The ECJ has confirmed that consideration for VAT purposes should be reduced by any discount applied, regardless of who benefited from the discount. This case involved the supply of medicines to various wholesalers and pharmacies, which then sold the medicines on to the end consumers, who would often get the cost of the medicines reimbursed by their private health insurer. Under German law, suppliers of medicine are required to offer a discount to private health insurers. As a result, the supplier sought to reduce the consideration received for VAT purposes by the amount of the discount. This approach was challenged by the German tax authority which claimed that, as the discount was not received by the end user of the products, it could not be used to reduce the consideration received for VAT purposes.
In its decision, the ECJ confirmed the decision in Elida Gibbs Ltd v Customs and Excise Commissioners, which stated that the amount of VAT collected in a supply chain did not need to exceed the amount of VAT paid by the final consumer. In particular, the ECJ stated that a fundamental principle of VAT is that the taxable consideration is the amount actually received in return for the goods or services and, as a result, the consideration can be reduced by any amounts not received by the supplier regardless of whether the discount was awarded to the end user. In addition, the ECJ noted that, as the discount was fixed by statute, the amount of the discount could not be treated as part of the consideration for VAT purposes.