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The case concerned the VAT treatment of the supplies made by a timeshare business. Macdonald Resorts operated a "points" scheme, in which participants could simply buy "points", or could deposit their timeshare interests for "points" (and if they wished buy enhancement "points"), and participants could then redeem the "points" by occupying timeshare accommodation (or hotel accommodation).  HMRC had been arguing that there was a taxable supply in the UK when the "points" were issued.

This is somewhat different to the RCI Europe case that was heard by the ECJ last year, which was simply a scheme to exchange timeshare interests.  HMRC had been arguing that RCI Europe made taxable supplies of services in the UK, but, the ECJ decided that the supplies fell in principle within the exemption for leasing or letting of immovable property, and were made where the relevant properties were located (mostly in Spain).

In the Macdonald Resorts case, the ECJ has decided that the nature of the supply by Macdonald Resorts (and indeed the place of supply) can only be determined when points are redeemed.  According to the ECJ, Macdonald Resorts is making available a variety of possible benefits; the service is not fully supplied until the points are used. It follows that VAT cannot be charged when the points are issued, but only when they are redeemed.  In principle, the ECJ confirms that supply could fall within the exemption for leasing or letting of immovable property (although, in practice, it is likely to fall within the exclusion for accommodation in the hotel sector or sectors with a similar function - in UK law terms, hotels and similar establishments, and holiday accommodation).  The place of supply is determined by the location of the property.

The ECJ is not deterred by any administrative difficulties in working out the value of points when they are redeemed, or that VAT may not be charged for considerable periods (or at all, if points are not redeemed), or that VAT rates may change between the grant of points and their redemption.  The decision that there is no supply until the "points" are redeemed - even if the points are paid for - could have implications for points-based schemes in other business sectors. It remains to be seen how HMRC will interpret this decision in guidance and give some practical advice about how to deal with these issues.

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