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The case C-684/18 World Comm Trading Gfz SRL and CJEU’s decision

In this issue:
  • CJEU Decision in case C-684/18 World Comm Trading Gfz SRL
  • VAT adjustments as a result of rebates received for intra-Community and domestic supplies of goods

The case examines whether the taxable base should be reduced proportionately for each state where supplies were performed in the case of global trade discounts.


Facts of the case and Court Decision

World Comm Trading, a company established in Romania, has concluded, at 1 April 2004, a mobile phone product distribution agreement with Nokia Corporation. The supplies were performed by Nokia using its VAT numbers from Finland, Germany, Hungary and Romania.

The intra-Community supplies of goods were recorded by Nokia as VAT exempt supplies, and, in return, World Comm Trading recorded intra-Community acquisitions of goods for which it applied the reverse charge mechanism. As regards the domestic supplies, Nokia issued invoices with Romanian VAT and World Comm Trading recorded deductible VAT for these acquisitions.

Nokia granted discounts on a quarterly basis to World Comm Trading for reaching a certain sales threshold for the mobile phones. This volume threshold was computed independently of the place of delivery of the products.

For these discounts Nokia issued a single invoice on a quarterly basis, including a negative balance entered, with "-" (minus) sign. This invoice included its Finnish VAT number, even if some of the products covered by these discounts had been supplied from Romania. World Comm Trading subsequently recorded the corresponding VAT through the application of the reverse charge mechanism. Thus, World Comm Trading recorded the full amount corresponding to the discounts obtained as being linked to intra-Community transactions.

Following a tax audit, the Romanian tax authorities concluded that World Comm Trading had erroneously recorded VAT and had not made any distinction between domestic and intra-Community supplies. Consequently, the tax authorities issued a tax decision amounting to RON 821 377 (the equivalent of EUR 173 856), which also included late payment interest and penalties.


The preliminary questions raised by the Bucharest Court of Appeal:

1. Do Article 90 of the VAT Directive and the principle of VAT neutrality preclude national legislation which denies an undertaking the right to deduct VAT proportionally as compared to the value of the discount applied to domestic supplies of goods on the grounds that the tax invoice issued by the intra-Community supplier shows the global discount granted for both intra-Community and domestic products supplies 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 than the one mentioned on the invoice relating to the discount?

2. In case 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 proportionally as compared to the value of the discount granted globally by the intra-Community supplier in the case when the local supplier ceased its economic activity and can no longer reduce the taxable base related to the supplies by issuing an invoice mentioning its own VAT number, for the purpose of reimbursement of the additional VAT collected?

The CJEU has confirmed the approach of the tax authorities to regularize the input VAT deduction right of a taxable person as a result of obtaining price reductions, considering that the initial deduction was larger than the one the taxable person was entitled to.

The above mentioned conclusion is also valid in case the supplier has ended its activities in the respective Member State and it cannot, because of this reason, request the refund of part of the VAT paid.

This decision shows the importance of implementing a mechanism for the supervision by the beneficiaries of the price discounts to which they are entitled, these reductions having a tax impact, beyond the commercial aspect.

Thus, we recommend companies to analyse the discounts received from suppliers to ensure that the correct VAT treatment is applied as regards these operations. Our team can assist with the performance of such an analysis, in particular in the context of interpreting the above decision.

Prepared by:
Costin Manta – Director, Indirect Tax
For additional information, please contact:
Alex Milcev – Partner, Tax & Law Leader Romania
Ernst & Young SRL
Bucharest Tower Center Building,
22nd Floor, 15-17 Ion Mihalache Blvd.,
Sector 1, 011171, Bucharest, Romania
Tel: (40-21) 402 4000, Fax: (40-21) 310 7124
Email: office@ro.ey.com
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