5.4 The VAT consequences of discounts and rebates

A basic principle of the current EU VAT system is that it is intended to tax only the final consumer. According to the CJEU, this means that the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot – as a main rule – exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him. It follows that the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer.1 This means that if the final consumer pays less than the advertised price, e.g. because a discount is granted, no VAT should be levied on the amount of the discount. As I will explain in Section 5.5, in my view this is not a ‘basic principle of EU VAT’ at all. In my view, ‘consideration paid by the final consumer’ should include payments made by other person than the recipient of the supply, e.g. third-party payments. I refer to Section 5.5.

The fact that the taxable amount cannot exceed what is actually paid by or on behalf of the final consumer was confirmed on several occasions by the CJEU, also in a specific case where the Belgian tax authorities wanted to levy VAT on amounts that contractually could have been charged by a taxable business to its customer (the Connoisseur Belgium case).2 The taxable business had calculated its price without taking certain costs into account, even though the contract between the parties stipulated that certain cost elements should have been included in the price. The CJEU held (in an order) that value added tax is not due on costs or amounts that could contractually have been charged, but were not, by the taxable person to the other contracting party.