© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
D1. For consideration
GENERAL
- Supplies of goods/services rather than consideration that are subject to VAT
"[17] It must be borne in mind that, under Article 2(1) of the Sixth Directive, a supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such is subject to VAT. That is why it is necessary in every case to consider which party supplied the goods or services and which party provided the consideration. It is supplies of goods or services which are subject to VAT, rather than payments made by way of consideration for such supplies." (Cantor Fitzgerald C-108/99)
- Legal relationship and reciprocity not necessarily sufficient
"[60] I agree with the appellant that the CJEU have never ruled that a legal relationship with reciprocity will always mean that there is a supply ‘for’ consideration; they have simply said that there is no supply for consideration where a legal relationship with reciprocity does not exist (Tolsma). Indeed, it follows from Kuwait that a legal relationship with reciprocity is not necessarily sufficient and Church of England Children’s Society is an application of that principle.
[61] I agree with the Tribunal in that case that the question of whether a supply is ‘for’ consideration in so far as it is a question of fact requires objective rather than subjective consideration." (The Serpentine Trust Ltd v. HMRC [2014] UKFTT 876 (TC), Judge Mosedale)
Consideration v. remuneration
- Necessary to look at English and French decisions to distinguish concepts
"[14] When considering the CJEU cases, it is important to note that there is on occasions some inconsistency between the English and French versions of the judgments as to the use of the words "consideration" and "remuneration". In the text of the VAT Directive "consideration" is, in French, "à titre onéreux". This is the phrase used at some points in the French versions where the word "consideration" is used in the English judgments, but the words "rétribution" and "contre-valeur" are also used. Those are all occasions on which article 2 is under consideration. Where the word "rémunération" appears in the French versions, the equivalent in the English versions is in some places "consideration", as well as being in other places "remuneration". Given the distinct meanings of the words "consideration" and "remuneration" in this area of law, spelt out clearly and explicitly in the Opinion of Advocate General Kokott in Borsele, it is necessary, when reviewing the CJEU cases, to look at both the French and the English versions of the judgments." (Wakefield College v. HMRC [2018] EWCA Civ 952)
- Consideration means some value is given, remuneration refers to income on a continuing basis
"[14] When considering the CJEU cases, it is important to note that there is on occasions some inconsistency between the English and French versions of the judgments as to the use of the words "consideration" and "remuneration". In the text of the VAT Directive "consideration" is, in French, "à titre onéreux". This is the phrase used at some points in the French versions where the word "consideration" is used in the English judgments, but the words "rétribution" and "contre-valeur" are also used. Those are all occasions on which article 2 is under consideration. Where the word "rémunération" appears in the French versions, the equivalent in the English versions is in some places "consideration", as well as being in other places "remuneration". Given the distinct meanings of the words "consideration" and "remuneration" in this area of law, spelt out clearly and explicitly in the Opinion of Advocate General Kokott in Borsele, it is necessary, when reviewing the CJEU cases, to look at both the French and the English versions of the judgments." (Wakefield College v. HMRC [2018] EWCA Civ 952)
DIRECT LINK
- There must be a direct link between the supply and consideration received
"[23] As regards the question whether a supply of services such as that at issue in the main proceedings constitutes a supply of services carried out ‘for consideration’, it is settled case-law that classifying a supply of services as a transaction ‘for consideration’, within the meaning of Article 2(1)(c) of the VAT Directive, requires only that there be a direct link between that supply and the consideration actually received by the taxable person. Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for the service supplied to the recipient (judgment of 21 December 2023, Administration de l’enregistrement, des domaines et de la TVA (VAT – Member of a board of directors), C‑288/22, EU:C:2023:1024, paragraph 33 and the case-law cited)." (Zlakov C-744/23)
- Consideration presupposes that a price is stipulated
"[20] In that regard, it is settled case-law that, within the framework of the VAT system, taxable transactions presuppose the existence of a transaction between the parties in which a price or consideration is stipulated. Thus, where a person’s activity consists exclusively in providing services for no direct consideration, there is no basis of assessment and the services are therefore not subject to VAT (judgment of 22 June 2016, Český rozhlas, C‑11/15, EU:C:2016:470, paragraph 20 and the case-law cited).
[21] It follows therefrom that a supply of services is effected ‘for consideration’ within the meaning of Article 2, point 1, of the Sixth Directive, and hence is taxable, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient. That is the case if there is a direct link between the service supplied and the consideration received (see, to that effect, judgments of 22 June 2016, Český rozhlas, C‑11/15, EU:C:2016:470, paragraphs 21 and 22 and the case-law cited; of 22 November 2018, MEO — Serviços de Comunicações e Multimédia, C‑295/17, EU:C:2018:942, paragraph 39; and of 3 July 2019, UniCredit Leasing, C‑242/18, EU:C:2019:558, paragraph 69)." (San Domenico Vetraria C-94/19)
- Direct link where one is conditional on the other
"[27] Accordingly, if it were to be established, which it is for the referring court to ascertain, that the payment, by San Domenico Vetraria, of the amounts invoiced to it by its parent company was a condition for the latter to second the director and that the subsidiary paid those amounts only in return for the secondment, it would have to be held that there is a direct link between the two services." (San Domenico Vetraria C-94/19)
- Sum classified as penalty can be consideration
"[46] With regard to, in the second place, the argument relied on by Apcoa that the amount which it charges in respect of the control fees for parking in breach of the regulations is classified, under national law, as a penalty, it is sufficient to recall, as the Advocate General did, in essence, in point 42 of his Opinion, that, for the purposes of interpreting the provisions of the VAT Directive, the assessment of whether payment of a fee is made as consideration for a supply of services is a question of EU law which needs to be determined independently of the assessment made under national law (judgment of 22 November 2018, MEO – Serviços de Comunicações e Multimédia, C‑295/17, EU:C:2018:942, paragraphs 69 and 70)." (Apcoa Parking Danmark C-90/20)
"[67] The Court of Justice has consistently held that the terms of a provision of EU law which makes no express reference to the law of the Member States must normally be given an autonomous and uniform interpretation (see, to that effect, judgment of 16 November 2017, Kozuba Premium Selection, C‑308/16, EU:C:2017:869, paragraph 38 and the case-law cited).
[68] Therefore, as the Advocate General observed in point 34 of her Opinion, it is irrelevant for the purposes of interpreting the provisions of the VAT Directive that that amount is to be regarded, under national law, as a right to a remedy in tort or a contractual penalty, or that it is characterised as a remedy, damages or remuneration.
[69] The assessment of whether payment of a fee is made as consideration for a supply of services is a question of EU law which needs to be determined independently of the assessment made under national law." (MEO C-295/17)
- Early termination charge having purpose of discouraging early termination does not prevent it being consideration
"[62] Consequently, the objective of that amount, namely to discourage customers from not observing the minimum commitment period, is not decisive for the classification of that amount, in so far as, according to the economic reality, the same amount aims to ensure that MEO, in principle, obtains the same income as it would have obtained if the contract had not been terminated before the end of the minimum commitment period for a reason attributable to the customer."
- Unascertained reduction in value of shares held by customer in the supplier as a result of the supply not consideration
"[12] So a provision of services is taxable, within the meaning of the second directive , when the service is provided against payment and the basis of assessment for such a service is everything which makes up the consideration for the service; there must therefore be a direct link between the service provided and the consideration received which does not occur in a case where the consideration consists of an unascertained reduction in the value of the shares possessed by the members of the cooperative and such a loss of value may not be regarded as a payment received by the cooperative providing the services." (Coöperatieve Aardappelenbewaarplaats C-154/80)
Legal relationship between provider and recipient involving reciprocal performance
"[36] In that regard, according to settled case-law, the possibility of classifying a supply of services as a transaction for consideration requires only that there be a direct link between that supply and the consideration actually received by the taxable person. Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for the service supplied to the recipient (judgments of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 32)." (EQ C-846/19)
- Broad interpretation of legal relationship
"[33] In that regard, it should first be noted, as the Advocate General pointed out in points 38 and 48 of his Opinion, that the concept of ‘legal relationship … pursuant to which there is a reciprocal performance’ must be given a broad interpretation. Thus, it follows from the case-law that the mere use of a regulated service, such as parking in a paid car park (judgment of 20 January 2022, Apcoa Parking Danmark, C‑90/20, EU:C:2022:37) or consuming electricity at one’s place of residence (judgment of 27 April 2023, Fluvius Antwerpen, C‑677/21, EU:C:2023:348), may give rise to a legal relationship between the person holding the rights enabling the supply of that service and the person who has used it (see, to that effect, judgments of 20 January 2022, Apcoa Parking Danmark, C‑90/20, EU:C:2022:37, paragraphs 28 and 29, and of 27 April 2023, Fluvius Antwerpen, C‑677/21, EU:C:2023:348, paragraphs 30 to 32)." (Cristian General Serv T-643/24)
"[31] Furthermore, the criterion relating to the existence of a legal relationship in the context of which the supply of goods takes place and the consideration for it must be interpreted in the light of the case-law referred to in paragraph 28 of the present judgment, taking into account all of the circumstances of each individual case in such a way that the principle of fiscal neutrality is not disregarded. In that context, that criterion must be given a broad meaning." (Fluvius Antwerpen C-677/21)
- Binding obligations not required (reciprocal performance of agreement sufficient)
"[20] It must be observed, first, that it is common ground that where a competition such as that at issue in the main proceedings is organised there is reciprocal performance within the meaning of the Tolsma judgment between the organiser of the competition and the competitors, the remuneration received by the organiser in the form of entry fees constituting the value actually given in return for the service he supplies to the competitors.
[21] It is clear, next, that adopting the approach of making the existence of a legal relationship in the Tolsma sense depend on the obligations of the provider of the service being enforceable would compromise the effectiveness of the Sixth Directive, in that it would have the consequence that the transactions falling within that directive could vary from one Member State to another because of differences which might exist between the various legal systems in this respect.
[22] Moreover, this approach would enable a taxable person to avoid paying VAT by including in his contracts for sales or services a term such as that at issue in the main proceedings.
[23] Finally, it cannot be validly maintained that no legal relationship in the Tolsma sense exists, because the obligation on a provider of services is not enforceable, where the impossibility of seeking enforcement of that obligation derives from an agreement between the provider of services and the recipient, such an agreement constituting the very expression of a legal relationship in that sense." (Town & County Factors Ltd C-498/99)
"[48]...To much the same effect, in Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) [1994] STC 509, para 14, the Court of Justice said that “a supply of services is effected ‘for consideration’ … only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance”, which it explained as meaning “the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient”. In the context of the supply of goods, the Court made the same point in Primback Ltd v Customs and Excise Comrs (Case C-34/99) [2001] 1 WLR 1693, para 25, where it described “the determining factor” as “the existence of an agreement between the parties for reciprocal performance, the payment received by the one, being the real and effective counter-value for the goods furnished to the other”." (Airtours Holidays Transport Limited v. HMRC [2016] UKSC 21)
- Involuntary relationship under statutory regime sufficient
"[32] Moreover, first, as pointed out by Fluvius, even if the supply of electricity has occurred without the conclusion of a contract, the relationship between the clandestine consumer and the electricity distribution network operator is governed by the connection regulation applicable to the facts in the main proceedings, which defines the concept of ‘unlawful usage’ and provides for the resulting consumption to be attributed by the distribution network operator to the person who engaged in that usage. Second, as stated in paragraph 23 of the present judgment, both the Energy Decree and the Energy Decision govern cases of usage of electricity without the conclusion of a commercial contract and without prior notification to the distribution network operator, and determine the detailed rules for determining the compensation representing the advantage unlawfully obtained by that consumer." (Fluvius Antwerpen C-677/21)
- Is one the real and effective counter-value for the other?
