German VAT on intermediary discounts

Sun 23rd Feb 2014

The European Court of Justice (ECJ) has provided guidance on situations where an intermediary provides a discount on services, and the resulting German VAT treatment.

Germany VAT discounts

The case in question concerned a German holiday agent (intermediary).  It sold on the holiday packages of tour operators to final customers.  In return, it received a % commission from the tour operators.

The intermediary regularly gave discounts to the final customers on the tour operators’ listed prices.  Part of the services involved were tax exempt, meaning it was uncertain as to how discounts affected the final VAT liability.

The German Federal Tax Court asked the ECJ last year to rule on the VAT liability of the intermediary – should it be based on the list price or the discounted price?

In January 2014, the ECJ ruled that the discount should not be allowed for in the final VAT calculation since there is no contractual relationship between the intermediary and the final customer.