© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
D5. Changes in consideration
General principle
- VAT may not be collected on an amount exceeding the tax the taxable person received
"[32] Next, it must also be recalled that Article 90(1) of the VAT Directive, which relates to cases of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, requires the Member States to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. That provision embodies one of the fundamental principles of the VAT Directive, according to which the taxable amount is the consideration actually received and the corollary of which is that the tax authorities may not collect an amount of VAT exceeding the tax which the taxable person received (judgment of 15 May 2014, Almos Agrárkülkereskedelmi, C‑337/13, EU:C:2014:328, paragraph 22 and the case-law cited)." (Boehringer C-462/16)
- Unnecessary for there to be a contractual change: any failure to receive the whole consideration
"[39] In the second place, it is clear from the case-law of the Court that Article 90(1) of the VAT Directive does not presuppose such a subsequent modification of the contractual relations in order for it to be applicable. In principle, it requires the Member States to reduce the taxable amount whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. Moreover, there is no indication that in its judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400), the Court wished to restrict the scope of application of Article 11C(1) of the Sixth Directive which corresponds to Article 90 of the VAT Directive. On the contrary, it is apparent from the facts of the Elida Gibbs case that there had been no modification of the contractual relations. Nevertheless, the Court held that Article 11C(1) of the Sixth Directive was applicable (see, to that effect, the judgment of 29 May 2001, Freemans, C‑86/99, EU:C:2001:291, paragraph 33)." (Boehringer C-462/16)
- No non-payment where debt insurer reimburses taxable person (and insurer cannot claim adjustment)
"[40] In that context, it appears that the part of the debts for which the applicant in the main proceedings received compensation was indeed received by the taxable customers as consideration for the taxable transactions at issue, with the result that it cannot be regarded as being the subject of a ‘non-payment’ within the meaning of Article 90(1) of the VAT Directive.
[41] It follows that that part of the debts, even if it was received by way of compensation, cannot give rise to any right to a reduction of the taxable amount of VAT for the taxable customers.
[42] Furthermore, it cannot be held that, in the light of EU VAT law and irrespective of the national rules that may govern assignments of debts under civil law, an insurer such as the applicant in the main proceedings may be identified as being the taxable person entitled, as regards the part of the debts that have been the subject of compensation and assignment, to a reduction of the taxable amount for VAT purposes under Article 90(1) of the VAT Directive.
[43] To recognise such an insurer as having that status would be tantamount to disregarding the principle of fiscal neutrality, since the VAT paid to the tax authorities would not be exactly proportional to the price actually received by the taxable customers who carried out the taxable transactions in question." (Euler Hermes C-482/21 - insurer was trying to claim reduction in VAT based on debt assigned to it by customer)
Customer default
- Customer failing to fulfil obligation leading to supplier regaining possession under agreement
"[24] It is clear from the order for reference that NLB, as lessor, and Domino, as lessee, entered into two lease agreements the purpose of which was the lease of two pieces of property. It also appears from that order that, owing to Domino’s failure to fulfil its obligations, NLB regained, in accordance with those agreements, possession of that property, sold it to a third party and paid the surplus proceeds of sale to the lessee, after deducting, in the final account, the sum relating to the purchase options...
...
[38] It follows from the foregoing considerations that Article 90(1) of the VAT Directive must be interpreted as not permitting a taxable person to reduce the taxable amount where that person has in fact received all the payments in consideration for the service which he supplied or where, without the agreement having been refused or cancelled, the recipient of that service is no longer liable to the taxable person for the agreed price." (NLB Leasing C-209/14)
Cancellation
- Customer returns goods, delivery charge not refunded: partial reduction in consideration
"[25] Finally, we considered the First-tier decision in ASOS plc v HMRC [2018] UKFTT 353 (TC). That case concerned goods sold by an online retailer to customers with a number of delivery options. Standard delivery was free but other delivery options gave rise to a charge to the customer. Following conclusion of the contract (on standard terms) for purchase, the goods were despatched from ASOS's warehouse in accordance with the selected delivery option. As this was a retail transaction, the terms and conditions required payment for the goods before dispatch but similar terms regarding delivery were included as those in the present case. If the goods were returned within 28 days, as provided for under the standard terms, ASOS refunded the price of the goods but retained the delivery charge. ASOS claimed that the retained delivery charge was a penalty and not liable to VAT. Following a very comprehensive review of the case law concerning single versus multiple supplies, the FTT confirmed that there was a single supply of delivered goods. In consequence, on return of the goods, that supply was cancelled in part and the consideration reduced to the retained sum (equal to the delivery charge)." (Procurement International Limited v. HMRC [2024] UKFTT 949 (TC), Judge Brown KC)
Rebate/discount paid to person other than recipient of supply
- Supplier required to make payment to insurers who funded supply to insured: discount is reduction
"[34] In the present case, the order for reference states that the pharmaceutical company is required, under national legislation, to grant to private health insurance companies, in respect of prescription only medicinal products the cost of which the latter have reimbursed the insured persons in part or in full, discounts according to the sharing of the costs in the same proportions as provided for statutory health insurance companies. The tax authority does not regard this discount as a reduction of the taxable amount.
