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Hogan Lovells Represent Aimia in Major Tax Win

20 June 2013

LONDON, 20 June 2013 - The Supreme Court today made its final order in the long-running dispute between HMRC and Aimia Coalition Loyalty UK Limited (formerly Loyalty Management UK Limited).  The Court dismissed HMRC's appeal and awarded Aimia its costs.

The dispute concerned the VAT treatment of the well-known Nectar card scheme.  The issue was whether Aimia, as promoter of the scheme, can deduct VAT on amounts paid to retailers (redemption fees) when customers obtain rewards using their points.  In most cases, the rewards take the form of discounts on the purchase of goods and services. 

Aimia argued that the fees were paid for a service the retailers supplied to Aimia.  HMRC argued that they were third party consideration for the supply of rewards to customers and that Aimia could not deduct VAT.

Aimia won before the Tribunal but the High Court reversed the decision.  Aimia won again in the Court of Appeal.  HMRC appealed to the House of Lords, which referred the case to the European Court of Justice in Luxembourg.  The Court heard a case brought by Baxi Group at the same time on different facts.  The Court concluded that, in each case, the fees were third party consideration but that it was for the national court to assess whether they were also consideration for a separate supply of services to the promoter, taking into account EU law principles and the economic reality.

The case returned to the Supreme Court. HMRC argued that, based on the European Court of Justice decision, Aimia was bound to lose: redemption fees were third party consideration and VAT was not deductible.  Aimia argued that the European Court of Justice had focused only on the provision of rewards but, in any event, its decision was not inconsistent with earlier UK case law such as Redrow Group plc.  This established that the same transaction could give rise to different supplies to different people. 

The majority of the Supreme Court agreed.  It was necessary to consider the arrangements as a whole, which the European Court of Justice had not been in a position to do.  Aimia's turnover was the fees earned from sponsoring retailers.  The costs of its business were the redemption fees which it paid to enable it to meet its obligations to customers under the scheme.  Aimia obtained a valuable service in return for paying these fees.  Therefore, VAT was deductible. 

When judgment was handed down, HMRC asked for a further reference to the European Court of Justice.  After considering written submissions by both parties, however, the Supreme Court refused this, dismissing HMRC's appeal and awarding Aimia its costs.

The Hogan Lovells team advising Aimia was led by Michael Conlon QC, London Head of Indirect Tax at Hogan Lovells, with associate Matthew Legg. David Milne QC also represented Aimia.

Commenting on the decision, Michael said:

"I am delighted with our client's victory, which is in line with the principle of fiscal neutrality.

HMRC's approach cast doubt on established case law, producing uncertainty.  The Supreme Court decision will be welcomed by businesses.  It also underlines the importance of the national court's role, in complex transactions, in finding the facts and assessing economic reality.

It has been a privilege to be involved in such an interesting and significant case".

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