Tax Cases

Coupons

Certain German manufacturers promoted sales of their products with money-off coupon schemes, whereby retailers took the coupon in part-payment for the goods concerned, and the retailer was reimbursed by the manufacturer. German law only permitted the manufacturer to deduct the coupon value from his taxable amount if the reimbursement was to a trader to whom the manufacturer had previously directly sold his goods.

The European Commission had said in correspondence with the German Government that it should not matter if the trader to be reimbursed had been previously connected with the manufacturer. The German Government disagreed and refused to change the law even after the decision in Elida Gibbs Ltd v Commissioners of Customs and Excise (Case C-317/94) [1996] STC 1387, saying that the decision was incompatible with the principles of VAT.

The Commission then brought an action for declaration that Germany was in breach of its obligations under Article 11 of the Sixth Directive. The United Kingdom, while changing the law as a result of the Elida Gibbs case, supported Germany.

The arguments presented by Germany and the United Kingdom were not accepted by the European Court of Justice. It said that the manufacturer's reimbursement did not affect other transactions in the distribution chain, and that it was irrelevant that part of the consideration received by the retailer was not paid by the final consumer. Furthermore, the face value amount on the coupon was, in the hands of the retailer, an asset realised on its reimbursement. The value of the coupon should be included in the retailer's taxable amount. The Court agreed that money-off coupon schemes were governed by different rules from those applying to other promotional schemes, but said that the difference in tax treatment was inherent in the structure of the Sixth Directive and did not distort competition.

Thus Germany had not fulfilled its obligations under Article 11.

(European Communities v Federal Republic of Germany (supported by United Kingdom, intervener) (Case C-427/98), European Court of Justice, 15 October 2002.)

Free movement of workers

The claimant received income from employment both in the Netherlands, where he was resident, and in France, Germany and the United Kingdom. The income in the three latter countries was taxed with no account being taken of his personal and family circumstances. In addition, he lost part of his entitlement to certain tax reliefs in the Netherlands because of the existence of the earnings elsewhere in the European Union.

The claimant complained that this was contrary to the principle of free movement of workers. The Hoge Raad der Nederlanden sought from the European Court a preliminary ruling on whether Article 48 of the European Community Treaty precluded rules such as those in issue.

The Court ruled that Article 48 precluded rules such as those at issue, regardless of whether or not they were laid down in a double taxation convention. A taxpayer should not forfeit, in the calculation of the income tax payable by him in his state of residence, part of the tax-free amount of that income and of his personal tax advantages because he also received in another Member State income which was taxed without his personal and family circumstances being taken into account.

The Court also ruled that Community law contained no specific requirement as to how the state of residence had to take into account the personal and family circumstances of a worker who, during a particular tax year, received income in it and in another Member State.

(De Groot v Staatssecretaris van Financiën (Case C-385/00), European Court of Justice, 12 December 2002.)

European appeal

The taxpayer appealed against the VAT tribunal's decision in relation to the proper construction and application of Regulation 115(3) of the Value Added Tax Regulations 1995. The High Court decided the European Court of Justice should be consulted on the matter:

'Where: during the period of adjustment provided for in Article 20(2) of the Sixth Council Directive a taxable person disposes of a building which is treated as a capital good; and the disposal of the building is effected by way of two supplies, being (i) the grant of a 999-year lease of the building (an exempt transaction under Article 13(B)(b) of the Directive) for a premium of £6 million, followed three days later by (ii) the sale of the freehold reversion (a taxable transaction under Article 13(B)(g) and Article 4(3)(a) of the Directive) for a price of £1,000 plus VAT and which either are or are not pre-ordained in the sense that once the first had been carried out there was no chance that the second would not be, is Article 20(3) of the Sixth Directive to be interpreted so that:

'(a) the capital good is regarded until the expiry of the period of adjustment as if it had been applied for business activities which are presumed to be fully taxed;

'(b) the capital good is regarded until the expiry of the period of adjustment as if it had been applied for business activities which are presumed to be fully exempt; or

'(c) the capital good is regarded until the expiry of the period of adjustment as if it had been applied for business activities which are presumed to be partly taxed and partly exempt in the proportion of the respective values of the taxed sale of the freehold reversion and the exempt grant of the 999-year lease?'

(Centralan Property Ltd v Customs and Excise Commissioners, Chancery Division, 23 January 2003.)

Tariff appeal

VTech Electronics was an importer of electronic games and toys. It appealed against the tariff classification relating to customs duties imposed on it by the VAT tribunal.

Mr Justice Lawrence Collins said that tariff classification was a matter of fact, and only if the tribunal's conclusions could be shown to be incorrect as a matter of law, could the court intervene. In this instance, the tribunal was entitled to reach its conclusions.

The company's appeal failed.

(VTech Electronics (UK) plc v Commissioners of Customs and Excise, Chancery Division, 29 January 2003.)

Ruling goes against Océ

The Advocate General has recommended a ruling against Océ van der Grinten NV in his opinion on the questions referred to the European Court of Justice by the High Court in Océ van der Grinten NV v Commissioners of Inland Revenue [2000] STC 951. The company argued that the five per cent withholding tax deducted by the Inland Revenue from a dividend paid to it by its United Kingdom-resident subsidiary was contrary to European law.

Application to remit fails

After the European Court of Justice gave its ruling in respect of certain questions referred by the High Court, Trinity Mirror applied for the case to be remitted to the same tribunal for the determination of further facts in the light of that ruling. The case concerned an inducement payment received on taking up a lease in a new building and an agreed statement of facts was put before the tribunal at the original hearing. The company said that the questions for the tribunal to determine were whether the company made a supply of services for consideration to the landlord, if the company did make a supply what was that supply and if the company made both a supply and a non-supply, how was the inducement to be apportioned between the supply and the non-supply elements.

Customs opposed the application, arguing that their appeal should be allowed. Both appeals were made under section 11, Tribunals and Inquiries Act 1992 which provided that a party might appeal on a point of law.

Sir Andrew Morritt said that there were no grounds for remitting the case to the tribunal. He also said that it would not be appropriate to remit the case on the question of apportionment.

Thus Customs' appeal was allowed, and the company's application and appeal was dismissed.

(Trinity Mirror plc (formerly Mirror Group plc) v Commissioners of Customs and Excise, Chancery Division, 30 January 2003.)

Issue: 3893 / Categories: