Introduction

The taxpayer sold electronic “white boards” to schools for cash, plus the supply by the school to the taxpayer of various obsolete projectors and similar equipment. The issue was whether the sale was a part-exchange or barter transaction in which the consideration consisted of the receipt of cash plus the value of the part-exchange item – or whether the obsolete item should be treated as a discount, with the consideration being confined to just the cash.

An example of the second treatment was where retailers sell new TVs and washing machines etc giving a set discount for the customer’s old TV or washing machine regardless of its condition. The Revenue accepted that in this scenario the supplier was giving a discount. The reality was that the supplier was giving a discount on selling the new product, making the customer happy because he had got rid of the old product and had not self-evidently just thrown it away, and thereby hopefully boosting sales for the retailer.

Discount or part-exchange?

The evidence before the Tribunal was limited as the person responsible for the transactions had left the company. The Tribunal therefore sought to understand the facts having regard to letters written by the Finance Manager. Having regard to these letters, the Tribunal found that the trade-in allowances were calculated by reference to the basic specification of the products traded in. The taxpayer did not ascertain whether the projectors actually worked, but the Tribunal suspected that a better trade in value would be given for “top of the range” items as opposed to cheap and virtually worthless old equipment.

Also, and critically, whatever the basis of calculating the allowances, the one factor that appeared not to govern the calculations was that greater discounts were given for larger orders. The Tribunal rejected the taxpayer’s contention that this was the case.

Given these findings of fact, the Tribunal found that the taxpayer could not sustain its claim that the transactions were just discount sales, with the new equipment just being sold for the cash amount. In material respects the price given for the buy-back items was influenced by the general nature of what was bought back.

The value of the non-cash consideration

The settled position in the UK is that if the transaction between the parties has placed a value on the trade-in item, then that value is taken to be the consideration received by the supplier, i.e. the taxpayer in this case, that is to be added to the cash element: referring to Lex Services Plc and Commissioners of Customs and Excise [2001] STC 1568 (upheld on appeal by the House of Lords at [2004] 1 WLR 1). If no price has been put on the trade-in item, then the amount of the consideration is measured by the subjective value of the consideration received by the taxpayer. The Tribunal therefore found that the value of the non-cash consideration equalled the amount of the reduction in the cash price.

The test in the UK in respect of non-cash consideration is a subjective test, and one which would appear to exclude any objective assessment of value. The test in Australia is arguably different, with the statutory method of valuing non-monetary consideration in s 9-75(1) involving an objective test of market value. Indeed, in GSTR 2001/6 at paragraph 141 the Commissioner accepts that the test is an objective one. In many cases, the tests will have the same result, particularly because the value agreed by parties to a contract will usually represent strong evidence as to market value. However, that is not always the case and in some cases the market value of an item will differ from a value agreed between parties, even where the parties are acting at arm’s-length.