Tax & Accounting Blog

ECJ Judgment in case C-494/12 on the interpretation of “Supply of Goods”

Blog, Indirect Tax, ONESOURCE November 26, 2013


On 5 November 2012 the First-tier Tribunal (Tax Chamber) of the United Kingdom had requested a preliminary ruling from the Court of Justice of the European Union (ECJ) in case Dixons Retail Plc v Commissioners for Her Majesty’s Revenue and Customs (Case C-494/12) referring VAT questions related to the definition of “supply of goods” and ‘consideration’. The Court was requested to consider a scenario where someone purchases goods with a stolen credit card, with the fraud being discovered after the goods have been handed over.

Under current practice, due to the lack of payment, stolen goods are not considered a supply for VAT purposes. The situation changes, however, if payment is made, even if made with a stolen bank card. This situation currently constitutes a supply, as payment is received by the retailer from the credit card company in the value of the transaction in question. The retailer Dixons was representing the position the payment was not “consideration for a supply” but rather compensation of some sort. In result, no VAT should be charged, according to Dixons.

On 21 November 2013, the ECJ ruled confirming the interpretation as falling under the scope of “supply of goods” and “consideration” under Art. 14(1) and Art. 73 of Directive 2006/112/EU. The Court held that regardless of the fraudulent nature of the credit card use, Dixons made a supply of goods to the customer. Due to a direct link between the payment received and the sale of goods the payment qualifies to be ‘consideration’ in terms of Art. 73 Directive 2006/112/EU. The fact, the payment was made by a third party, did not have an impact on the consideration determination as under Article 11A(1)(a) of the Sixth Directive and Article 73 of Directive 2006/112, the payment of the consideration for a supply of goods may be made not only by the purchaser but also by a third party, in this instance the card issuer.

Consequently, the existing practice of accounting for VAT on the payment received from a third party and retained by the retailer was confirmed and will continue.

The text of questions referred by the First-tier Tribunal (Tax Chamber) of United Kingdom:

1. Is Article 14.1 of Council Directive of 28 November 2006 (2006/112/EU ( 1 )) to be interpreted as applying when the physical transfer of goods is obtained by fraud in that the payment provided by the transferee is by means of a card which the transferee knows he has no authority to use?
2. When the physical transfer of goods is obtained by fraudulent use of a card, is there a ‘transfer of the right to dispose of tangible property as owner’ within Article 14.1?
3. Is Article 73 to be interpreted as applying when payment is obtained by the transferor of goods under an agreement with a third party to make such payment in respect of a card transactions notwithstanding that the transferee of the goods knows that he has no authority to use the card?
4. When payment is made by a third party pursuant to an agreement between the transferor of the goods and the third party as a consequence of the presentation to the transferor of a card which the transferee of the goods has no authority to use is the payment obtained from the

The ECJ (Second Chanmber) ruling:

“Articles 2(1), 5(1) and 11A(1)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment and Articles 2(1)(a), 14(1) and 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, the physical transfer of goods to a purchaser who fraudulently uses a bank card as a means of payment constitutes a ‘supply of goods’ within the meaning of Articles 2(1) and 5(1) of Directive 77/388 and Articles 2(1)(a) and 14(1) of Directive 2006/112 and that, in the context of such a transfer, the payment made by a third party, under an agreement concluded between it and the supplier of those goods by which the third party has undertaken to pay the supplier for the goods sold by the latter to purchasers using such a card as a means of payment, constitutes ‘consideration’ within the meaning of Article 11A(1)(a) of Directive 77/388 and Article 73 of Directive 2006/112.”