A brief note on the fraught legal status of the Pringle crisp

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From MainFT:

Mars, the candy, food and petcare conglomerate, is in talks to buy Pringles and Pop-Tarts maker Kellanova, according to people familiar with the matter, in what would be one of the year’s biggest takeovers. 

Pringles, the hyperbolic paraboloid potato snacks, are controversial. In fact, there’s probably at least one reader foaming at the mouth that we called them “potato snacks”.

It’s actually a surprisingly fraught history, but perhaps not for the reason you’d expect.

As mentioned in our Walkers’ Sensations Poppadoms vs HMRC post back in January, food is normally exempt from the value-added tax in the UK, but one of the exceptions is for “potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch”.

So it won’t surprise most readers to know the nature of a Pringle has been the subject of legal proceedings.

The standing case law, as far as FT Alphaville could quickly tell, is a 2009 judgment — Revenue & Customs v Procter & Gamble UK.

Wait, P&G? Let’s quickly clear up some ownership confusion:
— Pringles were launched by Procter & Gamble in the 1960s
— P&G sold the brand to Kellogg in 2012
— Kellanova was created by the break-up of Kellogg last year
— Mars may now buy Kellanova

One other point of information: at the time, a Pringle was 42 per cent potato and around a third fat, with the rest mainly flour. We doubt that has changed much.

Anyway, 2009 and all that. Back then, the Supreme Court of Judicature allowed an appeal by HM Revenue & Customs, which was arguing that Pringles should be standard-rated for VAT purposes. BBC coverage from the time said:

Procter & Gamble will be forced to pay tens of millions of pounds in VAT after losing a legal battle with the taxman over its Pringles snack.

The decision was estimated to prompt retrospective costs of £100mn and future costs of £20mn per year, according to the judgment.

As ever, there were some marvellous quotes, although for brevity we’ll focus on the conclusion:

In the course of his urbane submissions on the “made from” aspect of Regular Pringles Mr Cordara QC [acting for P&G] referred to “the potato as a fiscal contaminant”, the “essential characteristics of the paradigm potato crisp”, the absence of “findings of potatoness” and the “quantitative role of the potato.” In contending that Pringles (42% potato, 33% fat) were not “made from” the potato he put forward this proposition:

“If a product has a number of significant ingredients it cannot be said to be ‘made from’ one of them.”

So it is argued that Regular Pringles, which also contain fat and flour, cannot be said to be “made from the potato.”

The response to these points is that it is vital to recall why the Tribunal was required in the first place to answer the question whether the goods in question are “made from” the potato. It was not in answer to a scientific or technical question about the composition of Regular Pringles, or in response to a request for a recipe. It was for the purpose of deciding whether the goods are entitled to zero rating. On this point the VAT legislation uses everyday English words, which ought to be interpreted in a sensible way according to their ordinary and natural meaning. The “made from” question would probably be answered in a more relevant and sensible way by a child consumer of crisps than by a food scientist or a culinary pedant. On another aspect of party food I think that most children, if asked whether jellies with raspberries in them were “made from” jelly, would have the good sense to say “Yes”, despite the raspberries.

All very well, and focus on everyday English and common sense approaches will be familiar to anyone who has read our extensive tax coverage this year.

So what’s the twist? Well, since you asked, Revenue & Customs v Procter & Gamble UK isn’t the only standing case law regarding Pringles.

Dodge, duck, dip, dive and dodge

“[A]ren’t Pringles shaped for ‘dipping’ anyway?” is a far more legally-fraught question than (we imagine) @retrorerun thought.

As mentioned, potato snacks are an exception to the rule of zero rating for food, which is itself an exception to the general rule of standard VAT rating.

But there is also an exception to the exception to the exception to the rule: products of this kind are only standard rated if they are “packaged for consumption without further preparation”.

Back in the ’00s, P&G put this to the test with Pringles Dippers, a now-vanished variation of the snack designed to be used as an edible vehicle for salsas and the like — but otherwise basically identical to regular-shape Pringles in terms of ingredients.

Naturally, things ended up in court. We couldn’t find a copy of the original judgment, but suffice to say HMRC is still unhappy about the outcome. From its internal manual page on the potato-based snacks exemption (our emphasis):

In the case of Proctor and Gamble (V. 18381), the appellant brought before the tribunal a new product, the Pringles Dipper. The new product, looking similar to a typical Pringle, is chiefly made of 39% vegetable oil, 38% potato flour and 16% wheat and corn. The main difference between the two products is that the new Dipper is specifically designed for dipping and accordingly has a scoop shape to be used for dipping the product into accompanying dips.

The tribunal, in ruling that it was a zero-rated product, found that the product:

— was not packaged for human consumption without further preparation;
— was not ‘similar’ to other items mentioned in excepted Item 5; and
— was not made from potato flour within the meaning of excepted Item 5.

Although we disagree with the basis of the decision, Policy were not confident of winning on all three counts which would have been required by the High Court, and therefore did not appeal.

The 2009 judgment was also dismissive of this earlier ruling, only on the grounds of potacity. Lord Justice Jacobs:

Finally I should say a word about a decision of a differently constituted Tribunal concerning a product called Pringles Dippers (2003) VAT Decision 18381. It was decided that this was zero-rated. Part of the decision was devoted to the question of whether a Pringle Dipper was “made from the potato.” It was held not, although the amount of potato was broadly the same as for a Regular Pringle.

The present Tribunal took the view that the earlier Tribunal had erred in law this respect, though there were other reasons (having no parallel with the present case) why the ultimate decision was justifiable. The present Tribunal were entitled to take that view – there is no rule of stare decisis between Tribunals of co-ordinate jurisdiction. Rightly it did so only when convinced the earlier decision was wrong – for broadly Tribunals should strive to achieve consistency amongst themselves. But once so convinced it was its duty to apply the law as it considered it to be. As far as we are concerned it was the present Tribunal which approached the question “made from the potato” correctly in law.

So, as things stand:
— a Pringle is a potato snack, and is standard-rated for VAT.
— a Pringles Dipper is not a potato snack, and should it ever return would probably (controversially) be zero-rated for VAT.

We hope that’s all clear now.