Peugot Motor Company PLC v Her Majesty's Revenue and Customs, V 19260
| Jurisdiction | UK Non-devolved |
| Judge | Colin BISHOPP |
| Judgment Date | 20 September 2005 |
| Respondent | Her Majesty's Revenue and Customs |
| Appellant | Peugot Motor Company PLC |
| Reference | V 19260 |
| Court | First-tier Tribunal (Tax Chamber) |
19260
VALUE ADDED TAX — car manufacturer offering free or low-interest credit — credit provided by finance company to retail customer — subsidy paid by manufacturer to finance company — whether price reduction within principles established in Elida Gibbs — whether subsidy to be deducted from consideration received by manufacturer for supply of car to dealer — no — subsidy consideration for separate exempt supply — appeal dismissed
MANCHESTER TRIBUNAL CENTRE
PEUGEOT MOTOR COMPANY PLC Appellant
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Tribunal: Colin Bishopp (Chairman)
Sitting in public in London on 6, 7 and 8 July 2005
Roderick Cordara QC and Paul Key, counsel, for the Appellant
Rupert Anderson QC, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2005
DECISION
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In this appeal by Peugeot Motor Company Plc (“PMC”) I am required to determine whether payments made by PMC to a finance company are, as PMC maintains, to be taken into account in calculating the value of the supply of a motor car made by PMC or another company within its VAT group; or, as the Respondents contend, is to be left out of account in calculating that value The payments are made by way of subsidy to the finance company in order that it may offer credit interest-free, or at low interest, to customers buying PMC’s cars.
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Formally, this is an appeal against a decision of the Commissioners of Customs and Excise, as they then were, set out in a letter of as long ago as 9 August 1996, by which they rejected PMC’s voluntary disclosure of over-payments of output tax amounting in the aggregate to £5,512,373.55 in the period from 1 January 1991 to 30 June 1996 (the claim was made before the three-year cap came into effect, and the cap is not an issue in this appeal). I am not required to deal with any matter other than the central issue of principle, that is the impact, if any, of the subsidy on the value of PMC’s VAT group’s supplies. I do, however, need to deal with PMC’s application, made during the course of the hearing, for a direction that the issue in the appeal be referred to the European Court of Justice, an application which the Respondents oppose. I will deal with that issue after setting out the facts and the arguments as they were advanced at the hearing.
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Before me, the Appellant was represented by Roderick Cordara QC, leading Paul Key, and the Respondents by Rupert Anderson QC. The facts were largely agreed and I heard brief, formal and unchallenged evidence from only one witness, Anthony Barnaby Smith. I had the equally formal statements of Michael Henderson and Brian Smith. Mr Barnaby Smith and Mr Henderson are employees of PMC able to speak about the workings of the subsidy scheme. Mr Brian Smith is the Respondents’ officer who took the relevant decision. I was provided with a bundle of documents, included within which were items such as promotional literature provided to potential purchasers of Peugeot cars and examples of agreements by which customers took advantage of the subsidised credit.
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The scheme was essentially very simple. PMC is and at all material times was a manufacturer and importer of motor cars. Typically, it sold cars to PSA Wholesale Limited, a company within its VAT group which in turn sold the cars to dealers. The dealers then procured retail customers for the cars. Those customers who wished to take advantage of the offer of cheap or free credit entered into an agreement with PSA Finance plc, a company partly owned by PMC but not within its VAT group. On acceptance of the customer by PSA Finance, the dealer sold the car to PSA Finance, which in turn sold the vehicle to the retail customer on the terms set out in its agreement with the customer. The terms of the scheme varied from time to time and, it appears, were usually not the same for every car in PMC’s range. The offer might be of zero-interest finance for one or two years with a commercial rate for any succeeding years; or it might be of a lower than usual rate for the entire term of the agreement. Customers might have to satisfy other conditions, such as the provision of a deposit of a minimum amount, in order to qualify. However, none of those variations affects the principle.
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Typically, the customer paid a deposit – often funded, in whole or in part, by the value of a car which was traded in – and PSA Finance provided credit for the remainder of the retail price of the new car. The example of an agreement between PSA Finance and a customer which was used at the hearing as an example, and which I take to be typical, recorded the ordinary selling price of the car, gave credit for the customer’s deposit – in the event, made up in part by a traded-in car and in part by cash – and described the balance as the “amount of credit”. In the example, the customer was entitled to zero-rate interest for the period of the loan, and the rate and amount of the interest (obviously, nil) were both recorded, as were the monthly instalments the customer was required to pay.
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In order to compensate PSA Finance for the loss of interest attributable to its granting free or low interest credit, PMC made a payment to PSA Finance. The amount of the payment was precisely calculated, encompassing the lost interest discounted to reflect accelerated payment and the reduced risk of loss. The details of the calculation are unimportant for present purposes. Each week, PSA Finance sent a summary of the agreements into which it had entered to PMC giving various financial details including, particularly, the amount of subsidy due in respect of each individual contract. Thereafter, PMC paid the aggregate subsidy which had accrued during the week. The advertising material used by PMC, of which several different examples were included in the bundle, made it clear that the promotion was organised by Peugeot, as a group, but even an attentive reader scrutinising the “small print” would not be able to detect that PMC was making a payment to PSA Finance, in order to subsidise the offer, still less would he be able to calculate the amount of the payment. There was no means within the scheme by which a customer who did not require a loan could instead secure a discount from the price of the car, or could negotiate a variation of the credit terms.
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There was a minor variation in the arrangements when the dealer was Robins & Day Limited, a company owned by PMC and within its VAT group in that there was a direct sale from the VAT group to PSA Finance without the intervention of an independent dealer. I do not think this difference of detail affects the principle. As in the case of a sale by an independent dealer, there was a payment by PMC to PSA Finance after the credit agreement had been concluded, and the payment was calculated in precisely the same manner.
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PMC’s case is that the consideration it, or its VAT group received for the car in an arrangement of this kind was the amount paid by the dealer (or, if the dealer was Robins & Day, by PSA Finance) reduced by the amount of the subsidy. The subsidy, it says, is a price discount or rebate within the contemplation of article 11A(3)(b) of the Sixth VAT Directive (77/388/EEC) and is therefore not to be included in the taxable amount. Alternatively it comes within article 4C(1) as a price reduction with the consequence that the taxable amount is also to be reduced. The argument that article 11A(3)(b) applies was touched on only briefly in Mr Cordara’s skeleton...
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