"[25] It follows that the determining factor in this regard is the existence of an agreement between the parties for reciprocal performance, the payment received by the one being the real and effective counter-value for the goods furnished to the other." (Primback Ltd C-34/99)
"[48]...In the context of the supply of goods, the Court made the same point in Primback Ltd v Customs and Excise Comrs (Case C-34/99) [2001] 1 WLR 1693, para 25, where it described “the determining factor” as “the existence of an agreement between the parties for reciprocal performance, the payment received by the one, being the real and effective counter-value for the goods furnished to the other”." (Airtours Holidays Transport Limited v. HMRC [2016] UKSC 21)
- Sums payable under a statutory regime as consideration
"[25]In the present case, first, it is apparent from the order for reference that there is a contract between T.P.T. and that party’s lawyer, whose subject matter is the provision of legal assistance free of charge under Article 38(1)(2) of the ZA. Secondly, since T.P.T. was successful in the relevant legal proceedings, the opposing party was ordered, under Article 38(2) of the ZA, to pay that lawyer the lawyer’s fees, the amount of which was set according to the arrangements provided by law, by reference to the minimum amounts of lawyer’s fees.
[26] Consequently, the existence of a direct link between the legal assistance provided by T.P.T.’s lawyer and the lawyer’s fees paid to him is evidenced both by a contract and by law." (Zlakov C-744/23)
- Parking in a carpark space without paying gives rise to legal relationship
"[28] In the present case, it must be noted that parking in a particular space in one of the car parks managed by Apcoa gives rise to a legal relationship between that company, as a service provider and manager of the car park concerned, and the motorist who used that space.
[29] In that regard, it is apparent from the documents available before the Court that, in the context of that legal relationship, the parties enjoy rights and assume obligations, in accordance with the general terms and conditions for use of the car parks concerned, which include, in particular, the provision of a parking space by Apcoa and the obligation on the motorist concerned to pay, in addition to the parking fees, where appropriate, in the event of failure to comply with those general terms and conditions, the amount corresponding to the control fees for parking in breach of the regulations, as indicated on the signs mentioned in paragraph 11 of the present judgment.
[30] Accordingly, in that context, with regard to, on the one hand, the condition relating to the existence of reciprocal performance, within the meaning of the case-law cited in paragraph 27 of the present judgment, it appears that that condition is fulfilled. The payment of parking fees and, where appropriate, of the amount corresponding to the control fees for parking in breach of the regulations constitutes consideration for the provision of a parking space." (Apcoa Parking Danmark C-90/20 - at least where it is a "regulated service" - see Cristian General Serv T-643/24)
- Involuntary supply of illegally taken electricity was for consideration
"[30] In the present case, the direct link between the unlawfully consumed electricity and the sum claimed in return by Fluvius is clear from the information provided by the referring court, since MX used the electricity at his residential address and Fluvius was able to establish the quantity thus used by drawing up a statement of the electricity consumption between 7 May 2017 and 7 August 2019 by reading the meter at that address. The amount corresponding to the cost of the electricity unlawfully consumed was thus included in the sum claimed from MX." (Fluvius Antwerpen C-677/21)
- Statutory payments for use of copyrighted works without permission consideration for supply
"[40] The terms and conditions of the single and equitable remuneration, resulting in particular from point 3.12 of the methodology, cause that remuneration to vary from single to triple depending on whether or not the communication of the protected works was authorised by Credidam, which represents the holders of related rights ex lege, pursuant to Articles 145 and 146 of the Law on copyright and related rights (see paragraphs 11 and 12 above). Consequently, even if the communication of the protected works in question took place without a licence, the fact remains that the failure of the collective management organisation for copyright and related rights to grant a licence did not prevent the legal and regulatory framework governing the communication to the public of such works without a licence from applying, which it is for the referring court to verify." (Cristian General Serv T-643/24)
- No legal relationship/reciprocity between public broadcaster and fee payable by persons in possession of radio receiver
"[23] As regards the public broadcasting service at issue in the main proceedings, it is clear that there is no legal relationship between Český rozhlas and the persons liable to pay the radio fee, in the course of which there is an exchange of reciprocal performance, or direct link between that public broadcasting service and that fee.
[24] In the context of the provision of that service, Český rozhlas and those persons are not linked by any contractual relationship or transaction in which a price was stipulated, or even by a voluntary legal commitment made by one party towards the other.
[25] Moreover, the obligation to pay the radio fee does not stem from the provision of a service of which it constitutes direct consideration, since that obligation is linked not to the use of the public broadcasting service provided by Český rozhlas by the persons subject to that obligation but solely to the possession of a radio receiver, whatever the use that is made of it.
[26] Consequently, persons possessing a radio receiver are obliged to pay that fee, even if they use that receiver solely to listen to radio programmes transmitted by broadcasters other than Český rozhlas, such as commercial radio programmes financed by sources other than that fee, for listening to CDs or other digital media, or even for other functions generally available on that equipment enabling them to receive and reproduce transmissions." (Český rozhlas C-11/15)
- No reciprocal performance where creditor pursues persons whom defaulted on obligations to debtor to recover its own debt
"[14] Those legal services were in relation to the sought recovery of costs paid in the context of a loan granted by Svilosa to the foundation ‘Mir za teb, mir za men’ (‘the Foundation’) to facilitate the organisation of a concert collecting funds for the benefit of children affected by war. The loan amount had not been paid into the Foundation’s account, but had been made directly available to persons and companies who were to organise that concert. Ultimately, that concert did not take place, through no fault of the Foundation, and Svilosa therefore resorted to the law firms’ services with a view to bringing legal proceedings against the various persons who had failed to deliver on their commitments.
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[25] In the present case, it is not disputed that Svilosa granted a loan to the Foundation, in accordance with a bridge financing agreement concluded between them. By contrast, the actions taken by Svilosa with a view to recovering the amounts paid by it to third parties in the context of that loan were not subject to any agreement or other legal relationship with the Foundation pursuant to which there was reciprocal performance relating specifically to those actions. In any event, Svilosa does not appear to have received any remuneration from the Foundation in relation to those actions.
[26] In that context, it must be added that the fact that Svilosa was able, following the proceedings conducted in the United States, to recover a part of the debt owed to it by the Foundation, is irrelevant. The payment of amounts recovered in that way does not seem to have been made as consideration, by the Foundation, for the recovery actions taken by Svilosa. Therefore, those actions cannot be considered to be a supply of services for consideration." (Svilosa C-535/24)
- Payment procured by credit card fraud is still consideration
"[37] Likewise, inasmuch as, as is apparent from the file submitted to the Court, Dixons complied with the procedures laid down by the agreements concluded with AmEx and Streamline and, in addition, the sales at issue in the main proceedings satisfy the objective criteria on which the concept of ‘supply of goods’ within the meaning of the Sixth Directive and Directive 2006/112 is based, the fact that those sales subsequently turned out to have been paid for by means of cards used in a fraudulent manner cannot have the consequence that the payment of the price of those sales does not constitute the consideration obtained by Dixons in respect of the sales." (Dixon Retail Plc C-494/12)
- Transfer of property by property developer in discharge of tax debt not a transaction for consideration
"[34] A tax is a compulsory charge imposed by the sovereign power of the public authorities on the resources of persons coming under their fiscal jurisdiction. That charge is intended to be used, through public budgets, for services in the public interest. Such a charge, whether it relates to a sum of money or, as in the present case, to tangible property, does not result in any performance on the part of the public authority or, therefore, in any corresponding performance on the [35] Consequently, there is no legal relationship entailing reciprocal performance, within the meaning of the Court’s case-law cited in paragraph 31 of this judgment.
[36] As such, a transaction providing property in lieu of payment, the purpose of which is to discharge a tax debt, cannot be considered to be a transaction effected for consideration within the meaning of Article 2(1)(a) of the VAT Directive, and cannot be subject to VAT." (Posnania Investment C-36/16)
Link to use/benefit of supply
- Sums payable independent of actual use not consideration for actual use
"[34] Next, it should be noted that the subsidy and the subsidised activity are organised on the basis of the law. The grant of the subsidy, which is intended to finance, generally, the activities of the national public provider, consisting in preparing, producing and broadcasting national and regional programmes, and which is determined by reference to a flat rate per programme hour, is independent of the actual use, by the viewers, of the audiovisual media services provided, of the identity or of the actual number of viewers for each programme." (Balgarska C-21/20)
[25] Moreover, the obligation to pay the radio fee does not stem from the provision of a service of which it constitutes direct consideration, since that obligation is linked not to the use of the public broadcasting service provided by Český rozhlas by the persons subject to that obligation but solely to the possession of a radio receiver, whatever the use that is made of it.
[26] Consequently, persons possessing a radio receiver are obliged to pay that fee, even if they use that receiver solely to listen to radio programmes transmitted by broadcasters other than Český rozhlas, such as commercial radio programmes financed by sources other than that fee, for listening to CDs or other digital media, or even for other functions generally available on that equipment enabling them to receive and reproduce transmissions." (Český rozhlas C-11/15)
Such sums might be consideration for the right to use/benefit - see below (that was not the case in Balgarska)
- Mandatory charges payable independent of benefit received (if any) not consideration
"[14] It is apparent from the order for reference that the development council' s functions relate to the common interests of the growers. In so far as the development council is a provider of services, the benefits deriving from those services accrue to the whole industry. If individual apple and pear growers receive benefits, they derive them indirectly from those accruing generally to the industry as a whole. In that connection, it must be stated that the possibility cannot be ruled out that, in certain circumstances, only apple growers or else only pear growers can derive benefit from the exercise of specific activities by the development council.
[15] Moreover, no relationship exists between the level of the benefits which individual growers obtain from the services provided by the development council and the amount of the mandatory charges which they are obliged to pay under the 1980 order. The charges, which are imposed by virtue not of a contractual but of a statutory obligation, are always recoverable from each individual grower as a debt due to the development council, whether or not a given service of the development council confers a benefit upon him.
