Daylight robbery: what constitutes a "supply of goods"?

Dixons Retail Plc v Revenue and Customs Commissioners C-494/12

The meaning of "supply of goods" should be interpreted broadly and objectively. In the case of Dixons, customers had fraudulently used payment cards to obtain goods. The Court of Justice of the European Union ("CJEU") has ruled that the retailer still made a supply for consideration when it received payment from the card companies under a guarantee agreement.

Background

Dixons, an electrical retailer, had agreements with American Express Europe Limited ("AmEx"), and National Westminster Bank plc (acting as "Streamline") whereby AmEx/Streamline would guarantee payments made using specific debit and credit cards. Provided Dixons followed a set of procedures, AmEx/Streamline would be obliged to make payments to Dixons even if those cards were later found to have been used fraudulently.

In the period from 13 November 2005 to 30 November 2008, AmEx and Streamline made several payments to Dixons under the respective agreements. VAT was paid on these receipts, as the relevant transactions would have been subject to VAT had they been genuine.

Dixons brought an appeal for repayment of VAT on the basis that these receipts were not consideration for a supply of goods, but rather analogous to a receipt of an insurance payment in respect of a theft, which would not attract VAT (as in the CJEU's decision in the Belgian case of British American Tobacco and Newman Shipping[2005] ECR I-7077).

Decision

The CJEU held that the concept of "supply of goods" within the meaning of the Sixth Directive must be looked at objectively. Looking objectively at the facts of the case, the Court found that Dixons had "supplied goods" by physically transferring goods to a customer, notwithstanding that the payment card was used fraudulently. This was distinguished from the theft of goods in British American Tobacco.

The Court said that payment made for the goods by a third party (namely AmEx or Streamline) was intrinsically linked with this supply of goods. Dixons had failed to differentiate between: (1) the supply of goods between Dixons and the customer; and (2) the supply of services between Amex/Streamline and Dixons. Therefore, the Court could only conclude that Dixons received payment as consideration for the supply of goods.

Ultimately, the receipts were subject to VAT, and Dixons' appeal was dismissed.

Commentary

This is an interesting result, not least because, objectively, there does not seem to be a great deal of difference between Dixons andBritish American Tobacco. In both cases, goods were taken without being paid for by those who received them, and a third party instead was obliged to pay. Commentators have suggested that the Court may have been influenced by the principle of fiscal neutrality. A different result would have meant that retailers would be in a better position on a fraudulent transaction than on a lawful transaction.

What this case does tell us is that the concept of "supply of goods" must be interpreted broadly, using objective criteria, including (but not limited to) the time of the supply in relation to the receipt of payment.