Summary of the facts of the case
Mercandi was a company established in the UK. It operated online sales under its business name “Madbid”. The prevalence of the products sold by Madbid was telephones, tablets, computers and televisions and occasionally sold cars. The users of Madbid’s website could buy goods sold by Madbid either for a fixed price in the online shop, or through online auctions.
The functioning of the Madbid’s website were as follows:
Madbid operated a Pay-to-Bid auction website, users wishing take part in the auctions had to buy credits from Madbid in return for payment, which are necessary in order to take part in bid and cannot be converted into cash.
Each credit was identified by a unique code and is given a monetary value corresponding to the amount paid by the user.
Every auction began with an opening price of GBP 0.00 and with the auction timer set to the allocated time limit for the auction.
The winner of the auction has the right to purchase the product at the amount of the winning bid, plus a charge for shipping and handling.
By its decision of 9 December 2013, the financial administration considered that the amount paid by clients in exchange for credits represented the consideration for a provision of services provided in the United Kingdom. Madbid brought an appeal against that decision before the First-tier Tribunal, claimed that the issuing of credits for the benefit of its clients was not supply of services but a preliminary transaction. Consequently, the Financial Administration claimed that the credits of its users give them the right to participate in the online auctions, thus this is a supply of services. In order to settle the issue The First-Tier Tribunal (tax Chamber) decided to refer the questions to the ECJ for a preliminary ruling.
Questions referred to the ECJ
(1) On the correct interpretation of Articles 2(1), 24, 62, 63, 65, and 73 of [the VAT Directive]:
(a) is the issue of “credits” to users, by Madbid, in return for a money payment:
- a “preliminary transaction” outside the scope of Article 2(1) [of the VAT Directive], of the sort identified by the Court in paragraphs 23 to 42 of its [judgment of 16 December 2010, MacDonald Resorts (C 270/09, EU:C:2010:780)], or
- a supply of services by Madbid within the meaning of Article 2(1)(c) [of that directive], namely the grant of a right to participate in online auctions;
(b) if the grant of a right to participate in online auctions is a supply of services by Madbid, then is it a supply made “for consideration” within the meaning of Article 2(1)(c), namely the payment for it (i.e. the money received by Madbid from a user in return for “credits”);
(c) is the answer to [question 1 (b)] different if the payment for the “credits” also serves as an entitlement for the user to acquire goods to the same value in the event of the user not succeeding in the auction;
(d) if Madbid does not make a supply of services for consideration when it issues “credits” to its users in return for a money payment, does it make such a supply at any other time;
or what principles should be applied in determining the answer to those questions?
(2) On the correct interpretation of Articles 2(1), 14, 62, 63, 65, 73 and 79(b) of [the VAT Directive] what, in circumstances such as those in the main proceedings, is the consideration obtained by Madbid in return for the supplies of goods that it makes to users, for the purposes of [Article 2(1)(a) and Article 73 of that directive]?
In particular, and taking into account the answer to [the first question]:
- Is the money paid by a user to Madbid for “credits” a “payment … on account” for a supply of goods within the scope of Article 65 [of the VAT Directive], so that VAT is “chargeable” on receipt of that payment, and such that the payment received by Madbid from the user is consideration for a supply of goods;
- if a user buys goods through the “buy now” or “earned discount” features, is the value of the “credits” used in placing bids in auctions and, where the bid is unsuccessful, has the effect of generating “earned discount” or reducing the “buy now” price:
- a “price discount” within the meaning of Article 79(b) [of the VAT Directive], such that the consideration for Madbid’s supply of the goods is the money actually paid to Madbid by the user at the time of purchasing the goods and no more, or
- part of the consideration for the supply of goods, such that the consideration for Madbid’s supply of goods includes both the money paid to Madbid by the user at the time of purchasing the goods and the money paid by the user for ‘credit’ used in placing unsuccessful bids in auctions;
- If a user exercises the right to buy goods after winning an online auction, is the consideration for the supply of those goods the stated auction winning price (plus shipping and handling charges) and no more, or is the value of the “credits” that the winner used to bid in that auction also part of the consideration for the supply of those goods by Madbid to the user; or what principles should be applied in determining the answer to those questions?
(3) Where two Member States treat a transaction differently for the purposes of VAT, to what extent should the courts of one of those Member States take into account, when interpreting the relevant provisions of EU law and national law, the desirability of avoiding:
(a) double taxation of the transaction, and/or
(b) non-taxation of the transaction;
and what bearing does the principle of fiscal neutrality have on this question?’
Conclusions by the ECJ
1. Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the issue of ‘credits’, such as those at issue in the main proceedings, which allow an operator’s clients to bid in the auctions that it organises, are a supply of services for consideration, for which the consideration is the amount paid in return for those ‘credits’.
2. Article 73 of Directive 2006/112 must be interpreted as meaning that, in circumstances such as those in the main proceedings, the value of ‘credits’ used in order to bid is not included in the consideration received by the taxable person in return for the supplies of goods that it makes for the benefit of users who won an auction organised by it, or users who purchased a product using the ‘buy now’ or ‘earned discount’ features.
3. When interpreting the relevant provisions of EU and national law, courts of a Member State that find that the same transaction has been the object of a different tax treatment for the purposes of VAT in another Member State have the power, or even — depending on whether there is a judicial remedy under national law against its decisions — an obligation, to refer a request for a preliminary ruling to the Court.
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