[16] It follows that mandatory charges of the kind imposed on the growers in this case do not constitute consideration having a direct link with the benefits accruing to individual growers as a result of the exercise of the development council' s functions . In those circumstances, the exercise of those functions does not therefore constitute a supply of services effected for consideration within the meaning of article 2 ( 1 ) of the sixth directive." (Apple and Pear Development Council C-102/86)
- Absence of any consensual element may point against sum being consideration
"[41] On the other hand were the factors which persuaded the Advocate General, and subsequently the Court, that there was no supply for a consideration. The Council was set up in the interests of the relevant industry as a whole and in the interests of the 30 community as a whole. The purpose of the charge was to enable the Council to meet administrative and other costs to be incurred in the exercise of statutory functions which the Council was statutorily obliged to exercise. Although the fact that the levy was obligatory might not have been conclusive against it being consideration, the absence of any consensual element in the payment and the lack of control by 35 individual growers over what the Council did for them were pointers to the levy not being in any real sense a payment for particular services." (South African Tourist Board v. HMRC [2014] UKUT 280 (TCC), Rose J)
- Sums payable by government to broadcaster irrespective of number of users not third party consideration for actual use by viewers
"[37] In the present case, there is no relationship between the State, which pays a subsidy from its budget in order to finance audiovisual media services, and the viewers, who benefit from those services, which would be analogous to that between a sickness fund and its insured. As has been noted in paragraph 33 of the present judgment, those services do not benefit persons who are likely to be clearly identified, but all potential viewers. In addition, the amount of the subsidy in question is determined by reference to a flat rate per programme hour, and without taking into account the identity or the number of users of the service provided." (Balgarska C-21/20)
- Payment that is inversely linked to use of public transport system not consideration for use by members of the public
"[39] As the Advocate General observed in points 52 and 56 of her Opinion, there was, in that case, a direct link between the healthcare services provided to the residents of the residential care home for the elderly and the financial consideration paid to that establishment, determined on the basis of the care received and the number of residents concerned. In the present case, collective public transport services benefit not clearly identifiable individuals, but all potential passengers. In addition, the compensation is calculated without taking into account the identity and number of users of the service supplied." (PSA C-615/23)
- Yearly payment calculated by reference to expected use of healthcare services was consideration for care provided
"[18] According to the statements of the referring court, the detailed rules for calculating the ‘healthcare lump sum’ take account of the number of residents hosted by each home and their dependency level, which are assessed in accordance with the conditions set out in Articles R. 314-170 and R. 314-171 of the Code de l’action sociale et des familles, and of historical coefficients which are determined at national level and updated each year on the basis of the average expenses of all RCHEs.
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[32] It is clear that the ‘healthcare lump sum’ at issue in the main proceedings paid by the national sickness insurance fund to the RCHEs is received by the latter as consideration for the care which they provide, in different forms, to their residents.
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[36] Finally, it is clear from the Court’s case-law that where, as in the main proceedings, the supply of services in question is characterised, inter alia, by the permanent availability of the service provider to supply, at the appropriate time, the healthcare services required by the residents, it is not necessary, in order to recognise that there is a direct link between that service and the consideration received, to establish that a payment relates to a personalised supply of healthcare at a specific time carried out at the request of a resident (see, to that effect, Kennemer Golf EU:C:2002:200, paragraph 40).
[37] Accordingly, the fact, in the main proceedings, that the healthcare provided to residents is neither defined in advance nor personalised and that the payment is made in the form of a lump sum is also not such as to affect the direct link between the supply of services made and the consideration received, the amount of which is determined in advance on the basis of well-established criteria." (Le Rayon d’Or C-151/13)
Payment for ongoing services/availability to provide services
- No need for the services to be defined in advance nor personalised
"[38] At paragraph 40 of the judgment of Kennemer Golf (C‑174/00, EU:C:2002:200) and paragraph 36 of the judgment of Le Rayon d’Or (C‑151/13, EU:C:2014:185), the Court held, in essence, that where the supply of services in question is characterised, inter alia, by the permanent availability of the service provider in order to supply, at the appropriate time, the services required by the customer, it is not necessary, in order to find that there is a direct link between that service and the consideration received, to establish that a payment relates to a personalised supply of services at a specific time carried out at the request of a customer. In each of the cases which gave rise to those judgments, there was a supply of taxable services, to which the fixed sum related, irrespective of the number of services provided and received in each case, namely the number of rounds of golf played or the amount of care provided.
[39] The fact that the services provided are neither defined in advance nor personalised and that the payment is made in the form of a lump sum is also not such as to affect the direct link between the supply of services made and the consideration received, the amount of which is determined in advance on the basis of well-established criteria (judgment in Le Rayon d’Or, C‑151/13, EU:C:2014:185, paragraph 37)." (Asparuhovo Lake Investment C-463/14)
- Subscription service for consulting services to be available when required is supply for consideration
"[32] By its first question, the referring court asks, in essence, whether Article 24(1) and Article 25(b) of the VAT Directive must be interpreted as meaning that the term ‘supply of services’ includes subscription contracts for the supply of consulting services, in particular those of a legal, commercial or financial nature, under which a supplier has agreed to be available to the customer during the term of the contract and has undertaken to refrain from entering into contracts with a similar subject-matter with the customer’s competitors.
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[40] Those considerations are applicable to a subscription contract for consulting services, such as the contract at issue in the main proceedings — the legitimacy of which it is however for the national court to check —, in which the customer has undertaken to pay the remuneration agreed between the parties by way of fixed sums, irrespective of the quantity and nature of consulting services actually supplied during the period to which that remuneration relates." (Asparuhovo Lake Investment C-463/14)
- Payment for permanent and continuous management service did not need to be determined on the basis of individualised services
"[35] In that regard, it is apparent from the order for reference that, in the actual wording of those agreements, the RAA is required to pay to Saudaçor, ‘as consideration’ for the services in respect of the planning and management of the regional health service to be provided by it, compensation, called the ‘financial contribution’, the amount of which is stated in those agreements.
[36] In the light of the permanent and continuous nature of the planning and management services provided by Saudaçor, the fact that that compensation is determined not on the basis of individualised services but on a flat-rate and annual basis to cover the operating costs of that company is not in itself such as to affect the direct link between the supply of services made and the consideration received, the amount of which is determined in advance on the basis of well-established criteria (see, to that effect, judgment in Le Rayon d’Or, C‑151/13, EU:C:2014:185, paragraphs 36 and 37)." (Saudacor C-174/14)
"FREE" SUPPLIES
- Vouchers supplied with fuel were provided for free, as were goods on redemption
"[27] It is for the national court to inquire whether, at the time of purchasing the fuel, the customers and Kuwait Petroleum had agreed - through the dealers, as the case may be - that part of the price paid for the fuel, whether identifiable or not, would constitute the value given in return for the Q8 vouchers or the redemption goods. There is nothing, however, in the documents before the Court to suggest that there was in fact any such reciprocal performance by the parties concerned.
[28] As the Advocate General pointed out in point 43 of his Opinion, the sale of the fuel and the exchange of goods for vouchers are two separate transactions.
[29] Moreover, there are two considerations in the case in the main proceedings which suggest that the exchange of goods for Q8 vouchers is a disposal free of charge, within the meaning of Article 5(6) of the Sixth Directive, and that the application of those goods is therefore to be treated as a supply for consideration and, accordingly, taxable.
[30] First, under the sales promotion scheme set up by Kuwait Petroleum, the redemption goods were described as gifts.
[31] Second, it is not contested that the retail price of Q8 fuel, whether or not the purchaser accepted the vouchers, was the same, and this was the only price referred to on the invoice relating to the fuel purchase which, pursuant to Article 22(3) of the Sixth Directive, Kuwait Petroleum or the independent retailers had to issue to the customers who were themselves taxable persons. That being so, Kuwait Petroleum cannot reasonably maintain that, contrary to the statements on the invoices which it issued, the price paid by the purchasers of fuel in fact contained a component representing the value of the Q8 vouchers or of the redemption goods." (Kuwait Petroleum (GB) Ltd C-48/97)
- Clubcard points were supplied for free
"[174] Even stronger support for the Commissioners' case is, in my judgment, to be found in the court's decisions in Kuwait and Primback. In each of those cases the court considered it to be a highly material factor that a member of the scheme and a customer who is not a member paid exactly the same amount on purchasing premium goods (that is to say an amount equal to the full shelf-price of the goods) (see Kuwait para 31 and Primback para 42: quoted in paras 68 and 77 respectively above). The point is not that the two transactions (one by the member, the other by the non-member) have the same economic effect: rather, it is that the amount paid by the member when purchasing premium goods is exactly equal to the full shelf-price of those goods. Hence, to the extent that any part of what he paid is not consideration for those goods, he must have purchased them for less than their full shelf-price. The question, therefore, is whether, viewing the entire scheme objectively in accordance with the approach set out earlier, that is the effect of the scheme.
[175] The decision of this court in Hartwell (see paras 90 to 94 above) also provides clear support for the Commissioners' case.
[176] I agree with the judge that (viewing it objectively, in accordance with the approach set out earlier) the Clubcard scheme cannot be taken to have that effect. In the first place, there is nothing in the scheme documentation to support such an interpretation: the whole emphasis of the sample enrolment form and the leaflet referred to in Part 2 of this judgment is on the fact that 'points' are freely earned on the purchase of premium goods. Secondly, the economic purpose of the scheme is to encourage customers to make further purchases, thereby increasing customer loyalty. That seems to me to be a strong indication that the essence of the scheme – its 'cause', to use the Community term – is to enable its members to make future purchases (i.e. purchases of redemption goods) at preferential rates." (Tesco Plc v. HMRC [2003] EWCA Civ 1367, Jonathan Parker LJ)
- "Free" wine with meal deal was not provided for no consideration
"[101] In our view, the payment of £10 constituted consideration both for the three food items and also for the wine. There was a direct link between the provision of the wine and the payment of the £10. The wine would not be provided unless the customer paid £10 at the till. Furthermore, there was reciprocal performance between the customer and M&S. In a single simultaneous transaction, the customer paid £10 and M&S supplied the three food items and supplied the wine. This was not a case like Kuwait Petroleum where there were effectively two separate transactions which destroyed the reciprocity of performance between the parties (i.e. between the payment for the fuel and the supply of the reward goods): see paragraph 81 above. Indeed it was not possible for the customer to separate the transaction into two: he or she could not buy the three food items first, and then return later that day or the next day to claim the wine (see footnote 3 above)." (Marks and Spencer Plc v. HMRC [2019] UKUT 182 (TCC), Nugee J and Judge Brannan)
Irrelevant how many customers took up the free goods
"[105] In the end however we do not think the proportion of customers opting to take the wine is of any legal significance. The customer has a choice whether to take just the three food items, or the three food items and the wine (or non-alcoholic drink). For those who only take the food, they pay £10 and receive the food items; for those who take the wine, they pay £10 and receive the food items and the wine. The question is what the £10 is consideration for in the latter case, and it does not matter whether this happens in a minority of cases or (as is in fact the case) the vast majority of them." (Marks and Spencer Plc v. HMRC [2019] UKUT 182 (TCC), Nugee J and Judge Brannan)
- Consideration for supply may vary depending on whether other supplies taken up
"[106] The position is in some ways analogous (although the other side of the coin) to NCP. There some people pay £1.40 for an hour’s parking; some pay £1.50; and some may even pay £2. What each motorist pays is up to them, and the coins they happen to have available; but the question of what the consideration is in the case of the motorist who pays £1.50 does not turn at all on how common or unusual it is to pay £1.50. In the case of those who do, the consideration for an hour’s parking is £1.50, even though others have only paid £1.40. In other words the services supplied are the same but the consideration differs according to the particular transaction. In the present case, the consideration paid is always £10, but the 20 choice of goods supplied is up to the customer (and the availability of the wine). It does not matter how many or how few people do take the wine; the question is what the consideration is paid for in the case of those who do. In our view if the customer takes the wine as well as the food, the £10 is consideration for the wine as well as the food." (Marks and Spencer Plc v. HMRC [2019] UKUT 182 (TCC), Nugee J and Judge Brannan)
- No consideration for supply of credit to customer who pays the same price irrespective of whether they use credit
"[42] It follows that, in the present case, the price agreed between the parties to the contract of sale and paid by the consumer was the same, irrespective of the means by which thepurchase of the goods was financed, with the result that Primback cannot reasonably argue that the price advertised in fact contained a component representing the value of the credit (see, by way of analogy, Case C-48/97 Kuwait Petroleum [1999] ECR I-2323, paragraph 31).
