Fraudulent credit card payments are consideration for VAT supplies – Dixons Retail ECJ VAT Decision
The European Court of Justice (CJEU) has released its decision in the case of Dixons Retail plc. (C-494/12). The Court considered the scenario where someone purchases goods with a stolen credit card, with the fraud being discovered after the goods have been handed over. Under current practice if someone shoplifts goods there is no supply for VAT purposes as no payment has been made. However where payment is made, albeit with a stolen card, a supply is deemed to have been made, as a payment is received by the retailer from the credit card company in the value of the transaction in question. Dixons questioned this – if the payment was not consideration for a supply but rather compensation of some sort, no VAT would be due.
The Court held that Dixons was making a supply of goods to the customer, regardless of whether it later transpired that the purchase was made using a fraudulent credit card. Further, the Court held that the payment received was consideration as there was a direct link between the sale of the goods and the payment made. It did not matter that the payment was funded by the card provider, rather than the individual who used the fraudulent card.
As there was a supply of goods for consideration the payment received by Dixons from the card provider included an element of VAT.
This means that the existing practice of accounting for VAT on the payment received from the credit card company and retained by the retailer will continue.
There still remains an opportunity for retailers to consider whether a business is making all appropriate adjustments when calculating its daily gross takings on which VAT will be accounted for. Should you wish to discuss DGT adjustments, either under your bespoke retail scheme, or under one of the standard retail schemes, please contact Sean McGinness on 01962 735 350.