The UK Supreme Court reached a decision on 20 June 2013 in respect of CRC (Appellant) v Aimia Coalition Loyalty UK Ltd, formerly known as Loyalty Management UK Ltd (hereafter “Loyalty Management”). The company operated the Nectar loyalty card scheme which was operated by a number of retailers in the UK. Under the Nectar scheme customers made their purchases from these retailers and collected Nectar points from the retailers. The customers accumulated Nectar points and were then able to redeem the points in exchange for supplies of goods and services from certain suppliers.
The operation of the Nectar card involved three types of contract. Firstly, Loyalty Management entered into contracts with customers to provide that the customer would obtain Nectar points when purchases were made at certain retail outlets. Secondly, Loyalty Management made contracts with each of the retail outlets taking part in the loyalty card scheme. Under the contracts Loyalty Management would credit the customer’s account with any Nectar points issued by the retailer and ensure that these points could later be redeemed by the customer. Thirdly, Loyalty Management made contracts with the suppliers of goods and services to the customers, who would make available these goods and services when customers redeemed their Nectar points. Under these contracts Loyalty Management paid a service charge to the suppliers.
The case concerned the deductibility of the VAT on payments made by Loyalty Management under the third type of contract. It was argued that the input tax was deductible because a service charge was being paid for a service supplied by the enterprises that made available goods to the customers who redeemed their Nectar points. The tax authorities argued that the service charge amounted to third party compensation and the VAT was therefore not deductible by Loyalty Management.
The case was earlier referred to the ECJ which determined that the service charge was at least in part third party compensation. However the case returned to the Supreme Court in the UK and this has decided by a majority of three to two that the service charge was paid by Loyalty Management for a service obtained in the course of its business. The VAT was therefore held to be deductible. The tax authorities requested the case to be referred back to the ECJ but the Supreme Court held that the earlier ECJ decision had been based on a less complete picture of the facts of the case and that the issue of the case did not turn on the ruling by the ECJ on any point of EU law. The Supreme Court had applied will established principles of EU law in arriving at the decision and all the judges were agreed that the ruling of the ECJ did not raise any new point of EU law. The appeal by the tax authorities was therefore dismissed.