ECJ rules that retailers’ sales are subject to VAT where a customer fraudulently uses a credit card

21 Nov 2013

In a judgment which will affect the entire retail sector, the European Court of Justice has ruled that where a customer fraudulently uses a bank card to obtain goods from a retailer and the retailer receives payment of the price  from the card issuer or from its merchant acquirer  there was a supply of goods for consideration. As a result the retailer is required to pay VAT on the supply.

The reference to the ECJ raised the questions (1) whether there had been a “supply of goods” by the retailer (Dixons) within the meaning of the VAT Directives and, if so, (2) whether that supply was for “consideration”. The ECJ  ruled on the current  position and the “identical”  position under the Sixth Directive.

The ECJ accepted HMRC’s case that there was a supply of goods. Dixons had voluntarily handed over the goods to the customer and the fraudulent use of a bank card as a means of payment did not stop the transactions being  supplies of goods.  Dixons’  contention that the transactions were indistinguishable from theft was rejected.

Where a retailer had received payment of the price of the goods through the card system, under an agreement made with the card issuer (here AmEx) or a merchant acquirer bank (here Nat West Streamline), the retailer had received consideration for its supply. Neither the fact that payment was received by the retailer from a third party, here AmEx or Streamline, nor that the third party had provided a payment guarantee service, could lead to the conclusion that the retailer had received no consideration for its supply.  That the sales subsequently turned out to have been paid for by means of cards used fraudulently did not prevent the payment of the price for those sales being consideration obtained by Dixons in respect of those sales

Peter Mantle represented the United Kingdom in the ECJ  (as well as representing HMRC in the First-tier Tribunal which made the reference).

Dixons Retail plc v HMRC (Case C 494/12),  judgment of 21 November 2013

Click here to read the full judgment in Dixons retail plc v HMRC

Click here to read the Dixons case note written by Raymond Hill