ECJ case C‑684/18 (World Comm Trading) – Judgment – Global rebates required local adjustments

On May 28, 2020, the ECJ issued the decision in the case C‑684/18 (World Comm Trading).

Context: (Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 90 – Articles 184 to 186 – Principle of neutrality of VAT – Adjustment of initial deduction – Discounts on intra-Community and domestic supplies of goods)

Article in the EU VAT Directive

Articles 90, 184 to 186 of the EU VAT Directive 2006/112/EC.

Article 90

1. 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.

2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Article 184

‘The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.’

Article 185

1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.

2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.

However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.’

Article 186

Member States shall lay down the detailed rules for applying Articles 184 and 185.

Facts

On 1 April 2004, World Comm Trading, a company established in Romania, entered into a contract with Nokia Corporation (‘Nokia’) for the distribution of mobile telephony products.
Under that contract, World Comm Trading acquired numerous mobile telephony products from Nokia. Nokia supplied those goods to World Comm Trading from Finland, Germany, Hungary and Romania.
As regards the intra-Community supplies of those goods from Finland, Germany and Hungary, Nokia used, respectively, its Finnish, German and Hungarian VAT numbers. In respect of those supplies, Nokia issued VAT exempt invoices and World Comm Trading accounted for VAT in Romania under the reverse charge mechanism.
In respect of the supplies of goods made domestically within Romania, Nokia issued VAT invoices bearing its Romanian VAT number and World Comm Trading recorded the VAT as deductible.
Nokia gave World Comm Trading quarterly volume discounts on sales of mobile telephony products, or in other words price reductions which applied where a certain volume threshold had been achieved. The threshold was calculated without regard to the place of supply of the goods.
In respect of these discounts, Nokia issued a single invoice each quarter showing a negative balance with the ‘-’ (minus) sign. That invoice showed its Finnish VAT number, even though some of the goods to which the discounts related had been supplied from Romania. World Comm Trading then accounted for the corresponding VAT in accordance with the reverse charge mechanism. It accounted for the entire value of the discounts it obtained, in fact, as relating to intra-Community transactions.
Following an inspection, the Romanian tax authorities concluded that World Comm Trading had not accounted for VAT correctly, in that it had not distinguished between domestic and intra-Community supplies. According to those authorities, World Comm Trading ought to have accounted for the VAT corresponding to the discounts relating to domestic supplies separately from the VAT corresponding to the discounts relating to intra-Community supplies of the goods in question. The tax authorities consequently issued a notice of assessment in the total sum of 821 377 Romanian lei (RON), (about EUR 173 855.84), which included interest and penalties for late payment.
In that regard, the referring court, the Curtea de Apel Bucureşti (Court of Appeal of Bucharest, Romania) states, in its response to a request for further information from the Court, that that amount represents the difference between the amount originally deducted and a recalculated amount of deductible VAT, based on the taxable amount after adjustment for the discounts obtained in respect of domestic supplies of mobile telephony products in Romania.
By decision of 30 October 2014, the national tax administration agency rejected an objection lodged by World Comm Trading in respect of the notice of assessment referred to in paragraph 17 of this judgment.
After an action against that decision had been dismissed by the Tribunalul București (Regional Court, Bucharest, Romania), World Comm Trading brought an appeal against that decision before the referring court.
Before that court, World Comm Trading submits that the tax administration’s requirement for the VAT corresponding to the discounts relating to domestic supplies to be accounted for separately from that corresponding to the discounts relating to intra-Community supplies reflects an excessive concern for matters of form. It argues that the way in which it accounted for the discounts granted by Nokia had no effect on the State budget. Furthermore, it submits, such a requirement would be contrary to the principle of the neutrality of VAT, given that, by the time of the tax inspection, Nokia had ceased trading in Romania and was no longer able to issue an invoice under a Romanian VAT number in respect of the volume discounts relating to domestic supplies of mobile telephony products in Romania.
In the light of those arguments, the referring court wishes to establish whether a company which has been regarded as fulfilling the substantive conditions for adjustment of its right to deduct VAT can be refused such an adjustment, on the basis that national legislation or national administrative practice prohibits the deduction of VAT in circumstances where the supplier has issued a single invoice covering goods which have been the subject of domestic supplies and goods which have been the subject of intra-Community supplies.
In that regard, the referring court wishes to establish, more specifically, whether the principle of proportionality precludes the national tax authorities from requiring World Comm Trading to repay the difference between the amount originally deducted and the amount of VAT recalculated as deductible. It asks, in particular, whether those authorities are entitled to require such repayment in circumstances, such as those of the main proceedings, where the taxable amount has been adjusted following discounts obtained in respect of supplies of mobile telephony products effected in Romania, despite the fact that Nokia has ceased to trade in that Member State and is no longer able to issue an invoice under its Romanian VAT number in respect of the discounts relating to the domestic supplies.
The referring court also wishes to establish, with reference to Article 90 of the VAT Directive, under which, it states, it is for the Member States to determine the factual circumstances in which the taxable amount is reduced, whether that provision obliges the Member States to adopt clear and foreseeable legislation in relation to the formal and substantive requirements for the exercise of the right of deduction. It wishes to know whether, in the absence of such national legislation, an undertaking can be denied the right to deduct VAT.

