5.6.5 Summary of all issues identified with regard to the CJEU’s VAT treatment of ‘leapfrog’ discounts and rebates

The rules, although based on a principle that is correct from an economic point of view (i.e. based on economic reality), are incompatible with the relevant provisions in the EU VAT Directive as they stand;

The ‘principle’ that dictates that the taxable amount that serves as a basis for the VAT levied by the tax authorities cannot be higher than the (net) amount actually paid by the final consumer, is both irrelevant for solving the VAT issues regarding cash-backs and money offs, as well as incorrect;

The ‘principle’ that dictates that the consideration ‘finally received’ by the business funding the cash-back or money off should be decreased by the amount funded is, in my view, not really a ‘principle of VAT’ (either); and

If only one of the two ‘principles’ is applied, there is the risk of funding by one government (treasury) of consumption in another tax jurisdiction.

It may prove hard to actually allocate the payment by the manufacturer for the redemption of a voucher to a specific output, for which the taxable amount should be decreased (in case more than one VAT rate applies to the outputs of the manufacturer);

In some countries, like the UK, manufacturers are not allowed to adjust their taxable base in all cases, which may affect the pro rata calculation;1

The ‘gross-net-issue’, created by the fact that ‘leapfrog’-rebate or discount can be used as (partial) payment of the gross value of a transaction between a retailer and its customer, as well as serve as the basis for a deduction of the taxable amount, which is by definition a net amount, by the manufacturer; and

The ‘gross-net-issue’, created by the fact that the payment by the manufacturer can be made to partially pay for a net price charged by the retailer (in case of a transaction subject to the reverse charge mechanism or an intra-Community supply of goods) but meant to fund the total VAT inclusive price paid by the final customer.