[43] It follows that, from the point of view of the final consumer, the transaction which, in this case, he concludes with Primback is to be seen as a single transaction consisting in the sale of goods, by reason of the fact that the retailer supplies goods to his customers in return for payment of a single price advertised by the seller, invoiced to the purchaser and payable by him, but also offers at the same time the possibility of credit described as credit free of interest or other costs to the consumer. That being so, the credit which Primback claims to have afforded the customer cannot be regarded as a transaction effected for consideration within the meaning of Article 2 of the Sixth Directive." (Primback Ltd C-34/99)
- "Free" banking services were provided in return for deposit by customer
"[45] Mr Prosser contends that in any event there was no supply of banking services for VAT purposes because those services were not supplied for a consideration, but this argument is not open on the facts because the FTT found that the interest rate must in effect have contained some deduction for those services. The FTT held as a matter of fact that, when IDUK told customers "no fees, no exceptions" it was simply saying that there were no express fees. In fact the business was successful and so one would infer that IDUK must have been able, despite the expenses arising from the business, to offer a competitive rate.
[46] In the FTT, Judge Mosedale held that the contract was one of barter. The bank provided the banking facilities and interest payments in exchange for the making of the loan. There was certainly consideration and all the contract meant when it said there were no fees was that there were no express fees. The provision by the customer of the loan was the consideration for both the payment of interest and the provision of the banking services.
...
[50] There cannot be any argument in these circumstances but that, the FTT having found that there was a link between the making of the deposits and the banking services, the requirement for a direct link was also satisfied." (ING Intermediate Holdings Limited v. HMRC [2017] EWC Civ 2111, Arden, Kitchin, Floyd LJJ)
SUBSIDIES
- Subsidy may constitute the only consideration for supply
"[34] Accordingly, ‘subsidies directly linked to the price’ for the purposes of Article 11A(1)(a) of the Sixth Directive include only subsidies which constitute the whole or part of the consideration for a supply of goods or services and which are paid by a third party to the seller or supplier (judgment of 15 July 2004, Commission v Germany, C‑144/02, EU:C:2004:444, paragraph 31 and the case-law cited)." (C C-573/18)
"[20] KNW argues that the sum of GBP 10 awarded by the EAGA in respect of each piece of energy advice constitutes a subsidy, but one which is not directly linked to the price of the supply because the amount in practice always corresponds to the ceiling set for it. Furthermore, since the supply of energy advice to consumers is free, the grant is in fact in the nature of a flat-rate subsidy to the operating costs of KNW and is not directly linked to any cost. Accordingly, the grant does not form part of the consideration for the supply within the meaning of Article 11A(1)(a) of the Sixth Directive.
...
"[24] In that context, the sum paid by a public authority such as the EAGA to an economic operator such as KNW in connection with the service of energy advice supplied by KNW to certain categories of householders may constitute a subsidy within the meaning of Article 11A(1)(a) of the Sixth Directive.
[25] In any event it must be noted that the taxable amount in respect of a supply of services is everything which makes up the consideration for the service (see, inter alia, Tolsma, cited above, paragraph 13).
[26] It is clear that the sum paid by the EAGA to KNW is received by the latter in consideration for the service supplied by it to certain categories of recipient.
[27] As consideration in respect of a supply, that sum forms part of the taxable amount within the meaning of Article 11A(1)(a) of the Sixth Directive." (Keeping Newcastle Warm Limited C-353/00)
DONATIONS AND FUNDING
- To be directly linked must be paid specifically to the operator to enable it to supply particular goods/services
"[24] In accordance with its terms, that provision applies where the subsidy is directly linked to the price of the supply in question. For that to be the case, the subsidy must first be paid specifically to the subsidised operator to enable it to supply particular goods or services. Only in that case can the subsidy be regarded as consideration for the supply of goods or services and therefore be taxable (see, by analogy, judgment of 9 October 2019, C and C(VAT and agricultural subsidies), C‑573/18 and C‑574/18, EU:C:2019:847, paragraph 31 and the case-law cited)." (PSA C-615/23)
"[31] In accordance with its terms, that provision applies where the subsidy is directly linked to the price of the transaction in question. For that to be the case, the subsidy must first be paid specifically to the subsidised operator to enable it to supply particular goods or services. Only in that case can the subsidy be regarded as consideration for the supply of goods or services and therefore be taxable (judgment of 15 July 2004, Commission v Germany, C‑144/02, EU:C:2004:444, paragraphs 27 and 28)." (C C-573/18)
"[12] However, the mere fact that a subsidy may affect the price of the goods or services supplied by the subsidised body is not enough to make that subsidy taxable. For the subsidy to be directly linked to the price of such supplies, within the meaning of Article 11A of the Sixth Directive, it is also necessary, as the Commission has rightly pointed out, that it be paid specifically to the subsidised body to enable it to provide particular goods or services. Only in that case can the subsidy be regarded as consideration for the supply of goods or services, and therefore be taxable." (Office des produits wallons ASBL C-184/00)
See further D3. Amount liable to VAT
- Donations to busker not consideration
"[30] Thus, the judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80), concerned a musician who performed in public and received donations from passers-by. In that regard, the Court found, in paragraphs 16 and 17 of that judgment, that that income did not constitute consideration for a service supplied to passers-by since, first, there was no agreement between the parties, since the passers-by voluntarily made a donation, whose amount they determined as they wished, and that, secondly, there was no necessary link between the musical service and the payments to which it gave rise." (Zlakov C-744/23)
"[17] Firstly, there is no agreement between the parties, since the passers-by voluntarily make a donation, whose amount they determine as they wish. Secondly, there is no necessary link between the musical service and the payments to which it gives rise. The passers-by do not request music to be played for them; moreover, they pay sums which depend not on the musical service but on subjective motives which may bring feelings of sympathy into play. Indeed some persons place money, sometimes a considerable sum, in the musician' s collecting tin without lingering, whereas others listen to the music for some time without making any donation at all.
[18] In addition, contrary to the arguments of the German and Netherlands Governments, the fact that the musician plays in public with a view to collecting money and actually receives certain sums in so doing is of no relevance for the purpose of determining whether the activity in question constitutes a supply of services for consideration within the meaning of the Sixth Directive.
[19] That interpretation is not affected by the fact that a musician such as Mr Tolsma solicits money and can in fact expect to receive money by playing music on the public highway. The payments are entirely voluntary and uncertain and the amount is practically impossible to determine." (Tolsma C-16/93)
- Donation to charity for its general purposes or a specific purpose not consideration
"[43] It is also necessary to consider whether there is a direct link between the execution of the building works and the donation. I will do so in stages. If an individual or unassociated charity makes a donation to another charity for its general purposes the implementation of those general purposes could not be a supply of services for consideration in the form of the donation. If authority were needed for such an obvious proposition it is to be found in Staatssecretaris van Financiën v Cooperatieve Aardappelenbewaarplaats GA [1981] ECR 445 and Apple and Pear Development Council v Customs and Excise [1988] STC 221. In my judgment it makes no difference if the donation is for a specific purpose of the charity. In such a case there is no supply of services or consideration "for" that supply. Then let it be assumed that there is some relationship between the donor and the recipient charity. Of itself that cannot provide the necessary link between the supply consisting of the execution of the specific purpose and the donation. This proposition is also demonstrated by the same two cases." (Church Schools Foundation v. CEC [2001] EWCA Civ 1745)
- Provision of funds to allow recipient carry out repairs was funding with condition rather than a supply of the repair work for consideration
"[41] The jurisprudence of the European Court of Justice has developed the concept of "for" in the cases to which I have referred. Initially what was required was a direct link between the supply of services and the alleged consideration. See Staatssecretaris van Financiën v Cooperatieve Aardappelenbewaarplaats GA [1981] ECR 445, Naturally Yours Cosmetics Ltd v Customs and Excise [1988] STC 879 and Apple and Pear Development Council v Customs and Excise [1988] STC 221. The direct link was further developed by reference to the facts of Tolsma into a legal relationship between the supplier of the service and the payor of the consideration pursuant to which there is reciprocal performance. See Tolsma v Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509 and Customs and Excise v First National Bank of Chicago [1998] STC 509. This development is recognized in the opinion of the Advocate General in Town and County Factors Ltd v Customs and Excise (case C-498/99), an opinion which both parties invited us to adopt. But in each case the formula applied by the Court was in explanation of, not substitution for, the requirement that the supply must be "for" consideration. For example a loan facility provided by a bank to a property company for use on a specific development gives rise to both a legal relationship, debtor/creditor, and reciprocal performance, drawdown/application. There is a direct link between the carrying out of the development and the drawdown of the loan. But the development is not a supply of services "for" the loan; rather it is effected "with" the loan. It is not a quid pro quo but a quid cum quo. It is appropriate to apply both tests to the facts of this case to see if either of them is satisfied.
...
[46] In my view the reality is, as the Tribunal found, that the Foundation improved its properties, or acquired more, with finance provided from a number of sources of which the Company's donations was but one. That source of finance was no more consideration for the works or acquisitions than any of the other sources. The interposition of the leases certainly provided for the payment of consideration for the improvements or acquisitions by means of the rent review. In my judgment the leases could not and did not alter the nature or effect of either the works or the donations so as to give rise to a supply of the former "for" a consideration comprising the latter.
[47] If Customs were right it would be necessary to accommodate a number of anomalies. First, there was no lease of the Caterham School to the Company, yet it is plain that the donations provided part of the finance for all the projects including the acquisition of the properties associated with the Caterham School. Second, insofar as the donations provided some of the finance for all the projects they financed the acquisition of property, namely, the playing fields and assets of the Northcliffe School. Donations made before such acquisition were no different to any donation made to a charity for its general or a specific purpose. Donations made after such acquisition could not have been consideration for the acquisition. In those cases the benefit received by the Company was paid for in the form of rent under the lease which followed. Third, there is the disparity between the sums spent on all the works, £25m, and the aggregate amount of the donations, £4.8m. If the supply of the services was that for which Customs contends then the amount of the consideration ought to include the remaining £20.2m. By contrast if it is appropriate to tax only the donations then they ought to be attributable to the relevant supply. But, as the Tribunal held (paragraph 4), the donations were not paid for anything in particular." (Church Schools Foundation v. CEC [2001] EWCA Civ 1745)
- Donation is consideration where benefits are contractual
"[56] Church Schools Foundation was a case in which donations were made by a wholly owned company to its founding charity, which were in part used to improve property occupied by the company. HMRC said the donations to the charity were consideration for a supply of building works to the company. The Court of Appeal ruled against HMRC. As Sir Andrew Moritt VC said, making donations for general or specific purposes of a charity is not payment for a supply. There is no supply even where there is an indirect benefit to the donor. This case has no relevance here where the Benefits were contractual." (The Serpentine Trust Ltd v. HMRC [2014] UKFTT 876 (TC), Judge Mosedale)
- Distinguish funding/gifts with a stipulation allowing donor to check what donation was used for
"[55] ... It is still important to distinguish between the supply of services ‘for consideration’ on the one hand and a situation where government funding is provided to a body in order for it to perform its function but where the services are not provided to the funder in return for that consideration on the other hand. That is the distinction which was at the heart of the Apple and Pear decision and which is at the heart of this case. Further, we agree with the FTT that the setting of performance targets and the fact that the continuation of some or all of the funding is dependent on the body meeting set targets is no longer the exclusive preserve of commercial contracts for the supply of services: see paras 89 and 257 of the decision. Many governments seek to import those concepts from the private sector into the public sector in order to improve the efficiency and accountability of public sector bodies." (South African Tourist Board v. HMRC [2014] UKUT 280 (TCC), Rose J)
"[65] Factually, Church of England was much more similar to this case, but still significantly different. Objectively, the newsletter in that case was intended to enable donors to check what their donation was used for: there was no benefit to them in receiving the newsletter. Objectively, the newsletter was not ‘for’ the donation but simply a stipulation of the gift.
...
[77] Objectively (and subjectively) I find that the benefits had very real value to the supporters, and the value was likely to exceed the cost of providing the benefits. Unlike Church of England Children’s Society, this was not a gift with a stipulation which permitted donors to check what their donation was used for; this was a payment in return for very real benefits to the ‘donors’. The appellant has not satisfied me that the payments were not ‘for’ the Benefits. That conclusion ends the appellant’s first case." (The Serpentine Trust Ltd v. HMRC [2014] UKFTT 876 (TC), Judge Mosedale)
- Is there a relationship of mutual exchange?
"[56] In our judgment, on its own the performance agreement falls far short of demonstrating the degree and nature of reciprocity required to constitute the payments made by the department to SATB as consideration for supplies by SATB. There is a link between the funding and the performance by SATB of its functions in accordance with the agreed business plan and objectives, but that is consistent with an arrangement of negotiated funding. There is nothing in the agreement to deflect away from that analysis towards a transaction of supply. The linkage is not one of mutual exchange of supply and consideration for that supply." (South African Tourist Board v. HMRC [2014] UKUT 280 (TCC), Rose J)
- Difference between agreeing value for the purpose of funding it v. agreeing value for purposes of consideration
"[59] ... The performance agreement operates not to record the supply of services by SATB for a consideration, but to crystallise the funding at the level to support the detailed programme of activities. Ms Hall argued that reciprocity in terms of subjective agreement as to the value of the services was the material factor.We agree that is a relevant factor, but there is a difference between agreeing the value of something for the purpose of providing the appropriate level of funding to enable that thing to be carried out, and agreeing the value of a service for the purpose of paying for that service. The mere act of agreeing a value is not therefore decisive of the required mutuality. In this case the negotiation and agreement as to value was a function of the oversight of the arrangements by a funder, and not to provide a monetary exchange for a service provided." (South African Tourist Board v. HMRC [2014] UKUT 280 (TCC), Rose J)
- Benefit received as incidental outcome of performing statutory duty v. directly in return for payment
""[60] The fact that the South African government received a benefit from the activities of SATB is relevant, but again not decisive. Although the government received something of value to it, that value was received as an incidental outcome of the ability of SATB to perform its statutory duties by virtue of the funding it had received. There was no relevant reciprocity and accordingly no direct link between the payment and the value received by the government" (South African Tourist Board v. HMRC [2014] UKUT 280 (TCC), Rose J)
- Sufficient reciprocity for grant to be treated as consideration for project
"[68] It is clear from both the evidence and the Appellant’s own submissions that the Appellant would not have committed itself to certain projects without a clear statement of intent and financial support from the funder. That does not necessarily mean that payments were made in consideration of a proposed supply. Furthermore, whether or not a legal relationship existed and whether or not the funder was to benefit from the services are only issues to be taken into consideration. Nonetheless, it could not be said that the services were undertaken only ‘with a view’ to receiving payment in return. There was some reciprocity which clearly indicated a direct link between the service provided and the consideration expected. The question, taking into account the structure of the arrangements and services undertaken, is whether the constituents of reciprocal performance were exchanged from which to determine a clear direct link between them. It is not necessary to attribute a particular payment to a particular service as long as there is a link between the level of benefit provided and the payments received (Church Schools Foundation Ltd v Commissions of Customs and Excise 2001). However, on the basis of the evidence, it is clear that there was a direct correlation between the services undertaken and the level of funding. The Tribunal does not accept that the agreement by the funders to make payments and agreement by the Appellant to supply services existed entirely unconnected with each other." (Hope in the Community Ltd v. HMRC [2012] UKFTT 499 (TC), Judge Connell)
[59] "In all the circumstances we find that the Trust is supplying services to B&NES and that the payments made by B&NES are consideration for those service and not he payment of a grant. For this reason the payments made are within the scope of VAT and we allow this appeal." (Bath festivals Trust Ltd v. HMRC [2008] UKVAT V20840, Judge Gort)
- Donation was not consideration for newsletter
"[47] From these authorities we derive the principles that: there must be a direct link between the supply and the consideration received; that the consideration is what is actually received and not an objective value; that there must be a legal relationship between the supplier and the recipient pursuant to which there is reciprocal performance; that the remuneration received by the supplier must constitute the value actually given in return for the supply to the recipient; and that it is for the national court to enquire whether the parties agreed, at the time of the supply, that the price or part of it constituted the value given in return for the supply.
[48] In applying those principles to the facts of the present appeal we record that there was little argument about the direct link and the legal relationship. The arguments of the parties centred round the nature of the transaction in this appeal and the question as to whether the £5 each month constituted the value given in return for the supply of the newsletters...
[49] As directed by the Court of Justice in Kuwait we have to inquire whether, at the time that the committed giver signed the direct debit form, he and the Appellant agreed that the amount of the donation constituted value given in return for the newsletters. We therefore examine the nature of the transaction and the documentary evidence. We accept that regard has to be had to the objective nature of the transaction and that the main activity of the person making the supply does not determine the categorisation of all its supplies.
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[51] Having examined the evidence objectively we find that, at the time of the signature of the direct debit form, neither the Appellant nor the donor agreed that a donation of £5 each month constituted value given in return for the newsletters; the transaction was that the donation was a gift to the Appellant to be used in its chartable work and that the Appellant would send the giver the free newsletters." (Church of England Children's Society v. CEC [2004] UK V18633, Judge Brice)
- Donation giving rise to benefits that were more than de minimis was "for" those benefits
"[76] In conclusion, the appellant has failed to satisfy me that the benefits it provided to its supporters in exchange for the specified payments were objectively (or subjectively) de minimis by themselves or measured against the price paid by the relevant supporter, and further and for the same reasons I am not satisfied objectively (or subjectively) that the price was not paid ‘for’ the benefits." (The Serpentine Trust Ltd v. HMRC [2014] UKFTT 876 (TC), Judge Mosedale)
OTHER VOLUNTARY SUMS
- Direct link broken where remuneration is awarded in a voluntary or uncertain way making it practically impossible to determine amount
"[24] By contrast, the direct link between the supply of services and the consideration is broken when the remuneration is awarded in a voluntary and uncertain way so that its amount is practically impossible to determine or where its amount is difficult to quantify or the circumstances relating to its calculation are uncertain (judgment of 21 December 2023, Administration de l’enregistrement, des domaines et de la TVA (VAT – Member of a board of directors), C‑288/22, EU:C:2023:1024, paragraph 36 and the case-law cited)." (Zlakov C-744/23)
CONTINGENT SUMS
- Success fee is consideration because it is for the service (not the result), even if contingent
"[28] Furthermore, the finding in paragraph 26 of the present judgment is not called into question by the uncertainty concerning the payment of lawyers’ fees due to the absence of any guarantee as to the success of the legal proceedings and, consequently, as to an order that the opposing party must pay those fees.
...
[33] Although, in the dispute in the main proceedings, the payment of the lawyer’s fees is subject to a risk depending on the outcome of the trial, those fees represent, however, effective consideration for the service consisting of the representation of the client in court." (Zlakov C-744/23)
Query effect on economic activity analysis (income on a continuing basis)
"[46] ... However, for that continuing basis to subsist, it is important that, where the percentage fees are paid on the basis of the profits achieved by the company concerned, percentage fees may also be paid to members of the board of directors for business years in which the company did not achieve a profit." (TP C-288/22)
See E2. Economic activity in general
- Prize money is not consideration because it is for the result, not a service of participating
"[31] The judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855), concerned, among other things, the question of whether the provision of a horse by a taxable person to a horse race organiser to have that horse participate in that race constituted a supply of services for consideration.
[32] In that regard, the Court found, in paragraphs 35 and 37 of that judgment, that, in principle, such provision cannot be regarded as effective consideration for the service supplied by the race organiser and consisting in enabling that owner to have his horse participate in the horse race, where that service is remunerated by the payment, by the owner of the horse, of entrance and declaration fees reflecting the value actually given in return for the participation in the race and that any benefit, which the owner of the horse could possibly derive from that participation as a result of the increase in the value of the horse in the event that it is placed or the publicity gained by the horse from that participation, is difficult to quantify and uncertain. Furthermore, prize money, if any, awarded due to the placing of the horse at the end of the race cannot be regarded either as effective consideration for the provision of the horse since it is not that provision by the owner of the horse to the horse race organiser which, as such, leads to payment of prize money, but the achievement of a certain result at the end of the race." (Zlakov C-744/23)
- Training horses in return for a right to 50% of any winnings is a supply for consideration
"[49] Indeed, the consideration for all the services provided by the applicant in the main proceedings was constituted by this assignment, irrespective of whether or not it resulted in winnings from a prize at a given competition. The owners of the horses thus remunerated all the services provided by the applicant in the main proceedings by means of that assignment, which enabled him to benefit from 50% of the claim corresponding to any winnings from prizes obtained. Therefore, the existence of the aforementioned direct link is not affected by the fact that the applicant, as a rider, did not succeed in having a horse win or in placing it in a useful position at a given competition (see, to that effect, judgment of 22 November 2018, MEO – Serviços de Comunicações e Multimédia, C-295/17, EU:C:2018:942, paragraph 40 and the case law cited therein).
[50] From this perspective, the assignment provided for in the aforementioned contracts constitutes remuneration determined in advance and according to well-established criteria, guaranteeing the applicant in the main proceedings predictability of the amount to which he would be entitled in the event of a victory or a useful placing of the horse in a competition, without the actual occurrence of such an event being decisive in this respect (see, to that effect, judgment of 15 April 2021, Administration de l'Enregistrement, des Domaines et de la VAT, C-846/19, EU:C:2021:277, paragraph 44 and the case law cited therein), notwithstanding the fact that the actual implementation of this assignment depends on that placing. Consequently, this method of determining the remuneration is not such as to affect the direct link between the services performed by the applicant in the main proceedings and the remuneration received by him." (HAS C-713/21)
METHOD OF DETERMINING AMOUNT OF CONSIDERATION
- Need not be determined on the basis of individualised services: annual flat rate sufficient
"[38] In that regard, a direct link between the remuneration and the activity appears to be established where remuneration in the form of a lump sum is determined in advance. The fact that compensation is determined not on the basis of individualised services, but at a flat rate and annually would not in itself be such as to affect the direct link between the supply of services made and the consideration received (judgments of 22 February 2018, Nagyszénás Településszolgáltatási Nonprofit Kft., C‑182/17, EU:C:2018:91, paragraph 37, and of 13 June 2019, IO (VAT – Activities of a member of a supervisory board), C‑420/18, EU:C:2019:490, point 25)." (TP C-288/22)
"[37] If that fact were to be confirmed, it would follow that the fact that that compensation was determined, as the case may be, not on the basis of individualised services but at a flat rate and annually, so as to cover the operating costs of that company, would not in itself be such as to affect the direct link between the supply of services made and the consideration received (judgment of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 36)." (Nagyszénás Településszolgáltatási Nonprofit C-182/17)
- Amount to be determined in advance or the procedures for fixing it are foreseeable
"[34] That being said, the fact that the price paid for an economic transaction is higher or lower than the cost price and, therefore, a price higher or lower than the open market value, is irrelevant for the purpose of establishing whether it was a transaction effected ‘for consideration’. That circumstance is not such as to affect the direct link between the services supplied or to be supplied and the consideration received or to be received, the amount of which is determined in advance and according to well-established criteria (see, to that effect, judgments of 12 May 2016, Gemeente Borsele and Staatssecretaris van Financiën, C‑520/14, EU:C:2016:334, paragraph 26 and the case-law cited, and of 15 April 2021, Administration de l’Enregistrement, des Domaines et de la TVA, C‑846/19, EU:C:2021:277, paragraph 43).
