10.3.3 What should be the VAT treatment of discounts or rebates granted to other persons than the actual recipient of the original transaction?

The current EU VAT rules and regulations for determining the VAT treatment of discounts or rebates granted to the actual purchasers of the goods and services supplied by the business granting these discounts or rebates are pretty straightforward, and in line with the principles underlying the EU VAT system: they cause the taxable amount for the original supply to be lowered with the amount of the discount or rebate.

In practice, businesses stimulate the sales of their products not only by funding the purchase of these products through ‘direct’ discounts or rebates, but also by granting ‘discounts’ to purchasers further down the production and distribution line. Usually, the final consumers are granted these discounts, also by, for example, the manufacturers of products. In practice, these discounts or rebates are usually granted through incentives called ‘cash back schemes’ or ‘money off schemes’, often involving the retailer selling these products to the final consumer.

The CJEU has decided to treat these types of discounts or rebates the same as direct discounts or rebates, lowering the taxable amount of the original supply of the product (that was not supplied to the person that is awarded the discount). I have demonstrated that this solution raises some issues that are not in line with the principles underlying the EU VAT system.

I have also proposed an alternative to this system, based on the economic and commercial reality of funding the purchase of a product by a person that is not the customer of the business funding that product. I have suggested a solution called ‘joint payment – shared deduction’, which would consider the product to be partially purchased by the business funding the product (insofar as it funds that purchase). This should allow the business funding that purchase to deduct the VAT on ‘his part of the purchase’. Basically, such transactions would be considered ‘business costs’ and treated similar to, for example, advertisement costs.

Having answered questions about decreasing the purchase price of certain transactions, even to a level where there actually is no consideration, raises the next question: how should supplies that are made for no consideration treated from a VAT perspective?