On October 2002, The ECJ issued its decision in the case C-427/98 (Commission v Germany). This case concerns the way in which the basis of assessment for value added tax (VAT) is to be determined where, as part of a promotional scheme, the original supplier of an item compensates a subsequent retailer for a price reduction granted by that retailer to his customer in exchange for a coupon or voucher issued by the original supplier, but where one or more other traders are present in the chain between supplier and retailer and where the prices paid by and to those other intervening traders are unaffected by the reimbursement.
Article in the EU VAT Directive
Article 11(A)(1)(a) and (3)(b) of the Sixth Directive provides:
‘A. Within the territory of the country
1. The taxable amount shall be:
(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;
3. The taxable amount shall not include:
(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply.’
4. Under the first subparagraph of Article 11(C)(1) of the Sixth Directive:
‘In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.’
5. Article 17(2)(a) of the Sixth Directive provides:
‘In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:
(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person.’
6. Under Article 20(1)(b) of the Sixth Directive:
‘The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular:
(b) where after the return is made some change occurs in the factors used to determine the amount to be deducted, in particular where … price reductions are obtained; …’
7. Under Article 21(1)(c) of the Sixth Directive:
‘The following shall be liable to pay value added tax:
1. under the internal system:
(c) any person who mentions the value added tax on an invoice or other document serving as an invoice’.
Facts
- In a letter dated 31 July 1992 sent to each of the Member States the Commission asked whether, in the Member State concerned, a manufacturer issuing vouchers in connection with his products was entitled to reduce his taxable amount accordingly when reimbursing the amount stated on the voucher to the retailer for a price reduction granted to the final consumer in exchange for that voucher.
- In its reply of 10 November 1992 the German Government provided, inter alia, the following explanation:‘The condition governing adjustment of tax and of input tax, under Paragraph 17(1) of the UStG is … that there has been a change in the basis for calculating the supplier’s turnover in relation to his immediate customer. Accordingly, it applies only to price rebates (reducing the remuneration) owing to the fact that the trader returns the remuneration to the person who paid it. Reimbursement by the manufacturer in favour not of the recipient of the supply but of another person in the distribution chain does not entail a reduction in remuneration for the manufacturer. If the manufacturer issues a voucher which the final consumer may redeem directly or through the intermediary of a trader, or if he reimburses to the final consumer an amount of money, there is no reduction in the basis of the calculation for the purposes of Paragraph 17(1) of the UStG.’
- In a letter of formal notice sent to the German Government on 18 January 1994 the Commission claimed that the German legislation was in breach of the principles of value added tax (hereinafter ‘VAT’), in particular Article 11 of the Sixth Directive, inasmuch as it denies a wholesaler the right to a reduction of its basis of assessment and a corresponding adjustment of its turnover tax where, upon presentation of a voucher, it reimburses a part of the price to a retailer with which it is not directly connected in the distribution chain.
- By letter dated 11 April 1994 the German Government replied that the situations envisaged in the abovementioned letter differed from those mentioned by the Commission in its letter of 31 June 1992 in so far as in the former the Commission assumed that the manufacturer undertook to reimburse the amount of the voucher to the retailer and that that reimbursement occurred through the intermediary of the wholesaler.
- In a supplementary letter of formal notice of 14 June 1995 the Commission stated its view that no distinction ought to be drawn according to whether the taxable person reimbursing the voucher was or was not directly connected with the taxable person who accepted that voucher as a means of payment or according to whether the voucher was reimbursed to the final consumer directly by the taxable person who had undertaken to do so or through the intermediary of another taxable person.
- In its reply of 4 September 1995 the German Government maintained its view that the issuer of a voucher may reduce its taxable amount only when it is directly linked in the distribution chain to the person to whom it reimburses the value of the voucher. It proposed in any event that the proceedings be stayed pending a ruling by the Court on the questions referred to it in the cases in which it gave judgment on 24 October 1996 (Case C-317/94 Elida Gibbs [1996] ECR I-5339 and Case C-288/94 Argos Distributors [1996] ECR I-5311), which on the date of its letter were still pending before the Court. Thus, initially, the Commission did not pursue the procedure for failure to fulfil obligations.
- By a letter dated 5 March 1997 the Commission drew the attention of the German Government to the fact that in the Elida Gibbs judgment the Court had fully endorsed its view of the matter. It therefore requested the German Government to inform it of the legal provisions which it had adopted in order to comply with that judgment.
- In its reply of 26 May 1997 the German Government requested the Commission to extend the stay of proceedings because it was still considering the Elida Gibbs judgment and the consequences for German law to be drawn therefrom.
- Since the Federal Republic of Germany had still not adopted any measures to bring its legislation into line with the judgment in Elida Gibbs, the Commission addressed a reasoned opinion to it on 23 March 1998.
- In a letter to the Commission of 26 August 1998 the German Government reaffirmed its view, though acknowledging that the substance of the Elida Gibbs judgment ran counter to its own interpretation. In particular it referred to an administrative circular from the Federal Ministry of Finance dated 15 April 1998 and entitled ‘Assessment of the taxable amount in regard to turnover tax on the issue of vouchers offered with products’ (Bundessteuerblatt 1998 I, p. 627).
- As is apparent from that circular, under German law, the manufacturer’s taxable amount may be reduced by the amount indicated on a voucher only if the manufacturer reimburses that amount to a trader to whom he previously supplied the goods directly and on condition that the manufacturer establishes a corrected invoice resulting in a corresponding adjustment by the trader of the input tax deducted by him.
Questions
AG Opinion
I am accordingly of the opinion that the Court should
(1) declare that, by failing to adopt provisions enabling a supplier’s basis of assessment to be adjusted when he redeems vouchers accepted in part payment of his goods by a subsequent trader, even when he did not supply the goods directly to that trader, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of the Sixth VAT Directive;
(2) order the Federal Republic of Germany to bear the costs of the proceedings, except those of the United Kingdom, which must bear its own costs.
Decision
THE COURT hereby:
1. Declares that by not adopting the measures necessary to allow adjustment of the taxable amount of the taxable person who has effected reimbursement where money-off coupons are reimbursed, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, in the version contained in Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax – scope of certain exemptions and practical arrangements for implementing them;
2. Orders the Federal Republic of Germany to pay the costs;
3. Orders the United Kingdom of Great Britain and Northern Ireland to bear its own costs.
Source
Similar ECJ cases
- Roadtrip through ECJ cases: Focus on ”Discounts”
- C-317/94 – Elida Gibbs Ltd. – Money back and discount coupons – Taxable amount to be adjusted
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