[35] In addition, the remuneration may be fixed as the person supplying the services in question deploys his or her activities, provided that the procedures for fixing that amount are foreseeable and capable of ensuring that the person supplying services receives, in principle, payment for the services that he or she provides (see, to that effect, judgment of 15 April 2021, Administration de l’Enregistrement, des Domaines et de la TVA, C‑846/19, EU:C:2021:277, paragraph 44)." (TP C-288/22)
- Possibility of adjustment does not break direct link
"[38] The direct nature of that link could not be called into question by the fact, assuming it were to be established, that the contract at issue contained clauses allowing, in certain circumstances, the amount of compensation to be adjusted; nor by the fact that that amount was fixed at a level lower than the open market value, provided that the amount of compensation was determined in advance on the basis of well-established criteria which ensured that it was sufficient to cover the operating costs of NTN (see, to that effect, judgments of 29 October 2015, Saudaçor, C‑174/14, EU:C:2015:733, paragraph 38, and of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraphs 45 and 46)." (Nagyszénás Településszolgáltatási Nonprofit C-182/17)
"[37] The existence of that direct link also does not appear to be called into question by the fact that the programme agreements concluded between Saudaçor and the RAA contain clauses which stipulate that the amount of compensation payable to Saudaçor may be adjusted where, because of a change of circumstances, that amount is manifestly insufficient to allow for the performance of those agreements.
[38] In so far as those clauses seek to determine in advance the level of that compensation on the basis of well-established criteria which ensure that that level is sufficient to cover the operating costs of Saudaçor, it may be held that those clauses are designed to adapt the amount of the flat-rate consideration for the services provided on a continuous and permanent basis by that company. In addition, whilst, as is apparent from the order for reference, for 2009, the annual compensation initially provided for was reduced by the RAA, the Portuguese Government explained at the hearing, without being contradicted by Saudaçor, that the sole purpose of that reduction was to correct a manifest calculation error." (Saudacor C-174/14)
- Possibly no direct link where sum depends on recipient's income rather than the services supplied
"[48] Although this part payment represents a portion of the fees, its amount is not calculated solely on the basis of those fees, but also depends upon the recipient’s income and assets. Thus, it is the level of the latter – and not, for example, the number of hours worked by the public offices or the complexity of the case concerned – which determines the portion of the fees for which the recipient remains responsible.
[49] It follows that the part payment made to the public offices by recipients of legal aid services depends only in part on the actual value of the services provided – the more modest the recipient’s income and assets, the less strong the link with that value will be.
...
[51] Therefore, in light of the foregoing, it does not appear that the link between the legal aid services provided by public offices and the payment to be made by the recipients is sufficiently direct for that payment to be regarded as consideration for those services and, accordingly, for those services to be regarded as economic activities for the purposes of Article 2(1) and Article 4(1) and (2) of the Sixth Directive." (Commission v. Finland C-246/08)
However, Finland has been explained as a case about economic activity
"[38] The English version of [51], if read alone, is capable of causing some confusion but, with the clarification supplied by the court in Borsele and reference to the French version, it can be seen that the court was directing itself to the question of economic activity under article 4 and not to the question of the supply of services for consideration under article 2. Reference is made to article 2, as well as to article 4, because the words "by a taxable person acting as such" in article 2 brings in the definition of "taxable person" contained in article 4 which is, of course, dependent on a finding of "economic activity".
[39] The court's conclusion in Finland was therefore that, while there was a supply of legal aid services for consideration to those recipients who made payments for them for the purposes of article 2, the supply did not constitute economic activity for the purposes of article 4 of the Sixth Directive." (Wakefield College v. HMRC [2018] EWCA Civ 952, David Richards, Patten, Moylan LJJ)
"[45] So far as concerns the determination of whether the supply of a service is effected for consideration as it must be in order to be chargeable to tax in accordance with Article 2(1)(c) of the VAT Directive, it is true that the Court stated unambiguously in the judgment in Hotel Scandic Gåsabäck that the supply of a service or the supply of goods is also effected ‘for consideration’ within the meaning of Article 2(1) of the VAT Directive where a price lower than the cost price is charged. ( 24 ) Moreover, there is no reason not to subject to VAT sales at below cost price which, in certain circumstances, are necessary and reasonable in business. Nor is pricing which is in some way based on the income or assets of a customer, such as, for example, the discounts which businesses offer for students or pensioners, eligible for exemption from VAT.
...
[49] When, in the judgment in Commission v Finland, the Court refers to ‘remuneration’ in the context of Article 9(1) of the VAT Directive, it specifically does not have in mind the exact same concept as when, in the judgment in Hotel Scandic Gåsabäck, it interprets the term ‘consideration’ as used in Article 2(1) of the VAT Directive. Even though the same outcomes may often be expected, a strict separation must be observed between the determination of any consideration for the purposes of Article 2 of the VAT Directive, on the one hand, and the question of whether any income is obtained that falls to be examined in the context of Article 9 of that directive, on the other. This also settles the issue of the alleged contradictions in the Court’s case-law." (Gemeente Borsele C-520/14, AG Kokott)
Gemeente Borsele
"[25] In the present case, it must be noted that the parental contribution to the transport costs is not calculated on the basis of the actual costs of the services provided. The amount of the parental contribution is not linked to the number of kilometres travelled per day, the cost price per journey for each pupil transported, or the frequency of the journeys.
[26] However, the fact that the price paid for an economic transaction is higher or lower than the cost price is irrelevant to the question whether a transaction is to be regarded as a ‘transaction effected for consideration’. The latter concept requires only that there be a direct link between the supply of goods or the provision of services and the consideration actually received by the taxable person (see, to that effect, judgments of 8 March 1988 in Apple and Pear Development Council, 102/86, EU:C:1988:120, paragraph 12, and 20 January 2005 in Hotel Scandic Gåsabäck, C‑412/03, EU:C:2005:47, paragraph 22).
[27] Accordingly, the fact that approximately one third of the parents in question pay a contribution towards school transport permits the inference that the municipality of Borsele supplied services for consideration for the purposes of Article 2(1)(c) of the VAT Directive." (Gemeente Borsele C-520/14)
- Simple reimbursement of costs incurred in looking after payer's horses not remuneration
"[43] ... Indeed, assuming, as it is for the referring court to determine, that the payment by the horse owners of the costs of maintenance, participation in competitions, transport, shoeing, and veterinary care constitutes a simple reimbursement of the expenses incurred by the applicant in the main proceedings in the operation of his stable, such reimbursement would not constitute remuneration for those services provided by him." (HAS C-713/21)
RELEVANCE OF VALUE OF CONSIDERATION
- Need not bear any particular relation to the value of the supply
"[15] As will be seen, "consideration" in article 2 means only some value given to the supplier in return for the goods or services by the person to whom they are supplied. It is this amount on which VAT is payable. It need not be full value or indeed bear any particular relation to the value of the goods or services supplied...
...
[52] Whether there is a supply of goods or services for consideration for the purposes of article 2 and whether that supply constitutes economic activity within article 9 are separate questions. A supply for consideration is a necessary but not sufficient condition for an economic activity. It is therefore logically the first question to address. It requires a legal relationship between the supplier and the recipient, pursuant to which there is reciprocal performance whereby the goods or services are supplied in return for the consideration provided by the recipient: see, for example, the judgment in Borsele at [24]. That is what is meant by "a direct link" between the supply of the goods or services and the consideration provided by the recipient: see Borsele at [26] and contrast Apple and Pear Development Council v Customs and Excise Comrs. There is no need for the consideration to be equal in value to the goods or services. It is simply the price at which the goods or services are supplied. This requirement was satisfied in both Finland and Borsele.”" (Wakefield College v. HMRC [2018] EWCA Civ 952, David Richards LJ)
- Must be reasonable in relation to the service supplied
"[34] On that last point, it should be noted that, in order to be regarded as the value actually given in return for the service supplied, the remuneration must remain reasonable in relation to the service supplied in that it must not remunerate only part of the services supplied or to be supplied to the point of breaking the direct link between the services supplied and the consideration (see, to that effect, judgment of 2 June 2016, Lajvér, C‑263/15, EU:C:2016:392, paragraph 49)..." (TP C-288/22)
- Fee that only "partly remunerates" may no be consideration
"[51]...Article 24 of Directive 2006/112 must be interpreted as meaning that the operation of agricultural engineering works, such as those at issue in the main proceedings, constitutes a supply of services for consideration, on the ground that the services rendered are directly linked to the fee received or to be received, provided that that modest fee constitutes remuneration for the service supplied and notwithstanding the fact that performance of those services is a legal obligation. It will be for the referring court to determine whether the amount of the fee received or to be received, qua consideration, means that there exists a direct link between the services supplied or to be supplied and that consideration, and consequently allows those services to be classified as being effected for consideration. In particular, the referring court will have to ascertain that the fee which the applicants in the main proceedings are planning to charge does not only partly remunerate the services supplied or to be supplied and that its amount has not been determined as a result of other possible factors that could, depending on the circumstances, call into question the direct link between the services supplied and the consideration." (Lajvér C-263/15
- Irrelevant whether it is higher lower than cost or market value
"[34] That being said, the fact that the price paid for an economic transaction is higher or lower than the cost price and, therefore, a price higher or lower than the open market value, is irrelevant for the purpose of establishing whether it was a transaction effected ‘for consideration’. That circumstance is not such as to affect the direct link between the services supplied or to be supplied and the consideration received or to be received, the amount of which is determined in advance and according to well-established criteria (see, to that effect, judgments of 12 May 2016, Gemeente Borsele and Staatssecretaris van Financiën, C‑520/14, EU:C:2016:334, paragraph 26 and the case-law cited, and of 15 April 2021, Administration de l’Enregistrement, des Domaines et de la TVA, C‑846/19, EU:C:2021:277, paragraph 43)." (TP C-288/22)
"[45] As regards, in the first place, Apcoa’s argument that that amount is predetermined and has no real economic link with the value of the parking service supplied, it must be recalled that, according to settled case-law, with regard to the characterisation of a transaction as a transaction carried out for consideration within the meaning of Article 2(1)(c) of the VAT Directive, the amount of the consideration, in particular the fact that it is equal to, greater or less than the costs which the taxable person incurred in providing the service, is irrelevant. That fact is not such as to affect the direct link between the services supplied and the consideration received (judgment of 11 March 2020, San Domenico Vetraria, C‑94/19, EU:C:2020:193, paragraph 29 and the case-law cited)." (Apcoa Parking Danmark C-90/20)
"[27] It follows that, where consideration has been agreed and actually paid to the taxable person in direct exchange for the goods he has delivered or the service he has provided, that transaction must be classified as a transaction for consideration, regardless of whether it is effected between connected parties and the price agreed and actually paid is patently lower than the open market price. The taxable amount of such a transaction must, therefore, be determined in accordance with the general rule stated in Article 11A(1)(a) of the Sixth Directive." (Campsa Estaciones de Servicio C-285/10)
- Supply of meals to staff at below cost is for consideration
"[22] As the Advocate General rightly stated in point 35 of his Opinion, the fact that the price paid for an economic transaction is higher or lower than the cost price is irrelevant to the question whether a transaction is to be regarded as a ‘transaction effected for consideration’. The latter concept requires only that there be a direct link between the supply of goods or the provision of services and the consideration actually received by the taxable person (see, to that effect, Case 102/86 Apple and Pear Development Council [1988] ECR 1443, paragraph 12)." (Hotel Scandic C-412/03)
- Query whether a fee based on percentage of profits is sufficient
"[39] In the situation where TP’s remuneration took the form of percentage fees, the referring court will have to ascertain whether, in the light of the case-law cited in paragraphs 33 to 36 of the present judgment, where the public limited company concerned does not achieve a profit or achieves only a small amount of profit, the general meeting of shareholders of that company may nevertheless award TP, based on other factors, a percentage fee amount that may be regarded as being objectively in line with the service provided by TP." (TP C-288/22 - see also the question, noted above, as to whether this affects the existence of economic activity)
MULTIPLE SUPPLIES: WHICH SUPPLY CONSIDERATION IS FOR
- Important to identify what service(s) are actually provided
"[33] Finally, sporting activities and, in particular, participation in sporting competitions are likely to involve the provision of several distinct but closely intertwined services (Baštová judgment, paragraph 31 and case law cited).
