Illusory Supplies and Unacknowledged Discounts: Vat and Valuation in Consumer Transactions

Abstract

This article critically examines judicial decisions of the European Court of Justice and the United Kingdom courts on the VAT treatment of transactions involving non-monetary consideration, focussing on transactions where one of the parties is an end consumer or a non VAT-registered supplier. A number of separate but converging lines of case law are considered, in particular the direct selling cases, which deal with supplies of services as non-monetary consideration, and the trade-in cases, which deal with supplies of goods for which an exchange or trade-in is provided as part payment. The author questions how the reasoning in the earlier cases could have culminated in the decisions of the UK Court of Appeal in Customs & Excise Commissioners v Littlewoods Organisation plc; Lex Services plc v Customs & Excise Commissioners; Customs & Excise Commissioners v Bugeja; Kuwait Petroleum (GB) Ltd v Customs & Excise Commissioners. The perspective is comparative, and considers how the cases might assist the appropriate interpretation of Australia's GST. Originally published in the British Tax Review in 2003, the article was referred to by the House of Lords in the appeal in Lex Services, as was an article on the same topic by Professor Geoffrey Morse from the previous issue of BTR. To the consternation of both authors, their Lordships confirmed the lower Court decision, despite its apparent inconsistency with the principal of fiscal neutrality.

Keywords: VAT, GST, non-monetary consideration, consumption tax, trade-in, direct selling, ECJ, Lex Services

JEL Classification: H20, K34