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Avon Cosmetics Ltd v CRC (Case C-305/16), Court of Justice of the EU, 14 December 2017
Direct selling derogation is lawful
Avon sold its products through independent representatives, most of whom were not registered for VAT. This resulted in lost revenue, in that because the representatives were not accountable for VAT their sales were not subject to VAT. So HMRC obtained a derogation requiring Avon to account for VAT on the full retail selling price.
Avon challenged the system, arguing that the purchase by representatives of demonstration items was a business expense and the VAT relating to them would be deductible by the representatives if they were taxable. It applied to recover the input tax.
The First-tier Tribunal referred the matter to the Court of Justice of the EU. The court said such a measure was not precluded under EU law even if that derogating measure did not take account of the input VAT relating to demonstration items purchased by those resellers from that company.