[34] In the present case, in order to assess whether, in the main proceedings, there is a question of a supply of services carried out for consideration, within the meaning of Article 2(1)(c) of the VAT Directive, it is necessary to identify, first of all, the supply of services provided by the applicant in the main proceedings." (HAS C-713/21)
- There may be multiple supplies within the same transaction
"[107] The problem with this approach is that it does not exclude the possibility that there may, as a matter of economic reality, be two or more supplies within the same transaction. Mrs Whipple said that one must start with the economic reality, and I have no difficulty in accepting that. But what the economic reality is in a given case must surely be a question of fact for the domestic court. The statement that the Court makes in para 42 of its judgment that the economic reality is that the loyalty rewards are supplied by the redeemers to the customers is only part of the story. This is shown by the fact that the Court said in para 64 that it was for the referring court to determine whether the payments that LMUK makes to the redeemers were the consideration for two or more separate services. Presumably the test which it would have to apply, if it were to address this question, would be to consider the economic realities. If that is a question which it is proper to send back to the referring court, why is it not open to it to examine the question that the Court itself did not answer – whether it is possible, upon consideration of the economic realities, to identify two different supplies by the redeemers to two different recipients in the same transaction?"
Single sum paid for multiple supplies
- Apportion if relevant
"[27] Finally, as regards the case in which the various services are supplied in return for an overall remuneration, but some of them are exempt from VAT, as the principal supply is, while others are subject to VAT as independent supplies, it is necessary in such a case to apportion between the various services the service charges relating to them in order to determine the proportion of those charges subject to VAT and the proportion exempt from VAT." (Field Fisher Waterhouse LLP C-392/11)
- Only one correct method
"[31] Counsel for the taxpayer was concerned to emphasise that deciding how to apportion a unitary price charged by a supplier into two elements for the purpose of calculating VAT can involve an exercise of evaluative judgment, as to which differences of view can exist within a spectrum of what is reasonable. This is undoubtedly true. But it does not follow that there must be more than one method of apportionment which the supplier may lawfully use. Although that is a possible conclusion for a court or tribunal to reach, in most cases where such a question is raised the court or tribunal can be expected to exercise its own judgment as to which method should be used. There is good reason for this. In matters of taxation consistency of approach is of critical importance. If the same exercise of apportionment may lawfully be carried out in more than one way, the result is likely to be that different taxpayers whose situations are identical will lawfully pay different amounts of tax. That offends the principle of equal treatment. It is also capable of distorting competition between businesses." (K E Entertainments v. HMRC [2020] UKSC 28)
Multiple services, but only one is for consideration
- Parcel delivery firm supplies service to both end customer and the business dispatching the goods
"[66] I consider that Laws J reached the right conclusion for the right reasons, and that the tribunal and the Court of Appeal fell into error. They rightly held that the service which Plantiflor supplied to the customer did not include the actual delivery of the goods to the addressee. They rightly held that this service was supplied by Parcelforce, and that it was supplied to the customer. Their error lay in overlooking the facts that Parcelforce also supplied a service to Plantiflor, viz the service of delivering its customer's goods, for which Plantiflor had previously contracted, and that it was this supply which was made for the consideration which Parcelforce received. This led them into the further error of treating the sum paid by the customer to Plantiflor as consideration for the supply of the service of delivery by Parcelforce. It was not, for Parcelforce received its consideration from Plantiflor. The sum which the customer paid to Plantiflor was paid as consideration for the supply which Plantiflor made to the customer, viz of the service of arranging for delivery to be made by Parcelforce.
[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 would if Parcelforce were a private carrier be) a taxable supply.
(ii) The supply by Parcelforce to the customer of the service of delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and would not even if Parcelforce were a private carrier 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." (CEC v. Plantiflor Limited [2002] UKHL 33, Lord Millett with whom Lords Hobhouse and Scott agreed)
- Payment by loyalty points scheme operator to redeemer of points was consideration for supply to it of redemption services, not the supply of goods to the customer
"[85] As the Court of Appeal pointed out, if the provision of goods or services by redeemers were treated as a taxable supply to the collector (other than to the extent to which any monetary consideration might be paid by the collector), the tax authorities would receive not only VAT on the amount received by LMUK for supplying the right to receive those goods and services, but also VAT on the amount which LMUK must pay to satisfy that right. If, on the other hand, the consideration paid by LMUK to the redeemers is regarded as the consideration for the supply of a service to LMUK (a service which encompasses the provision of goods and services to collectors), the tax authorities will still receive VAT from LMUK on the difference between the value of the supplies which it makes in the course of its business (ie its receipts from the supply of the right to receive such goods and services) and the value of the supplies which it receives for the purposes of that business (ie the cost to LMUK of satisfying that right). The tax authorities will thus recover VAT on the value added by the taxable transactions entered into by LMUK, taking the issue and redemption of points as a whole. That conclusion is in accordance with the basic principle of VAT.
(HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
- But where retailer subcontracts operation and provision of rewards, the sum paid to subcontractor is partly consideration for supply of goods to customers
"[58] In Case C‑55/09, it is also evident from the order for reference that the loyalty rewards are invoiced by @1 to Baxi at the retail sale price with the addition of the delivery costs applicable at the order point where ownership is transferred and points are redeemed. Accordingly, after deduction of @1’s profit margin consisting of the difference between the retail sale price of the loyalty rewards and the purchase price at which @1 acquired those rewards, the payment by Baxi to @1 constitutes the consideration for the supply of those rewards.
...
Accordingly, as is, moreover, acknowledged by both the United Kingdom Government and the Commission, a payment such as that at issue in the main proceedings in Case C‑55/09 can be divided into two elements, each of which corresponds to a separate service.
63 Consequently, the purchase price constitutes the consideration for the supply of loyalty rewards to the customers, whereas the difference between the retail sale price, paid by Baxi, and the purchase price paid by @1 in order to acquire the loyalty rewards, namely the profit margin, constitutes the consideration for the services which @1 supplies to Baxi." (Baxi Group Ltd C-55/09)
"[50] The question whether there was also a supply of services to the promoter of the scheme was considered by the court principally in relation to the scheme with which the Baxi case was concerned. That scheme was of a different character from the Nectar scheme. It was an in-house scheme under which Baxi issued points to its own customers, which they could redeem in order to obtain rewards in the form of goods. The operation of the scheme had been subcontracted to an operator, @1, which purchased the rewards and supplied them to customers in return for points. Baxi paid @1 the retail sale price of the rewards. The court held that there was a supply of goods by @1 to the customers." (HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
Consideration may be for making opportunity available irrespective of whether it is taken up
- Airline's supply for consideration is right to fly, irrespective of whether it is taken up
“[27] However, it is possible to perform those services [of transportation] only if the passenger of the airline company turns up on the agreed date and at the agreed place of boarding, the customer’s right to performance of those services being given by the company until the time of boarding, according to the conditions set out in the contract to transport passengers concluded when the ticket was purchased.
[28] Therefore, the consideration for the price paid when the ticket was purchased consists of the passenger’s right to benefit from the performance of obligations arising from the transport contract, regardless of whether the passenger exercises that right, since the airline company fulfils the service by enabling the passenger to benefit from those services.” (Air France-KLM C-250/14)
- Provision of right of access to golf club is supply for consideration irrespective of whether the member attends
"[40] As the Commission argues, the fact that in the case before the national court the annual subscription fee is a fixed sum which cannot be related to each personal use of the golf course does not alter the fact that there is reciprocal performance between the members of a sports association such as that concerned in the main proceedings and the association itself. The services provided by the association are constituted by the making available to its members, on a permanent basis, of sports facilities and the associated advantages and not by particular services provided at the members' request. There is therefore a direct link between the annual subscription fees paid by members of a sports association such as that concerned in the main proceedings and the services which it provides." (Kennemer Golf C-174/00)
- No supply of opportunity to use where potential users have no right to benefit
“[33] First of all, it must be observed that, in the context of the provision of those services, that provider and those viewers are not linked by any contractual relationship or transaction in which a price was stipulated, or even by a voluntary legal commitment made by one party towards the other. Additionally, the access of those viewers to the audiovisual media services provided by that provider is free and the activity concerned generally benefits all potential viewers.” (Balgarska C-21/20)
- Permanent availability of consultancy services
"[38] At paragraph 40 of the judgment of Kennemer Golf (C‑174/00, EU:C:2002:200) and paragraph 36 of the judgment of Le Rayon d’Or (C‑151/13, EU:C:2014:185), the Court held, in essence, that where the supply of services in question is characterised, inter alia, by the permanent availability of the service provider in order to supply, at the appropriate time, the services required by the customer, it is not necessary, in order to find that there is a direct link between that service and the consideration received, to establish that a payment relates to a personalised supply of services at a specific time carried out at the request of a customer. In each of the cases which gave rise to those judgments, there was a supply of taxable services, to which the fixed sum related, irrespective of the number of services provided and received in each case, namely the number of rounds of golf played or the amount of care provided.
[39] The fact that the services provided are neither defined in advance nor personalised and that the payment is made in the form of a lump sum is also not such as to affect the direct link between the supply of services made and the consideration received, the amount of which is determined in advance on the basis of well-established criteria (judgment in Le Rayon d’Or, C‑151/13, EU:C:2014:185, paragraph 37).
