Tax Cases

Clubcard vouchers

Tesco plc operates a 'Clubcard' scheme, under which customers earn points when purchasing goods. The points are converted into vouchers, which can be tendered in payment for goods. In addition to the basic scheme, there are variations whereby points can be earned by:

Tesco plc considered that paragraph 5 of Schedule 6 to the VAT Act 1994 applied. This states that 'where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount'. Consequently it deducted the cost of the vouchers from cash receipts at the time of issue on the basis that this was consideration for the voucher. That amount would then be included in takings when the voucher was redeemed.

Customs disagreed and the taxpayer's appeal was upheld by the tribunal. Customs appealed.

In the High Court it was held that the Clubcard points were not issued for consideration. Clubcard customers purchased goods at the same price as any other customer and they were therefore not paying consideration for the vouchers. The cost of the scheme was borne by Tesco plc, which was promising Clubcard customers a discount on a future purchase. Similarly, there was no consideration for a voucher when the customer purchased from a third party.

Regarding promotions involving third party suppliers, Tesco was not supplying vouchers to them, but to its customers. The consideration from Tesco to the supplier was a service in the form of participation in a promotional scheme with the aim of increasing turnover. The third party's payment to Tesco did not therefore fall within paragraph 5 of Schedule 6. On a more practical level, an anomalous and complex situation would result if the points and vouchers attributable to third party purchases differed from in-store purchases.

Customs' appeal was allowed.

(Tesco plc v Commissioners of Customs & Excise, Chancery Division, 21 October 2002.)

Freedom to contribute

Contributions to voluntary pension schemes operated by insurance businesses in Finland were wholly or partially deductible from taxable income under Finnish law, but contributions to foreign insurers were not. The claimant, who was Finnish, worked in Germany and paid contributions to two insurance policies run by German insurance companies. He continued to pay them voluntarily when he returned to Finland. The Finnish authorities refused to grant him tax relief, and the court referred to the European Court of Justice as to whether or not the refusal was an infringement of Article 59 of the European Community Treaty, relating to freedom of provision of services.

The European Court considered the first justification put forward by Finland. This was to ensure the coherence of the Finnish tax system, i.e., the deductibility of contributions was linked to the taxpayer's subsequent liability to tax on his pension. However, pensions paid from a foreign insurer were taxed regardless of whether the contributions had been tax deductible, so the Court rejected this argument.

Secondly, Finland justified taxing the contributions for the effectiveness of fiscal controls, and argued that it was impossible to verify whether voluntary contributions to foreign schemes were subject to the same conditions as Finnish ones. The Court said, however, that less restrictive measures could ensure fiscal controls.

Finally, Finland argued the need to preserve the integrity of the tax base. If such deductibility were allowed, then this would encourage 'fiscal forum shopping' with higher rate taxpaying residents in the state obtaining insurance from low tax régimes. The Court ruled against this also, saying that this did not constitute a justification under Article 59. Thus Article 59 prevented Member States from restricting or disallowing deductibility for income tax purposes of contributions to voluntary pension schemes paid to foreign providers.

(Proceedings brought by Danner (Case C-136/00), European Court of Justice, 3 October 2002.)

Car condemned

Returning from France, Mr Helman's car was stopped and seized by British Customs' officers because he was carrying goods in excess of prescribed duty-free amounts. Section 139, Customs and Excise Management Act 1979 gave discretion to seize goods liable to forfeiture and, under section 141(1)(a), a car carrying such goods 'shall also be liable to forfeiture'. Mr Helman challenged the seizure and Customs brought proceedings to confirm that, under paragraph 6 of Schedule 3 to the Customs and Excise Management Act 1979, this had been correctly carried out.

The Crown Court refused to condemn the car as, although the goods had been correctly seized, the judge was of the opinion that forfeiture of the car was a disproportionate interference with Mr Helman's rights under Article 1 of the First Protocol to the European Convention on Human Rights. Customs appealed, arguing that once it had been found that the goods had been properly seized, then the car used for carrying the goods must itself be seized and condemned.

The Administrative Court held that 'shall' in section 141(1)(a) should be given its ordinary meaning. If the goods had been properly seized, there was no discretion as to whether the car should not be seized and condemned as forfeited. Also, because the car owner was entitled to require Customs to make a decision (which was itself subject to review and appeal) regarding restoration of the vehicle, there was no disproportionality.

Customs' appeal was upheld.

(Commissioners of Customs & Excise v Helman, Administrative Court, 18 October 2002.)

A seizure

Revenue officers had obtained a warrant under section 20C, Taxes Management Act 1970 and visited the taxpayer's home. The taxpayer was on holiday in France, but he contacted his father-in-law who had the keys of his house. The Revenue contended that the taxpayer, during a telephone conversation with his father-in-law, had agreed that the Revenue could copy (or remove for copying) the hard drives of two computers. The drives could not be copied on the premises and the computers were removed for copying elsewhere. Subsequently one computer was returned to the taxpayer, but the other was damaged and retained by the Revenue.

The taxpayer brought proceedings for judicial review, arguing that:

The Revenue argued that the agreement did not prevent the operation of its statutory powers.

The court agreed with the Revenue. If there was a warrant and reasonable cause to believe that there was information on a computer hard drive that could be used in evidence, the computer could be seized and removed even if it also contained irrelevant material. The information could then be copied and the computer returned.

The agreement with the father-in-law did not render the seizure unlawful. In fact 'seize' implied something that was being done without the owner's consent or against his will.

The application for judicial review was dismissed.

(R (on the application of H) v Commissioners of Inland Revenue, Administrative Court, 23 October 2002.)

Issue: 3881 / Categories: