On 5 October 2023 the European Court of Justice (ECJ) published its decision in the case C-505/22 (Deco Proteste – Editores Lda) concerning the VAT treatment of giving the gifts in return for the first subscription to the company’s magazine.
The referring court asked whether giving such gifts fell within the concept of a “supply of goods for consideration” or constituted a transaction separate from the subscription transaction and, therefore, must be regarded as a disposal of goods free of charge.
Facts of the case
Deco Proteste – Editores (the Company) publishes and sells periodicals on subscription. As a part of a promotional campaign to attract new customers, the Company gave new magazine subscribers a gift (with the unitary value below EUR 50) upon the first monthly subscription payment. As there was no minimum subscription period, customers could keep the gift after the first payment and then cancel the subscription.
The Portuguese tax and customs authority considered that the subscription gifts constituted gifts (meets the maximum gift unit value) but found that their amount exceeded the established ceiling of 0.5% of the turnover of the previous calendar year. Consequently, the tax and customs authority subjected the supply of the gifts to standard VAT rate using their purchase price as the taxable basis.
Decision
The Court has analyzed whether supply of the periodicals subscription and giving of a gift constituted a single supply.
Firstly, it was acknowledged that a clear link between the provision of a gift as a part of the Company’s commercial strategy and the subscription to the magazines, was not systematic and sufficiently close to conclude that those supplies were indivisible.
Secondly, the Court established that the sole purpose of giving the subscription gifts was to increase the number of the magazine’s subscribers and, consequently, to increase the Company’s profits. The Company’ commercial calculation took into account the possibility of early subscription termination (right after receipt of the gift) and showed that giving the gifts still allowed to significantly increase the number of subscribers.
Consequently, since the provision of a gift had no distinct purpose from the point of view of the average consumer, the Court considered that the subscription and provision of a gift formed a single supply, whereas the provision of a gift constituted an ancillary supply to the principal service of subscription, falling within the concept of a “supply of goods for consideration”. Hence, the provision of gifts in return for subscription could not be regarded as a free of charge disposal of goods.
