Cross-border rebates and VAT

rebates VAT

Rebates regularly trigger VAT questions. This particularly applies to cross-border rebates. The European Court of Justice (ECJ) has recently commented on this.

Basic VAT principle

Rebates are price corrections. They decrease the VAT tax base. In case of transactions subject to VAT, the rebate amount is a gross amount including the related VAT. Retroactive rebate therefore result in an correction of the prior VAT handling. The supplier can claim the related VAT amount back from his tax office. Correspondingly, the customer has to correct his initial VAT refund. These effects become effective at the point in time of the actual payout.

Cross-border rebates: VAT rules require split between local and cross-border supplies

International companies often perform both domestic as well as VAT free cross-border EU supplies. This can for example happen if they make supplies made via local warehouses and others directly from foreign locations. Another possibility is that they serve customers by both domestic and foreign group companies. How to treat group rebates in those situations? Let`s see what what the EJC said:

ECJ, C-684/18 – World Comm Trading: Basic VAT rules require split   

In his judgment C-684/18 dated 20.05.2020, the ECJ commented on the VAT treatment of a total rebate amount for different kind of supplies. The decided case concerned Nokia supplying a Romanian customer via a Romanian Nokia company and foreign companies. Nokia Romania`s domestic supplies included Romanian VAT. Supplies from other Nokia companies were VAT free EU supplies. After execution of the supplies, Nokia Romania ceased its activities and was VAT de-registered. Nokia granted its Romanian customer a rebate on all Nokia supplies. It centralised the payout of the complete rebate amount via Nokia Finland. Thus, Nokia Finland reported the rebate as a minus EU supply under the Finnish VAT number. Correspondingly, also the Romanian customer treated the rebate as net amount related to VAT free EU supplies. He therefore did not correct the VAT refund for the domestic Romanian supplies. 

The Romanian tax authorities did not agree with this. Instead, they requested the split of the rebate amount. As far as as it concerned domestic supplies, the customer´s VAT refund should have been corrected. The ECJ confirmed the view of the tax authorities. 

Adjustment of VAT refund even if supplier cannot make a counter correction

The judgment is particularly interesting under the following aspect: In this case, the supplier had already cease his activities and was VAT de-registered. Thus, he could not claim a correction of this earlier VAT payments towards the Romanian tax office anymore. The Romanian customer therefore argued that his VAT refund correction infringes the principle of the VAT neutrality in B2B-transactions. However, for the ECJ this was not relevant. Instead, he regarded the right of the Romanian tax authorities as higher. 

Further Civil Law implications

Parties of a rebate agreement regularly agree on a net rebate amount. Thus, in a constellation as above the customer might claim an additional payment of the supplier (group). Additionally, he might also be entitled to any damage compensations. This may particularly concern interest on the VAt refund correction. 

VAT rules – comprehensively explained

Not only rebates trigger VAt questions. You wish to avoid the biggest VAT traps? Then you may be interested in our E-Learnings VAT – Basic online course (with certificate) and VAT & B2B transactions (E-Learning with certificate).

Picture: Roter Headliner mit 4 Preisschildern mit Prozentzeichen@Alexander Limbach/