be satisfied that reference is inappropriate and in event regard the question framed by the Commissioners as tendentious and misleading. The position, given that I am about to allow the appeal, is thus that neither side presses for a reference and the terms of any reference are not agreed. Moreover, as I have, at the parties' request, come to a conclusion on the Commissioners' alternative argument, the question or questions to be put, were there to be a reference, might need to be expanded beyond the range suggested in the form (tendentious, misleading or not) so far framed by the Commissioners.
95. The place of this case in the spectrum of possibilities described by Chadwick L.J. in Trinity Mirror plc –v- Customs & Excise Commissioners [2001] STC 192 CA at p. 212h is, in my view, such that reference is best left over. If there is no appeal then the matters will have been settled without need for one. If, however, there is an appeal, by the time it first comes on the parties will have had the opportunity to consider this judgment and will also have acquired the ability to invite the assistance of the Court of Appeal in framing the questions appropriate to refer. If a reference is left over then not only will the question of whether there should be one receive a more authoritative answer but the nature of the questions, if any, to be referred would have received a greater and better attention. I thus leave the question of reference over to the future.

Conclusion

96. I am very conscious that, despite the length of this judgment, I have left, seemingly unregarded, a host of what I have regarded as sub-issues and the less relevant of the some 60 or so authorities which are in or were added to the bundles laid before me. However, I hope to have dealt with the principal questions raised before me sufficiently to have indicated what I have decided and why I have done so. Had it been properly before me I would have ruled the Commissioners to have succeeded on their alternative argument. On the appeal proper, I have, in my view, no ground not to adopt as final the provisional view which I earlier indicated and thus, for the reasons I have given, I allow the Commissioners' appeal and set aside the Tribunal's decision. I will need to discuss with Counsel the detail of the consequent order.