Questions

(1) Do Article 90 of [the VAT Directive] and the principle of VAT neutrality preclude national legislation (or an administrative practice based on unclear legislation) which denies an undertaking the right to deduct VAT in proportion to the value of a discount applied to national supplies of goods on the ground that the tax invoice issued by the intra-Community supplier (as representative of an economic group) shows the global discount granted for both [goods which have been the subject of intra-Community supplies] and [goods which have been the subject of domestic supplies, all such goods having been] supplied under the same framework agreement but recorded as purchased from the Member State of reference (from one member of the group, with a different VAT number from that borne by the invoice relating to the discount)?

(2) In the event that the first question is answered in the negative, does the principle of proportionality mean that the beneficiary cannot be denied the right to deduct VAT in proportion to the value of the discount granted globally by the intra-Community supplier in the case where the local supplier (a member of the same group) has ceased its economic activity and can no longer reduce the taxable amount of the supplies by issuing an invoice bearing its own VAT number, for the purpose of reimbursement of the excess VAT collected?

AG Opinion

None

Decision

1. Article 185 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax is to be interpreted as meaning that the national tax authorities must impose an adjustment of an initial deduction of VAT on a taxable person where, following a discount obtained by the taxable person in respect of domestic supplies of goods, those authorities consider that the initial deduction of VAT was higher than that to which the taxable person was entitled.

2. Article 185 of Directive 2006/112 is to be interpreted as meaning that an adjustment of an initial deduction of value added tax (VAT) is required, in respect of a taxable person established in a Member State, even where the supplier of that taxable person has ceased to trade in that Member State and, for that reason, is no longer able to claim partial reimbursement of the VAT which it paid.

Summary

The Court of Justice of the EU delivered its judgment in the Romanian case C‑684/18, World Comm Trading. The background facts to the case depict a common situation whereby a rebate or a retrospective discount is provided to a client upon meeting a target or fulfilling certain conditions. In particular, in this case, the rebate related to both intra-Community acquisitions of goods and local purchases made from separate VAT registered persons (in other Member States and locally in Romania). However, at the time the rebates were given, the local Nokia supplier had already discontinued activities in Romania and deregistered, so the whole rebate was given via the VAT registration number of the supplier (Nokia) in Finland. The Court ruled that the Member State’s tax authorities are required to demand an adjustment in the input VAT initially deducted as a result of the reduction of the tax base to the extent it related to the local purchases. That is in accordance with Article 185 of the PVD. The adjustment is required even where the suppler had discountined activities and is no longer able to issue a credit note in respect of the reduction of the tax base given via the rebate.

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