# C_2016270EN.01003401.xml

| 25.7.2016 | EN | Official Journal of the European Union | C 270/34 |
| --------- | -- | -------------------------------------- | -------- |

---

Reference for a preliminary ruling from First-tier Tribunal (Tax Chamber) (United Kingdom) made on 30 May 2016 — Avon Cosmetics Ltd v The Commissioners for Her Majesty's Revenue and Customs

(Case C-305/16)

(2016/C 270/38)

Language of the case: English

Referring court

First-tier Tribunal (Tax Chamber)

Parties to the main proceedings

Applicant: Avon Cosmetics Ltd

Defendant: The Commissioners for Her Majesty's Commissioners of Revenue and Customs

Questions referred

| 1. | Where a direct seller sells goods (‘Sales Aids’) to unregistered resellers or the unregistered reseller purchases goods and services from third parties (‘Third Party Goods and Services’) which are in both cases used by the unregistered resellers to assist their economic activity of selling other goods which are also purchased from the direct seller and the subject of administrative arrangements issued pursuant to a derogation most recently authorised by Council Decision of 24 May 1989 (89/534/EEC( 1 )) (the ‘Derogation’), do the relevant authorisations, implementing legislation and/or administrative arrangements offend any relevant provisions and/or principles of European Union law in so far as they require the direct seller to account for output tax on the unregistered resellers' sale price of the other goods with no reduction for the VAT incurred by the unregistered reseller on such Sales Aids and/or Third Party Goods and Services? |
| -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |

| 2. | Whether the UK was under any obligation to inform the Commission when seeking authorisation from the Council for the Derogation, that unregistered resellers incurred VAT on purchases of Sales Aids and/or Third Party Goods and Services used for the purposes of their economic activities and that, accordingly, an adjustment to reflect that irrecoverable input tax, or overpaid output tax, should be accommodated in the derogation? |
| -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |

| 3. | In the event that the answer to questions 1and/or 2 above is in the affirmative:
a.
Whether any of the relevant authorisations, implementing legislation or administrative arrangements can and should be interpreted so as to make an allowance in respect of either (i) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (ii) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. b.
Whether:
i.
The authorisation of the UK's derogation from Article 11A(1)(a) of the Sixth Directive was unlawful. ii.
a derogation from Article 17 of the Sixth Directive is necessary alongside the derogation from Article 11A(1)(a). If so, whether the UK acted unlawfully by failing to ask the Commission or the Council to authorise it to derogate from Article 17. iii.
the UK are acting unlawfully by failing to administer VAT in such a way as to allow direct sellers to claim a credit for either Sales Aids or Third Party Goods and Services VAT incurred by unregistered resellers for the purposes of their economic activities. iv.
all or any part of the relevant authorisations, implementing legislation or administrative arrangements are therefore invalid and/or unlawful. c.
Whether the appropriate remedy is, from the Court of Justice of the European Union or from the national Tribunal or Court:
i.
a direction that the Member State is required to give effect to the Derogation in domestic law by providing for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses; or ii.
a declaration that the authorisation of the Derogation, and by extension the derogation itself, is invalid; or iii.
a declaration that the domestic legislation is invalid; or iv.
a declaration that the Notice of Direction is invalid; or v.
a declaration that the UK is obliged to apply for authorisation for a further derogation so to provide for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | a. | Whether any of the relevant authorisations, implementing legislation or administrative arrangements can and should be interpreted so as to make an allowance in respect of either (i) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (ii) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | b. | Whether:
i.
The authorisation of the UK's derogation from Article 11A(1)(a) of the Sixth Directive was unlawful. ii.
a derogation from Article 17 of the Sixth Directive is necessary alongside the derogation from Article 11A(1)(a). If so, whether the UK acted unlawfully by failing to ask the Commission or the Council to authorise it to derogate from Article 17. iii.
the UK are acting unlawfully by failing to administer VAT in such a way as to allow direct sellers to claim a credit for either Sales Aids or Third Party Goods and Services VAT incurred by unregistered resellers for the purposes of their economic activities. iv.
all or any part of the relevant authorisations, implementing legislation or administrative arrangements are therefore invalid and/or unlawful. | i. | The authorisation of the UK's derogation from Article 11A(1)(a) of the Sixth Directive was unlawful. | ii. | a derogation from Article 17 of the Sixth Directive is necessary alongside the derogation from Article 11A(1)(a). If so, whether the UK acted unlawfully by failing to ask the Commission or the Council to authorise it to derogate from Article 17. | iii. | the UK are acting unlawfully by failing to administer VAT in such a way as to allow direct sellers to claim a credit for either Sales Aids or Third Party Goods and Services VAT incurred by unregistered resellers for the purposes of their economic activities. | iv. | all or any part of the relevant authorisations, implementing legislation or administrative arrangements are therefore invalid and/or unlawful. | c. | Whether the appropriate remedy is, from the Court of Justice of the European Union or from the national Tribunal or Court:
i.
a direction that the Member State is required to give effect to the Derogation in domestic law by providing for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses; or ii.
a declaration that the authorisation of the Derogation, and by extension the derogation itself, is invalid; or iii.
a declaration that the domestic legislation is invalid; or iv.
a declaration that the Notice of Direction is invalid; or v.
a declaration that the UK is obliged to apply for authorisation for a further derogation so to provide for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | i. | a direction that the Member State is required to give effect to the Derogation in domestic law by providing for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses; or | ii. | a declaration that the authorisation of the Derogation, and by extension the derogation itself, is invalid; or | iii. | a declaration that the domestic legislation is invalid; or | iv. | a declaration that the Notice of Direction is invalid; or | v. | a declaration that the UK is obliged to apply for authorisation for a further derogation so to provide for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. |
| ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------- | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | -------------------------------------------------------------------------------------------------------------- | ---- | ---------------------------------------------------------- | --- | --------------------------------------------------------- | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| a. | Whether any of the relevant authorisations, implementing legislation or administrative arrangements can and should be interpreted so as to make an allowance in respect of either (i) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (ii) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | | | | | | | | | | | | | | | | | | | | | | | | |
| b. | Whether:
i.
The authorisation of the UK's derogation from Article 11A(1)(a) of the Sixth Directive was unlawful. ii.
a derogation from Article 17 of the Sixth Directive is necessary alongside the derogation from Article 11A(1)(a). If so, whether the UK acted unlawfully by failing to ask the Commission or the Council to authorise it to derogate from Article 17. iii.
the UK are acting unlawfully by failing to administer VAT in such a way as to allow direct sellers to claim a credit for either Sales Aids or Third Party Goods and Services VAT incurred by unregistered resellers for the purposes of their economic activities. iv.
all or any part of the relevant authorisations, implementing legislation or administrative arrangements are therefore invalid and/or unlawful. | i. | The authorisation of the UK's derogation from Article 11A(1)(a) of the Sixth Directive was unlawful. | ii. | a derogation from Article 17 of the Sixth Directive is necessary alongside the derogation from Article 11A(1)(a). If so, whether the UK acted unlawfully by failing to ask the Commission or the Council to authorise it to derogate from Article 17. | iii. | the UK are acting unlawfully by failing to administer VAT in such a way as to allow direct sellers to claim a credit for either Sales Aids or Third Party Goods and Services VAT incurred by unregistered resellers for the purposes of their economic activities. | iv. | all or any part of the relevant authorisations, implementing legislation or administrative arrangements are therefore invalid and/or unlawful. | | | | | | | | | | | | | | | | |
| i. | The authorisation of the UK's derogation from Article 11A(1)(a) of the Sixth Directive was unlawful. | | | | | | | | | | | | | | | | | | | | | | | | |
| ii. | a derogation from Article 17 of the Sixth Directive is necessary alongside the derogation from Article 11A(1)(a). If so, whether the UK acted unlawfully by failing to ask the Commission or the Council to authorise it to derogate from Article 17. | | | | | | | | | | | | | | | | | | | | | | | | |
| iii. | the UK are acting unlawfully by failing to administer VAT in such a way as to allow direct sellers to claim a credit for either Sales Aids or Third Party Goods and Services VAT incurred by unregistered resellers for the purposes of their economic activities. | | | | | | | | | | | | | | | | | | | | | | | | |
| iv. | all or any part of the relevant authorisations, implementing legislation or administrative arrangements are therefore invalid and/or unlawful. | | | | | | | | | | | | | | | | | | | | | | | | |
| c. | Whether the appropriate remedy is, from the Court of Justice of the European Union or from the national Tribunal or Court:
i.
a direction that the Member State is required to give effect to the Derogation in domestic law by providing for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses; or ii.
a declaration that the authorisation of the Derogation, and by extension the derogation itself, is invalid; or iii.
a declaration that the domestic legislation is invalid; or iv.
a declaration that the Notice of Direction is invalid; or v.
a declaration that the UK is obliged to apply for authorisation for a further derogation so to provide for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | i. | a direction that the Member State is required to give effect to the Derogation in domestic law by providing for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses; or | ii. | a declaration that the authorisation of the Derogation, and by extension the derogation itself, is invalid; or | iii. | a declaration that the domestic legislation is invalid; or | iv. | a declaration that the Notice of Direction is invalid; or | v. | a declaration that the UK is obliged to apply for authorisation for a further derogation so to provide for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | | | | | | | | | | | | | | |
| i. | a direction that the Member State is required to give effect to the Derogation in domestic law by providing for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses; or | | | | | | | | | | | | | | | | | | | | | | | | |
| ii. | a declaration that the authorisation of the Derogation, and by extension the derogation itself, is invalid; or | | | | | | | | | | | | | | | | | | | | | | | | |
| iii. | a declaration that the domestic legislation is invalid; or | | | | | | | | | | | | | | | | | | | | | | | | |
| iv. | a declaration that the Notice of Direction is invalid; or | | | | | | | | | | | | | | | | | | | | | | | | |
| v. | a declaration that the UK is obliged to apply for authorisation for a further derogation so to provide for an appropriate adjustment for any of (a) irrecoverable VAT on Sales Aids or Third Party Goods and Services borne by unregistered resellers and used by such unregistered resellers for the purposes of their economic activities; OR (b) VAT in excess of the tax avoided being collected by Her Majesty's Revenue & Customs; OR (iii) the potential unfair competition that arises between direct sellers, their unregistered resellers and non-direct selling businesses. | | | | | | | | | | | | | | | | | | | | | | | | |

| 4. | Under Article 27 of the Sixth Directive (Article 395 of the Principal VAT Directive), is the ‘tax eva[ded] or avoid[ed]’ to be measured as the net loss of tax (taking account of both the output tax paid and input tax recoverable in the structure giving rise to the tax evaded or avoided) to the Member State or the gross loss of tax (taking account of only the output tax in the structure giving rise to the tax evaded or avoided) to the Member State? |
| -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |

---

( 1 )  Council Decision of 24 May 1989 authorizing the United Kingdom to apply, in respect of certain supplies to unregistered resellers, a measure derogating from article 11 A (1) (a) of the Sixth Directive 77/388/EEC on the harmonization of the laws of the Member States relating to turnover taxes.

OJ L 280, p. 54

---