[35] Thus, as a result of that legislation, Boehringer Ingelheim Pharma could dispose of a sum corresponding to the price of the sale of those products to pharmacies, reduced by that discount. It would not therefore be in conformity with the VAT Directive for the taxable amount used to calculate the VAT chargeable to the pharmaceutical company, as a taxable person, to exceed the sum finally received by him. If that were the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the pharmaceutical company is one, would not be complied with (see, to that effect, the judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 28)." (Boehringer C-462/16)
- Insurer reimbursing the final consumer means insurer has provided third party consideration
"[41] As the Advocate General observed in points 44 and 45 of his opinion, the payments made at the point of purchase of the medicinal products must be regarded as consideration provided by a third party within the meaning of Article 73 of the VAT Directive when those third parties, namely insured persons, requested reimbursement by the private health insurance companies and the latter obtained, in accordance with the national law, the discount owed to them by the pharmaceutical company. Therefore, having regard to the facts at issue in the main proceedings, the private health insurance companies must be regarded as being the final consumer of a supply made by a pharmaceutical company, which is a taxable person for the purposes of VAT, such that the amount payable to the tax authority may not exceed that paid by the final consumer (see, to that effect, the judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 24)." (Boehringer C-462/16)
- Medicine supplier required to make payment to government body: payment is reduction
"[103] HMRC also contended that, even if the DHSC was or could be regarded as the final consumer, there was not a sufficient link between the payments under the Schemes and the supplies of the health service medicines. HMRC's submission was that there must be a direct link between the consideration received and the goods supplied which was absent in this case. As I have already stated at [53] above, there is no requirement for the rebate to be linked to specific items purchased by consumers. It is clear from Boehringer 1, Boehringer 2 and Novo Nordisk that the fact that the DHSC was not a participant in the contractual chain of supply and was not the purchaser or direct beneficiary of the medicines does not prevent the DHSC from being a final consumer. Those are not the links that are required. What is required is that the payments under the Schemes reduce the consideration received by BIL for the supply of the health service medicines. That the payments reduced the consideration in this case is established by the following facts:
(1) one of the purposes of the Schemes under Section 261 of the NHS Act was to limit the prices charged for the supply of health service medicines by a manufacturer such as BIL;
(2) the prices were limited by requiring BIL to pay the DHSC amounts calculated by reference to sales of the health service medicines by BIL;
(3) BIL submitted quarterly returns of its UK-wide sales and made payments to the DHSC in accordance with the returns; and
(4) the payments under the Schemes were booked as a discount against the 'sales' line in BIL's accounts." (Boehringer Ingelheim Limited v. HMRC [2024] UKFTT 948 (TC), Judge Sinfield)
Procedure for adjusting
- Reduction of taxable amount cannot depend on issue of documents that other party does not issue
"[63] However, in so far as possession of an invoice is, under national law, an essential condition for the reduction of the taxable amount, VAT neutrality is affected when it is impossible or excessively difficult for the person entitled to the refund to obtain such an invoice (see, to that effect, judgment of 26 January 2012, Kraft Foods Polska, C 588/10, EU:C:2012:40, paragraph 38).
[64] It is apparent from the order for reference that Boehringer Ingelheim does not have invoices in respect of the payments it made to the State health insurance agency, since the latter issued only requests for payment.
[65] In such a situation, the principles of VAT neutrality and proportionality require the Member State concerned to permit the taxable person to establish by other means before the national tax authorities that the transaction giving entitlement to a reduction in the taxable amount was in fact carried out (see, to that effect, judgment of 26 January 2012, Kraft Foods Polska, C 588/10, EU:C:2012:40, paragraph 40). This is especially so where, as in the present case, the transaction in question took place with regard to a State entity." (Boehringer Ingelheim C-717/19)
- Permissible to require notice of adjustment to be given to insolvent debtor/customer
"[42] In the light of all the foregoing considerations, the answer to the first question is that the principle of neutrality as well as Articles 90 and 273 of the VAT Directive must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides that the reduction of the taxable amount for VAT, in the event of non-payment, cannot be made by the taxable person until it has given prior notice of its intention to cancel all or part of the VAT to the purchaser of goods or services, if that purchaser is a taxable person, for the purposes of correcting the deduction of VAT that the latter has made." (Tratave C-672/17)
- Requirement for acknowledgement of adjustment from customer potentially making exercise of right excessively difficult
"[37] Moreover, given that possession of the acknowledgment of receipt in question enables the supplier of goods or services to calculate the VAT payable on the basis of the amounts set out in the corrected invoice or to recover all the excess VAT paid to the tax authorities, that requirement does not, in principle, undermine VAT neutrality.
[38] However, possession of acknowledgment of receipt being, under national law, an essential condition for calculating the VAT payable on the basis of the amounts set out in the correcting invoice or for recovering the excess VAT paid, it must be held that, in the light of the case-law cited at paragraphs 29 to 31 above, VAT neutrality is affected when it is impossible or excessively difficult for the supplier of goods or services to obtain such acknowledgment of receipt within a reasonable period of time.
[39] KFP stated, without being contradicted on this point, that, under Polish law, the purchaser of goods or services is not under any legally binding obligation to acknowledge receipt of a correcting invoice, which is a matter for verification by the referring court.
[40] If it is impossible or excessively difficult for the supplier of goods or services to recover, within a reasonable period, the excess VAT paid to the tax authorities on the basis of the initial invoice because of the condition at issue in the main proceedings, the principles of VAT neutrality and proportionality require the Member State concerned to permit the taxable person to establish by other means before the national tax authorities, first, that he has taken all the steps necessary in the circumstances of the case to satisfy himself that the purchaser of the goods or services is in possession of the correcting invoice and that he is aware of it and, second, that the transaction in question was in fact carried out in accordance with the conditions set out in the correcting invoice.
[41] Copies of the correcting invoice and the reminder addressed to the purchaser of the goods or services to send acknowledgment of receipt and, as KFP submitted at the hearing without being contradicted on that point, proof of payment or the production of entries from the accounts which make it possible to identify the amount actually paid to the taxable person in connection with the transaction in question by the purchaser of the goods or services may serve that purpose." (Kraft Foods Polska C-588/10)