CJEU on reduction of taxable amount on provision of indirect bonuses

In C-802/19, the Firma Z case, the Court of Justice of the EU (CJEU) opined on the treatment of indirect bonuses provided to end customers where goods had originally been delivered to another member state as supplies exempt from VAT with entitlement to VAT deduction.

A Dutch pharmacy (Firma Z) delivered pharmaceuticals from the Netherlands to an insurance company in Germany, which then provided them to its customers ( insured persons), individuals living in Germany, within their health insurance schemes. If, upon the purchase of the pharmaceutical in question, the insured person completed a questionnaire regarding their illness, Firma Z paid out a certain amount to them as a discount from the pharmaceutical’s price, while reducing the VAT taxable amount of pharmaceuticals delivered to the insurance company by this amount.

According to the CJEU, the sale of pharmaceuticals in this case involves two taxable supplies: the first one is the delivery of goods from the Netherlands to the public health insurance company in Germany, which is exempt from VAT. The second one is the delivery of goods by the public health insurance company to the insured persons. When acquiring goods from the Netherlands, the insurance company must declare VAT in Germany. The subsequent delivery of pharmaceuticals to the insured persons is not subject to VAT pursuant to the EU VAT Directive. 

The CJEU held that if Firma Z provides a discount from the price of pharmaceuticals to the insured persons, the taxable amount (the amount of tax-exempt supplies to another member state) of the original delivery of pharmaceuticals cannot be reduced. In our opinion, this viewpoint is in line with the CJEU’s existing case law; however, we may encounter different approaches in practice.

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