UK: Supplies Of Goods To Customers Fraudulently Using A Bank Card Are Subject To VAT Where The Card Provider Pays For Those Goods

Last Updated: 12 March 2014
Article by Michael Cant

Summary and implications

The European Court (CJEU) has ruled in the case of Dixons Retail plc v Commissioners (C-494/12) that a supplier must account for output VAT on payments received from third party card providers for supplies made to customers who bought goods using a fraudulent card.

It should be noted that this decision:

  • turned on the specific facts of the case – in particular the fact that Dixons had agreements with card issuers under which the issuers agreed to pay Dixons for all transactions made with their cards, provided Dixons followed set procedures;
  • means retailers will not be able to recover any output VAT already accounted for in respect of payments received from card providers for goods bought using fraudulent cards; and
  • does not come as a big surprise given the decisions in Loyalty Management UK and Redrow Group plc which held that payment by a third party to a supplier for goods or services supplied to a customer could amount to "third party consideration" for VAT purposes.


Dixons, the electrical retailer, accepts payment by credit or debit card for supplies of its goods under agreements with certain card providers. Under these contracts, Dixons agrees to accept payment by use of the issuer's cards and to comply with specific authorisation procedures. In return the issuer pays Dixons for the completed transactions (less a service charge).

This case relates to payments that Dixons received from the card providers for goods paid for with cards used in a fraudulent manner. Dixons originally accounted for the VAT received in relation to these supplies made to fraudulent customers, but later claimed repayment of that output VAT. HMRC rejected the claim. Dixons then appealed to the First-tier Tribunal.

Dixons argued it was entitled to a refund of the output VAT accounted for on the basis that there was no taxable supply of goods to the fraudulent customer because the customer did not offer genuine consideration. The transaction was equivalent to theft. Dixons also argued that the payments received from the card issuers did not constitute consideration for the supplies to the fraudulent customers, but were instead compensation under the contracts with the issuers and therefore outside the scope of VAT.

The First-tier Tribunal decided to stay the proceedings and refer various questions to the CJEU for a preliminary ruling.

Legal considerations

Under EU law, supplies of goods or services effected for consideration within a member state by a taxable person are subject to VAT.

With this in mind, the questions referred to the CJEU essentially asked:

  • whether the physical transfer of goods to a purchaser who used a bank card fraudulently constitutes a "supply of goods" for the purposes of VAT; and
  • if so, does a payment by a third party, made under a contract between that third party and the supplier whereby the third party has agreed to pay the supplier for any goods bought using such a card, constitute "consideration" for the purposes of VAT?


Were the fraudulent purchases supplies of goods for VAT purposes?

The CJEU stated that EU case-law demonstrated that the concept of a "supply of goods" for VAT purposes is objective in nature and only requires that the property is transferred from one party to another in such a way that the recipient is empowered to dispose of that property as if he were its owner. The purpose or result of the transaction, and any requirements for the transfer of property under national law, are irrelevant.

The court noted that Dixons had voluntarily handed the goods over to the purchaser and allowed the purchaser to treat the goods as if he were the owner even if under national law he wouldn't be regarded as the owner. The court rejected Dixons' argument that such fraudulent transactions were analogous to theft and should therefore not be subject to VAT.

The court added that the fraudulent use of a bank card as a means of payment for those goods did not prevent the transactions from being classified as supplies of goods for the purposes of VAT.

The court therefore held that in this case, since there is an actual transfer of possession to the fraudulent purchaser who is then free to dispose of the goods as if he were the owner, such supplies are supplies of goods for VAT purposes.

Did the payment for the goods by the card providers constitute consideration?

The CJEU noted that when a purchaser pays for goods using a bank card there are two transactions – the sale of the goods by the supplier, and the provision of services to the supplier by the card issuer. The court held that the fact that a purchaser has paid for goods through a card issuer cannot change the taxable amount, and the fact that the goods later turn out to have been paid for fraudulently cannot mean that the price of that sale does not constitute the consideration a supplier received in respect of those goods.

Therefore the court held that the payment by the third party card issuers for the supply of goods from Dixons to the fraudulent customers did constitute consideration for VAT purposes.


The CJEU therefore held that VAT had been correctly accounted for by the supplier and no repayment was due. There was a clear supply and transfer of tangible property for which Dixons had received payment. It did not matter that the consideration had come from a third party card issuer.

This decision is not surprising given the decisions in Loyalty Management UK and Redrow Group plc which focused on input rather than output VAT but held that a payment made by a third party to a supplier for goods or services supplied to a customer amounts to "third party consideration" for VAT purposes.

The decision in this case illustrates that a bank card payment for goods is subject to VAT, even where the card usage is later determined to be fraudulent, and the amount paid to a supplier by a card company will be treated as consideration for the goods supplied.

More generally, this decision also demonstrates how widely the CJEU will interpret the meaning of "supply of goods" and "consideration" for the purposes of the application of VAT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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