ECJ ruling in Grattan plc v Revenue and Customs Commissioners [2012] All ER (D) 246 (Dec)

08 March 2013

The Court of Justice of the European ('ECJ') has recently confirmed the opinion of the Advocate General in Grattan Plc v HMRC.

The case concerned the VAT treatment of supplies made by a catalogue company to consumers via third party agents.


Various companies in the Grattan group sold goods to consumers via the services of third party agents. These agents would typically receive a commission of around 10% on the value of goods which they sold on Grattan's behalf.

Prior to the introduction of the Sixth VAT Directive (Directive 77/388), the relevant provisions for determining the consideration for a supply were found in Articles 5 and 8 of the Second Council Directive 67/228, which provided as follows:

Article 5 of the Second Directive:

'1.           'Supply of goods' means the transfer of the right to dispose of tangible property as owner.

2.            The following shall also be considered as supply within the meaning of paragraph 1:

(c)           the transfer of goods pursuant to a contract under which commission is payable on purchase or sale;

5.            The chargeable event shall occur at the moment when delivery is effected. …’

Article 8 of the Second Directive:

'The basis of assessment shall be:

(a)          in the case of supply of goods and of the provision of services, everything which makes up the consideration for the supply of the goods or the provision of services, including all expenses and taxes except the [VAT] itself’.

Prior to 1978, Grattan paid VAT on the full amount of the consideration received for the supply of goods, with no reduction to reflect the commissions paid to its agents.

The arguments

Grattan argued that the commissions paid for third party purchases were a discount on the price paid by the agent for the goods which the agent purchased from the relevant Grattan group company (or alternatively, a rebate, if the commission was received after the supply). Therefore, on a proper interpretation of Article 8 of the Second Directive, and in accordance with the principle of fiscal neutrality (that taxpayers should not be treated differently in respect of supplies which were in competition with each other), the taxable amount should be reduced.

HMRC submitted that the Second Directive did not require the Member States to put in place measures providing for a retrospective reduction of the basis of assessment after the supply had taken place (in contrast with Article 11C(1) of the Sixth Directive). Furthermore, Article 8(a) of the Second Directive was not sufficiently precise to have direct effect.

The ECJ's decision

The Court agreed with HMRC that the basis of assessment pre-1978 had to be determined at the time of supply and that there was nothing in Article 8 of the Second Directive to enable or require an adjustment to the basis of assessment after this point. There was no provision in the Second Directive which provided for the chargeable event to occur at any time after the moment when delivery was effected.

The Court also considered that the principle of fiscal neutrality did not assist Grattan in this case. The principle alone was not sufficient to give rise to a basis of assessment different from that stipulated in the Second Directive. Furthermore, the Court noted that, from the perspective of the final consumer, there was no difference in treatment, since the benefit of the commissions went to the agent and not the consumer.


HMRC had received a request from Grattan for a repayment of the VAT it had paid between 1973 and 1978, which it had accounted for on the full catalogue price of the goods concerned, which included the commission which was paid to the agents. Following the ECJ ruling in July 2012 in Littlewoods Retail Ltd v Revenue and Customs Commissioners (Case C-591/10), on whether simple interest (rather than compound interest) on refunds due to errors on the part of HMRC was sufficient recompense, this case is further bad news for those taxpayers claiming VAT repayments from HMRC going back many years.

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