CJEU on gifts provided with magazine subscription

In a campaign to increase sales, Portuguese publisher Deco Proteste - Editores offered new subscribers a gift in form of a tablet or smartphone. Their price did not exceed the limit for gifts of small value. New customers thus received a gift with the magazine after paying their first monthly subscription and could then cancel their subscription immediately and keep the gift.

Deco Proteste - Editores considered the gifts to be gratuitous supplies in the form of the provision of gifts of small value that do not constitute the supply of goods for consideration. However, the Portuguese tax authorities disagreed and after a tax inspection assessed additional tax on the gifts’ purchase price and included late payment interest and penalties.

The Portuguese tax administration referred a preliminary question to the CJEU whether the gratuitous supply of a tablet or smartphone is to be regarded for VAT purposes as a gratuitous supply, a part of a single supply for consideration, or a part of a commercial package consisting of a main and ancillary supply.

In its decision, the CJEU recalls that in general, every transaction must be regarded as distinct and independent.

Where a transaction comprises several elements, it is necessary to determine whether the individual elements constitute independent supplies or whether they form a single complex supply. A single supply is where several partial supplies are so closely linked that they form, objectively, a single, indivisible supply which it would be artificial to split. In a single supply, it can be determined which of the supplies is ancillary to the principal supply. According to the CJEU, it is also necessary to consider the characteristic elements of a transaction from the perspective of the average consumer: in particular, the purpose for which the consumer acquired the supply, and the value of each supply. It follows from previous case law that a supply must be regarded as ancillary if it does not constitute for an average consumer an end in itself but a means of to obtaining the principal supply at the most advantageous terms.

According to the CJEU, the facts of the case do not show a close enough link between the magazine subscription and the gift, and therefore the two supplies cannot be regarded as indivisible. However, the gift constitutes an incentive to purchase a subscription and therefore has no independent purpose from the point of view of the average consumer. In addition, according to Deco Proteste - Editores, the gift allows subscribers to better enjoy the principal service (e.g., they have access to the magazine’s digital version).

Therefore, according to the CJEU, the gift provided upon subscription to a magazine is an ancillary supply to the principal supply, which is the magazine subscription. The gift provided will therefore share the tax treatment of the magazine subscription.