In essence, the case was disposed of by reference to the analogy that Judge Bishopp discussed at para 87 :. But it is an untenable proposition that the customer did not pay for the bag; the price charged for the goods included an element, small though it might have been, reflecting the cost to the retailer of providing it.
It is an equally untenable proposition, and moreover contrary to the evidence of Mr Graham which I have accepted, that [Stores] did not factor the cost of the scheme into the prices it charged to its customers, whether or not they were Clubcard members. When put like that, it is hard to disagree with the principle. VAT is a tax on value added and therefore should only be chargeable on the net profit made. Where the plastic bag is a cost of doing business, the input tax on that should be deductible.
Equally, where costs are incurred by Tesco on the Clubcard scheme or, more particularly, on the extra marketing and other services provided to the customers , the costs on those should also be deductible. There are some more detailed numerical examples at paras 88 to 94 which drive this basic economic point home forcefully.
We will come on to some more technical points below but they should not obscure the basic point above. Ultimately, based on the analogy set out above, the judge held that the amounts paid to the deal partners constituted input tax for Tesco. Of course, one can imagine cases involving charities or social investment enterprises which have different drivers. At para 81, Judge Bishopp quotes para 31 of that judgment.
That case law and the earlier Tesco plc judgment [] STC perhaps focused more on the subjective perspective of a particular customer. Such a customer may not have considered the economic niceties and Tesco pricing policy, as discussed by Judge Bishopp.
However, that is an example of the customer not being right. Judge Bishopp felt able to treat that paragraph of the ECJ judgment in Kuwait Petroleum as not being determinative in this different context. To us, this seems unarguably to be the economically correct answer.
Once one accepts that Tesco must take account of the cost of all these reward services when setting the prices for its food goods and other sales, the next issue is to look at the contractual position. We are sure that we are as guilty as others of being overly attached to a number of shibboleths. However, it does seem to us that the deep thought that has gone into this judgment helps to decide who supplies whom in the context of tripartite arrangements, and the related question of what constitutes third party consideration.
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