[40] Those considerations are applicable to a subscription contract for consulting services, such as the contract at issue in the main proceedings — the legitimacy of which it is however for the national court to check —, in which the customer has undertaken to pay the remuneration agreed between the parties by way of fixed sums, irrespective of the quantity and nature of consulting services actually supplied during the period to which that remuneration relates." (Asparuhovo Lake Investment Company C-463/14)
THIRD PARTY CONSIDERATION
Not necessary that consideration is provided by the recipient of the supply
"[27] In that context, the fact that the lawyer’s fees are obtained not from the party to which legal assistance was provided, but from the opposing party and therefore from a third party is irrelevant. For a supply of services to be deemed to be ‘for consideration’ within the meaning of the VAT Directive, it is not necessary that the consideration for that supply be obtained directly from the recipient thereof (judgment of 21 December 2023, Administration de l’enregistrement, des domaines et de la TVA (VAT – Member of a board of directors), C‑288/22, EU:C:2023:1024, paragraph 40 and the case-law cited)." (Zlakov C-744/23)
- Subsidy for local authority to carry out "free" asbestos removal was third party consideration if activity would not have been envisaged without funding
"[37] Consequently, in the light of the case-law cited in paragraphs 25, 35 and 36 of the present judgment, the fact that the Municipality of L. initially itself would assume responsibility for the entirety of the cost of providing the services provided, at the market price, by the selected undertaking and that, as the case may be, subsequently, a third party, namely the provincial authority concerned, through the Environmental Protection Fund, would reimburse that municipality by means of a subsidy covering between 40% and 100% of that cost, is not conclusive.
[38] In so far as the repayment of that municipality by that fund is subject to the completion of the asbestos removal activity, which, subject to the assessment of the facts by the referring court, would not have been envisaged by the same municipality without the assistance of that fund, it must be held that, notwithstanding the absence of a contract between the same fund and the relevant residents of the Municipality of L., there is a direct link, within the meaning of the case-law cited in paragraph 25 of the present judgment, since the supply of services and its consideration are mutually linked, as one is carried out only on condition that the other is also supplied, and vice versa (see, to that effect, judgment of 11 March 2020, San Domenico Vetraria, C‑94/19, EU:C:2020:193, paragraph 26 and the case-law cited)." (Gmina L C-616/21 - but on facts held not to be economic activity)
- Lawyer providing services to client for "free" but receiving payment from opposing party if successful received third party consideration
"[25] In the present case, first, it is apparent from the order for reference that there is a contract between T.P.T. and that party’s lawyer, whose subject matter is the provision of legal assistance free of charge under Article 38(1)(2) of the ZA. Secondly, since T.P.T. was successful in the relevant legal proceedings, the opposing party was ordered, under Article 38(2) of the ZA, to pay that lawyer the lawyer’s fees, the amount of which was set according to the arrangements provided by law, by reference to the minimum amounts of lawyer’s fees.
[26] Consequently, the existence of a direct link between the legal assistance provided by T.P.T.’s lawyer and the lawyer’s fees paid to him is evidenced both by a contract and by law." (Zlakov C-744/23)
- Insurer reimbursing the final consumer means insurer has provided third party consideration
"[41] As the Advocate General observed in points 44 and 45 of his opinion, the payments made at the point of purchase of the medicinal products must be regarded as consideration provided by a third party within the meaning of Article 73 of the VAT Directive when those third parties, namely insured persons, requested reimbursement by the private health insurance companies and the latter obtained, in accordance with the national law, the discount owed to them by the pharmaceutical company. Therefore, having regard to the facts at issue in the main proceedings, the private health insurance companies must be regarded as being the final consumer of a supply made by a pharmaceutical company, which is a taxable person for the purposes of VAT, such that the amount payable to the tax authority may not exceed that paid by the final consumer (see, to that effect, the judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 24)." (Boehringer C-462/16)
Reciprocity
- Assess from perspective of the supplier
“[54] In this context, Mr Scorey also raised a somewhat wider point, namely that, if contrary to his submission, PwC had contracted to, and did, provide services only to the Institutions, there could be no supply at all by PwC for VAT purposes because there was no reciprocal performance by the Institutions for those services. He contrasted the circumstance in which A contracts with and undertakes to pay B to supply a service to C, where there is reciprocity of obligation between A and B, with a contractual arrangement in which C, while undertaking no obligation to pay B, receives a service from B and procures that A will pay for it. In short, he contended that because the Institutions were under no obligation to pay PwC for the services, there had been no relevant supply.
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[57] When the Court of Justice speaks of “reciprocal performance” it is looking at the matter from perspective of the supplier of the services and it requires that under the legal arrangement the supplier receives remuneration for the service which it has performed. It is not necessary that the recipient of the service is legally responsible to the supplier for payment of the remuneration; it suffices that the arrangement is for a third party to provide the consideration. Were it otherwise, taxpayers could structure their transactions so as to escape liability to pay VAT, so long as they could meet the economic reality test.” (Airtours Holidays Transport Limited v. HMRC [2016] UKSC 21)
- Not limited to situations where third-party discharges obligation of recipient of supply
"[58] When this court has discussed third party consideration in what is now article 73 of the Principal VAT Directive it has similarly not restricted it to consideration provided alongside, or in performance of, a legal obligation of the recipient - see WHA Ltd, para 56 per Lord Reed, in which the garage provided a service to the insured car driver but the insurer alone was responsible for remunerating the garage, and Loyalty Management UK Ltd, para 67 per Lord Reed." (Airtours Holidays Transport Limited v. HMRC [2016] UKSC 21)
SPECIFIC SITUATIONS
Deposits and cancellation charges
- Forfeit deposit not consideration for obligation to keep room available where that obligation exists anyway
"[25] Thus when, following a reservation, the hotelier provides the agreed service, he does no more than honour the contract entered into with his client, in accordance with the principle that contracts must be performed. Accordingly, the fulfilment of that obligation cannot be classified as consideration for the payment of a deposit.
[26] Since the obligation to make a reservation arises from the contract for accommodation itself and not from the payment of a deposit, there is no direct connection between the service rendered and the consideration received (Apple and Pear Development Council, paragraphs 11 and 12; Tolsma, paragraph 13; and Kennemer Golf, paragraph 39). The fact that the amount of the deposit is applied towards the price of the reserved room, if the client takes up occupancy, confirms that the deposit cannot constitute the consideration for the supply of an independent and identifiable service." (Société thermale C-277/05)
- Deposit forfeiture that compensates for cancellation not consideration
"[32] Whereas, in situations where performance of the contract follows its normal course, the deposit is applied towards the price of the services supplied by the hotelier and is therefore subject to VAT, the retention of the deposit at issue in the main proceedings is, by contrast, triggered by the client’s exercise of the cancellation option made available to him and serves to compensate the hotelier following the cancellation. Such compensation does not constitute the fee for a service and forms no part of the taxable amount for VAT purposes (see, to that effect, as regards interest applied on account of late payment, Case 222/81 BAZ Bausystem [1982] ECR 2527, paragraphs 8 to 11).
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[35] Since, on the one hand, the deposit paid does not constitute the fee collected by a hotelier by way of genuine consideration for the supply of an independent and identifiable service to his client and, on the other hand, the retention of that deposit, following the client’s cancellation, is intended to offset the consequences of the non-performance of the contract, it must be held that neither the payment of the deposit, nor the retention of that deposit, nor the return of double its amount is covered by Article 2(1) of the Sixth Directive." (Société thermale C-277/05)
- Payment due upon termination is consideration for the supply of the right to benefit under the contract
“[18] In that regard, it should be added that, as is apparent from the case-law of the Court, a predetermined amount received by an economic operator where a contract for the supply of services for a certain period is terminated early by its customer, or for a reason attributable to the customer, which corresponds to the sum that that operator would have received for the remainder of that period in the absence of such termination, must be regarded as the remuneration for a supply of services for consideration and subject, as such, to VAT, even though that termination entailed, inter alia, the deactivation of the services referred to in that contract before the expiry of the agreed period (see, to that effect, judgment of 11 June 2020, Vodafone Portugal, C 43/19, EU:C:2020:465, paragraph 33 and the case-law cited).
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“[20] First, the consideration for the amount to be paid by the recipient of the supply of services is constituted by the recipient’s right to benefit from the fulfilment, by the supplier, of the obligations under the services contract, even if the recipient no longer wishes to avail itself of that right for a reason attributable to it (see, to that effect, judgment of 11 June 2020, Vodafone Portugal, C 43/19, EU:C:2020:465, paragraph 35).
[21] In a situation such as that at issue in the main proceedings, the supplier of services not only placed the customer in a position to benefit from the supply of services, within the meaning of the case-law cited in paragraph 17 above, but, since it had already begun the agreed works, actually provided part of that supply, it being noted that the supplier was prepared to perform that contract to completion.” (rhtb: projekt gmbh C-622/23)
See further D6. Compensation and damages.
- Query the distinction between deposit forfeiture and consideration for right to benefit
"[21] In so far as there is a line drawn between the non-refundable payments in Air France and Bass on the one hand and the deposit paid in Société thermale on the other, the Board holds that Blue Lagoon’s position falls firmly on the Air France and Bass side. The tour operators are not merely reserving the rooms in Blue Lagoon’s hotel on behalf of their guests but paying the total cost of the room, a cost which they then recover if they can from their own clients. As the court said in Esporta (para 32) the question of whether the deposit for a hotel booking is to be regarded as in consideration for the supply of services depends on the contract:
“If the deposit is expressed to be payable as part of the consideration for the first night’s stay, then there is no adequate direct and immediate link between the payment and the service, if the room is cancelled. In that case, no accommodation will ever be provided. But if the deposit was paid as an administration fee, it would be paid in return for a service. Moreover, a person, who books a hotel room on terms that the deposit is part payment for the stay and then fails to show up, is also making the payment in return for a service, namely the hotel keeping a room available for the guest.”
[22] The tripartite nature of the relationship in the present case, which Blue Lagoon stresses in its submissions, does not affect the nature of the service offered; it simply means that the obligation to provide the room if the room is required is owed by Blue Lagoon to the tour operator rather than directly to the client. The payment is consideration which is directly linked to the service which the hotel provides to the tour operators and on which the tour operators rely in running their own businesses. It does not matter that there is no direct relationship between Blue Lagoon and the hotel guest." (Blue Lagoon Beach Hotel & Co Ltd v. Assessment Review Committee [2023] UKPC 24)
Partnerships, consortia and costs sharing
- Consortium member performing its share of operations under agreement (not for consideration)
"[88] Consequently, operations such as those at issue in the main proceedings, carried out by the members of a consortium in accordance with the provisions of a consortium contract and corresponding to the share assigned to each of them in that contract, do not constitute supplies of goods or services ‘effected for consideration’ within the meaning of Article 2(1) of the Sixth Directive, nor, consequently, a taxable transaction thereunder. The fact that such operations are carried out by the member of the consortium which manages it is irrelevant in that respect." (EDM C-77/01)
- Consortium member performing more than its share and being entitled to payment (for consideration)
"[89] On the other hand, where the performance of more of the operations than the share thereof fixed by the said contract for a consortium member involves payment by the other members against the operations exceeding that share, those operations constitute a supply of goods or services ‘effected for consideration’ within the meaning of Article 2(1) of the Sixth Directive.
[90] In that case, under Article 11A(1)(a) of the Sixth Directive, the taxable amount is the sum received by the consortium member concerned as payment for the part of the operations which exceeds its share as laid down in the consortium contract." (EDM C-77/01)