The French Council of State (Conseil d’Etat) ruled that promotional gifts are not subject to VAT

Conseil d’État, 10ème et 9ème chambres réunies, 08/06/2016, 380624, Inédit au recueil Lebon

In the present case, the Council of State (Conseil d’Etat) had to examine whether the delivery of promotional gifts could be subject to VAT.

X, a company specialized in the sale of textile goods, considered that items sent to clients as promotional gifts or ‘Refer-a-friend bonus’ should not be subject to VAT. The French fiscal administration refused to grant such tax deduction since Article 238 of Annex II of the General Tax Code previewed that items transferred with no financial counterpart or against a very low level of remuneration, such as commissions, salary, bonus, discounts and gifts, had to be included in the taxable amount for the VAT purposes.

Directive 77/388/CEE
Directive 2006/112/CE

The company X challenged the tax correction and the resulting additional VAT. The Administrative Court of Montreuil (Tribunal administratif de Montreuil) and the Administrative Court of Appeal of Versailles (Cour administrative d’appel de Versailles) dismissed the claim. According to the Administrative Court of Appeal, the transfer of promotional items did not consist in an VAT taxable operation.

The company X lodged a claim before the Council of State which annulled the contested judgment considering that it was vitiated by an error of law.

Concerning the ‘Refer-a-friend bonus’ system, the Council of State noted that the lower instance court could not legally base its ruling on the fact that the items were sent to the referring person before even the new client had made a first purchase.

Concerning promotional gifts sent to clients, the Council of State found that the delivery of such gifts had to be subject to VAT. The fact that the client could keep the gifts and return the main article was found to be irrelevant to the VAT system. The fact that the purchase’s total price would remain unchanged if the client refused to order the gift and that the company’s stock would be decreased if the client accepted the gift was also found to be irrelevant.

The full text is available on EuroCases

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