VAT: Avon Cosmetics Ltd (C-305/16) | KPMG | UK

VAT: Avon Cosmetics Ltd (C-305/16) – Questions referred to the CJEU

VAT: Avon Cosmetics Ltd (C-305/16)

The questions on the UK’s derogation on sales via non-registered agents have been made publicly available.


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The questions on the UK’s derogation on sales via non-registered agents have finally been published in the reference to the Court of Justice of the European Union (CJEU). The First-tier Tribunal (FTT) decision, which decided on the reference, was issued back in 2014. The FTT concluded that the UK’s derogation wrongly resulted in the infringement of various fundamental VAT principles and fails to achieve what it set out to do, agreeing with the taxpayer that the preferred route would be to amend the UK law to allow for relevant input tax to be taken into account. However, the FTT observed that the UK law accurately reflects the derogation and therefore it would need to be the CJEU that would need to declare the derogation invalid.

At the time of the FTT decision, HMRC confirmed that they would challenge any reference. However, they confirmed in Brief 19/14 that:

  • HMRC remain of the view that the derogation has been applied correctly;
  • The CJEU alone has the power to rule on the validity of an act of a Community institution. Given this, HMRC will not object to questions being referred to the CJEU that go beyond whether the authorisation of the derogation was valid. Accordingly HMRC did not appeal the FTT decision; and
  • HMRC policy remains that VAT incurred by unregistered representatives of Avon on their purchase of demo items cannot be offset against VAT on the sales to final consumers, even though the level of output tax declared is based on the price charged to the final consumers.

The questions have finally been published in the reference to the CJEU on the UK’s ‘party plan’ derogation. To access the questions click here (note that the numbering of the questions is not clear).

To access the earlier FTT click here. The FTT refers to this appeal being for £14 million excluding interest, an amount which will have grown since.


For further information please contact :

Karen Killington 

Steve Powell 

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