Revenue and Customs Commissioners v Aimia Coalition Loyalty UK Ltd (formerly Loyalty Management UK Ltd)
| Jurisdiction | England & Wales |
| Judge | Lord Carnwath,Lord Walker,Lord Reed,Lord Hope |
| Judgment Date | 13 March 2013 |
| Neutral Citation | [2013] UKSC 15 |
| Date | 13 March 2013 |
| Court | Supreme Court |
[2013] UKSC 15
Lord Hope, Deputy President
Lord Walker
Lord Wilson
Lord Reed
Lord Carnwath
Appellant
Philippa Whipple QC
Suzanne Lambert
(Instructed by VAT &
Duties Litigation Team,
Solicitor's Office, HM
Revenue and Customs)
Respondent
David Milne QC
Michael Conlon QC
(Instructed by Hogan
Lovells International LLP)
Heard on 24 and 25 October 2012
This appeal concerns the well-known Nectar scheme. Its essential elements as at the relevant time can be summarised as follows. A member of the scheme has an account with Aimia Coalition Loyalty UK Ltd, formerly called Loyalty Management UK Ltd ("LMUK"), the promoter of the scheme, and is issued with a Nectar card. When a member purchases goods or services from a retailer which has agreed with LMUK to participate in the scheme in relation to the issue of "points", the retailer swipes the Nectar card and the member's account with LMUK is electronically credited with a number of points. The member is then entitled to use the points to receive goods or services, either at no cost or at a reduced cost, from a retailer which has agreed with LMUK to participate in the scheme in relation to the "redemption" of points. When the member receives goods or services from that retailer, the retailer swipes the Nectar card and the member's account with LMUK is electronically debited with the number of points which have been redeemed.
The scheme involves four parties: (1) the promoter of the scheme, LMUK; (2) the members of the scheme ("collectors"); (3) retailers of goods and services ("sponsors"), who pay for their customers, if they produce a Nectar card, to have points credited to their accounts with LMUK when they have purchased goods or services and their cards are swiped; and (4) other retailers of goods and services ("redeemers"), from whom collectors receive goods and services, at no cost or at a reduced cost, when their cards are swiped and points are debited to their accounts.
The scheme depends upon a network of contracts between LMUK and the three other parties. First, LMUK agrees with the collectors the terms upon which their accounts are operated, including an obligation on the part of LMUK that it will ensure that the collectors can obtain points when they purchase goods or services from sponsors, and that it will make goods and services available to the collectors at no cost, or at a reduced cost, when they redeem their points. LMUK provides the members with information about the identities of sponsors and redeemers, the particular goods and services which can be obtained using the points, and the number of points required in order to receive the goods or services in question.
Secondly, LMUK agrees with the sponsors that it will credit collectors' accounts with the points for which the sponsor has agreed to pay and will secure that goods and services are made available to collectors on their redemption of the points. In return, the sponsors make payments to LMUK based on the number of points credited to collectors' accounts, at an agreed value per point, together with an annual marketing fee. Each sponsor is granted by LMUK the exclusive right to participate in the Nectar scheme in a particular market sector. The contract entered into between LMUK and each sponsor provides that their agreement does not create a relationship of partnership or agency.
Thirdly, LMUK agrees with the redeemers that they will provide collectors with specified goods and services upon the redemption of the applicable number of points, and will in addition provide a number of other services to LMUK, in return for the payment of "service charges" by LMUK based on the number of points redeemed, at an agreed value per point. That value is lower than the value agreed with the sponsors. In relation to the other services which redeemers are required to supply, they must for example provide LMUK with information about problems affecting the quality or availability of goods and services, provide customer data and other information which LMUK requires for marketing purposes, grant permission for the use of their names and brands in marketing material, handle complaints by collectors and replace faulty goods. The commercial arrangements between LMUK and each of the redeemers are negotiated individually. The sponsors and collectors are not involved in these negotiations and are not normally in a position to know what arrangements have been made. In particular, since a sponsor or collector does not normally know the agreed redemption value of the points, it is not normally in a position to know the price paid by LMUK to a redeemer for the provision of particular goods and services: a price which will however be less than the amount which the sponsor paid LMUK for the issue of the points in question to the collector.
