5.4.5.1 The ‘leapfrog’ discount cases only apply to specific transaction chains

First of all, the ‘cash back’ scheme and the ‘money off’ scheme that lie at the basis of the Elida Gibbs ruling as well as the subsequent rulings (which I will elaborate on below) are very specific species of rebates (or discounts). This kind of promotional activity almost inevitably only applies to cases that concern goods and only when these goods are not noticeably transformed by the transactions in the distribution chain: the aim of the business granting the ‘discount’ or ‘rebate’ is to promote the sale of his own goods, not of goods incorporating or incorporated in his supplies.1

To me, this means that in the manufacturer’s view, it is still ‘his product’ that is sold by the other businesses in the distribution chain. If the manufacturer wishes to promote sales of ‘his’ product by granting the buyer a discount or rebate, in his view as well as from an economic/cost perspective, it does not matter whether he grants this discount to the business that he makes the supply to under a legal agreement or whether he decides to actually grant the discount or rebate to another person further down the distribution chain (usually the final customer), probably to make sure that the discount or rebate actually ‘reaches’ the final customer, making his product more attractive. This can be described as ‘economic reality’.2

This reasoning is acknowledged by the CJEU, as can be seen in the paragraph I quoted above. In my view, the CJEU makes reference to the specifics of the supply (i.e. the fact that it concerns a supply of ‘own goods that are not noticeably transformed by the transactions in the chain’) where it applies the principle of neutrality as well as economic reality when calculating the taxable amount to “situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer”, by allowing this taxable person to act as if he granted a discount or rebate ‘directly’.3 You cannot discount a product supplied by another business, only your own.

I find confirmation of my view that the outcome of the Elida Gibbs case only applies to those specific situations in another CJEU case where a (disclosed) agent grants/funds a ‘discount’ off the price of a supply made by another, ‘principal’, supplier.4 The agent granted the discount to promote the sales of the product (a holiday travel), because selling that product would earn him a commission fee. The agent felt that this ‘discount’ should decrease the taxable amount regarding the supply made by him (i.e. the agency service provided to the principal supplier) because, just as in the Elida Gibbs case, the ‘discount’ affected the amount ‘finally received’ by the agent. The CJEU did not agree, arguing that:

The CJEU comes to the conclusion that in the circumstances of this case, the financing by the agent of a part the consideration of a supply which, from the perspective of the final consumer of the service, takes the form of a price reduction of that supply, affects neither the consideration received by the principal supplier for his supply nor the consideration received by the agent for its intermediation service.6

To me, this substantiates my view that the business that grants the ‘discount’ or ‘rebate’ has to have made a supply of the good earlier in the distribution chain that leads to the supply to the customer to whom the discount or rebate is granted, for it to be considered a discount or rebate under the Elida Gibbs ruling. Only then can the business be considered to be ‘at the head of a chain of operations’ (cf. the second point above), giving a discount or rebate on its own goods (cf. the first point above), which are the same goods as the ones supplied by the business further down the distribution chain (cf. the third point above). And only then, the money paid by the business at the head of the chain can be considered a discount or rebate in the sense of the Elida Gibbs ruling.