Advocate General rejects Avon Cosmetics’ challenge to the UK’s derogation for the direct-selling sector

08 Sep 2017

Advocate General Bobeck has released his opinion in Case C- 305/16 Avon Cosmetics v HMRC in which Avon alleged that a derogation granted by the European Council authorising the UK to oblige Avon and other direct sellers to account for VAT on the open market value of their products sold through un-registered sellers without taking into account VAT which they normally would be allowed to deduct as input tax, was granted unlawfully because it infringed certain EU law principles and because the UK had failed fully to disclose relevant material when seeking authorisation for the derogation. The Advocate General accepted all of the arguments advanced on behalf of the UK. The derogation did not foresee or allow for a notional input tax deduction because it was not intended to be applied in such a way as to emulate the tax situation that would prevail if the representatives had been VAT-registered. Further, having opted for the direct-selling business model, Avon could not “…have à la carte access to the VAT rules normally applicable to other models”. In a forthright opinion, the Advocate General concluded that the case advanced by Avon brought “… complexity in ‘through the back door’ in practice by (partially) delegating to the public administration and administrative burden that the Avon Ladies had chosen not to assume.” Accordingly, the derogation did not breach the principles of fiscal neutrality or proportionality. “Perfectly equal treatment was simply not achievable” between different business models. The Advocate General also concluded that the UK had not been under an obligation to inform the Commission that unregistered sellers incurred VAT on the purchase of goods used for the purposes of their economic activity.

Melanie Hall QC represented the UK.