The three contracts involved in the scheme, described in the preceding paragraphs, are separate from, and should not be confused with, the contracts between the sponsors and the collectors, or the contracts between the collectors and the redeemers. In particular, the purchase of goods or services by a collector from a sponsor is a separate transaction, between different parties, from the crediting of points by LMUK to a collector's account, or the payment of LMUK by a sponsor in respect of those points.
As is apparent from this summary of the arrangements, which reflects the findings of fact made by the Value Added Tax and Duties Tribunal ("the tribunal"), to refer to "points" being "issued", "purchased" and "redeemed" is to speak metaphorically. The "points" are a means of describing the collectors' contractual rights to receive goods and services at no cost or at a reduced cost. The sponsors pay LMUK for the grant of those rights to collectors. LMUK uses part of its receipts from the sponsors to pay the redeemers to provide collectors with the goods and services in accordance with their rights. LMUK derives its profits from the difference between its receipts from the sponsors and its payments to the redeemers.
In essence, therefore, when sponsors pay LMUK for the points issued to collectors, they are paying LMUK for granting the collectors the right to receive goods and services in exchange for their points. The redeemers provide the collectors with the goods and services to which their points entitle them, and LMUK pays the redeemers the redemption value of the points. It is thus by means of the redeemers' performance of their contractual obligations to LMUK that LMUK fulfils the obligations which it has undertaken to the sponsors and collectors and so carries on its business.
Since points are used by collectors to obtain goods or services, they may be regarded as a means of payment for those goods or services. The amount paid for the right to obtain the goods or services is the amount paid to LMUK by the sponsors for the issue of the points which the collector uses. The amount received by the redeemer, following the provision of the goods or services, is the lesser amount which it is paid by LMUK.
It is common ground that the provision of points to collectors in return for payment by the sponsors is a taxable supply by LMUK. When LMUK charges VAT on the payments which it receives from the sponsors, it is therefore charging VAT on the amount which it receives as consideration for granting to collectors the right to receive goods and services in exchange for the points. The redeemers in turn charge VAT on the payments which they receive from LMUK. The VAT is charged at the standard rate, regardless of whether the goods and services provided to the collectors are zero-rated or exempt, on the basis that it is charged in respect of a service supplied by the redeemers to LMUK.
The facts of this case, as I have described them, are both complex and unusual. In particular, the business operated by LMUK differs in fundamental respects from sales promotion or customer loyalty schemes which are operated by retailers as part of their own business, and under which the issue of points or vouchers does not involve a taxable supply. That being so, LMUK's business cannot be assumed to fall within the scope of decided cases concerned with schemes of the latter kind. Rather than relying upon inexact analogies with other forms of business, it is essential to bear in mind the particular characteristics of the business carried on by LMUK when considering the issue raised in the present appeal.
The issue in dispute is whether LMUK is entitled to deduct as input tax the VAT element of the payments which it makes to the redeemers. LMUK contends that the payments are the consideration for the redeemers' supply to it of the services for which it has contracted with them. Since that supply is made to LMUK for the purpose of its business, it maintains that it is entitled to deduct the VAT as input tax in accordance with article 17 of Council Directive 77/388/EEC of 17 May 1977 ("the Sixth Directive"), as implemented by the Value Added Tax Act 1994. The Commissioners on the other hand decided in 2003 that the payments were third party consideration for the redeemers' supply of goods and services to collectors, and that any VAT charged on such a supply was therefore not deductible by LMUK as input tax. LMUK appealed to the tribunal against that decision.
The relevant EU legislation is contained in Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes ("the First Directive"), and the Sixth Directive, as amended by Council Directive 95/7/EC of 10 April 1995....
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