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TMI Blog2003 (12) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... icholls of Birkenhead 1 I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would dismiss this appeal. LORD STEYN 2 My Lords, I have read the opinion of Lord Walker of Gestingthorpe. I am in complete agreement with the reasons he has given. I too would dismiss the appeal. LORD HOFFMANN 3 My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would dismiss this appeal. LORD MILLETT 4 My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Walker of Gestingthorpe. I have found this case more difficult than your Lordships; in particular, I have found it difficult to accept that a sum of money which is not available to the seller of a second hand vehicle except by way of an allowance against the price of a new vehicle is an unequivocal attribution of value to the second hand vehicle. In so far as the sum exceeds that which would be paid for the second hand vehicle free from any ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any relevant group company) carries on business as a car dealer. It trades through about 100 subsidiaries (mostly owning a single showroom and workshop). It holds franchises for the sale of new cars, including Rover and Volvo. It also sells used cars. Both new and used cars are often sold by way of part-exchange. 9 The background facts as found by the London Value Added Tax and Duties Tribunal (Mr Theodore Wallace, chairman) [1999] V DR 156, 159160 were: 11. The retail car market was very competitive. In terms of the national market Lex was not a large player. Retailers offered a wide variety of incentives including straight price discounts, good terms on cars taken in part-exchange and schemes under which customers could cancel the sale within a specified time. 12 Lex sold around 90% of cars taken in part-exchange either to other garages or by auction. These were known as trade sales. Typically a Lex dealer would only retain for retail sale low mileage cars of the same make as that of the franchise held by the dealer. Sales to other group dealers were presumably treated as trade sales. The group's second-hand sales were usually fleet or leased cars. 13 At the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... men cases appear from the tribunal's careful findings of fact. They explain two further matters which must be noted. First, at the material time, Lex had an advertised policy of permitting a customer to cancel a purchase within 30 days. If the customer exercised that right (which in practice seldom occurred) he was entitled to a refund of the purchase price, less certain deductions. But he was not entitled to the return of his part-exchange vehicle (which might have been sold already) and the refund in respect of it was limited to the true value shown on Lex's form. 12 Secondly, the customer's purchase (whether of a new or used car) would often be by way of a conditional sale agreement entered into with a finance company, after the company had first purchased the car from Lex. The other two specimen cases (those of Mrs Cheeseman and Mr Petrovic) involved conditional sale agreements. It is not necessary to go into the details of these transactions beyond noting that in each case the finance company used the full part-exchange price in its documentation, and the tribunal found that the finance companies were not informed of any difference between the stated purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties' competing submissions. Before considering Mr Prosser's criticisms of those judgments (and especially the single judgment of the Court of Appeal, delivered by Chadwick LJ) it is necessary to cover some basic ground. 16 VAT is imposed by the Value Added Tax Act 1994 and statutory instruments made (or treated as made) under that Act. But it is common ground that the United Kingdom legislation must be interpreted in accordance with that of the European Union, and in particular the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes Common system of value added tax: uniform basis of assessment (OJ 1977 L145, p 1). Article 11A of the Sixth Directive provides in paragraph 1: 1. The taxable amount shall be: (a) [subject to immaterial exceptions] everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies . . . . but that does not include (paragraph 3(b)): price discounts and rebates allowed to the customer and accounted for at the time of the supply. Section 19(3) of the 1994 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the VAT system. It is a system which is intended to be self-policing in the sense of operating automatically on the economic activities of registered taxpayers and final consumers, with the least possible need for VAT authorities to undertake independent investigation of the facts. In a straightforward case the subjective value of nonmonetary consideration means the value overtly agreed and adopted by the parties to the transaction in question, just as the price overtly agreed and adopted by the parties is (in most cases) conclusive as to the quantum of monetary consideration. So far from introducing an element of vagueness or obscurity, the concept of subjective value (correctly understood) achieves legal certainty and ease of administration of the VAT system (just as a subjective apportionment of the consideration for a package of taxable goods and exempt services may achieve those results: see C R Smith Glaziers (Dunfermline) Ltd v. Customs and Excise Comrs [2003] 1 WLR 656, especially the speech of my noble and learned friend Lord Hoffmann at p 662, para 21). 19 Subjective value is therefore, in a straightforward case, the value which the parties to the contract have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not expressly or impliedly attributed any value to the non-monetary consideration, some other approach is needed. The leading case is the decision of the ECJ in Empire Stores Ltd v. Customs and Excise Comrs (Case C-33/93) [1994] 3 All ER 90. Empire Stores, a retail mail-order supplier, had run two promotions, the self-introduction scheme and the introduce a friend scheme. Under either scheme the introducer (once she or her friend had been approved, placed an order and paid for it) became entitled to receive, without payment, a household item (such as a toaster, a kettle or an iron) chosen from a list. These were not items in the Empire Stores catalogue and so they did not have a normal retail price. The ECJ, at p 105, para 19, treated that as an essential point of distinction from the Naturally Yours Cosmetics case: Where that value is not a sum of money agreed between the parties, it must, in order to be subjective, be the value which the recipient of the services constituting the consideration for the supply of goods attributes to the services which he is seeking to obtain and must correspond to the amount which he is prepared to spend for that purpose. Where, as here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e criticisms. Hutchinson LJ was not attempting a comprehensive statement of principle applicable to every case of nonmonetary consideration, but was spelling out the essential distinction between the Naturally Yours Cosmetics and Empire Stores cases (as Morritt LJ had done, with the express approval of Hobhouse LJ, in Rosgill Group Ltd v. Customs and Excise Comrs [1997] 3 All ER 1012: see at pp 1020, 1023). I would accept that the Westmorland case was, on its facts, a fairly marginal case, as is reflected in the differing views expressed at different stages of the litigation. But the notion of both parties to a contract making an attribution of value does not in my opinion require the attribution to be a term of the contract, as Lightman J seems to have thought; and so Evans LJ's reference in the Court of Appeal [1998] STC 431, 438 to the need to construct a somewhat artificial contract seems to me to have scored a hit on an irrelevant target. It was sufficient that the coach driver knew what the practice was, and knew that he was choosing a meal for which any ordinary customer would have had to pay the retail prices shown on the menu. 24 However it is not necessary to go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs at successive stages of their manufacture, distribution and marketing or are the product of a single manufacturer who is also a retailer the VAT system should (through its mechanisms of input tax and output tax) produce the same end result (and similarly for services): see Rompelman v. Minister van Financi n (Case 268/83) [1985] ECR 655, 663-664, para 19 and Elida Gibbs Ltd. v. Customs and Excise Comrs (Case C-317/94) [1997] QB 499, 561-562, paras 28 and 31. The principle also extends to other aspects of what may be described by the over-worked metaphor of the level playing field for economic activities: for instance as between different forms of business entity (Gregg v. Customs and Excise Comrs (Case C-216/97) [1999] STC 934) or even, in a qualified way, between economic activities which are lawful or unlawful under domestic law (Staatssecretaris van Financi n v. Coffeeshop Siberi vof [1999] STC 742). 27 The principle of neutrality must however co-exist with other general principles, such as the objective of legal certainty: BLP Group Plc v. Customs and Excise Comrs (Case C-4/94) [1996] 1 WLR 174, 199, paras 24 26. Moreover the principle does not go so far as to require t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertainly with different tax implications for the customer if he were registered for VAT (for instance, as proprietor of a number of hire cars or taxis). So whether or not the Court of Appeal correctly stated Mr Prosser's submission, I would not accept it. 30 I would add two footnotes. Hartwell plc v. Customs and Excise Comrs was a case involving a voucher and there was some discussion in the course of argument before your Lordships about voucher cases . In fact there is no single species of voucher cases : as Advocate General Fennelly said in Kuwait Petroleum (GB) Ltd v. Customs and Excise Comrs (Case C-48/97) [1999] STC 488, 502, para 44: I cannot pretend that it is easy to extract from the case law a completely coherent set of rules which it is possible to apply with total confidence to every promotion scheme devised by the ingenuity of commerce. But in the simple case of a voucher which the issuer himself redeems by allowing a discount on a purchase from himself, the voucher is not property but is simply evidence of an obligation to give a discount: see for instance Boots Co Plc v. Customs and Excise Comrs [1990] STC 387, 408, para 21. But I do not think it is necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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