What are the VAT implications of these loyalty formulas commonly used by large distribution chains?
First, in order to analyze the impact that the discounts offered have on the taxable base of the transactions, the moment at which the discount is understood to have been carried out (prior to, simultaneous with or subsequent to the execution of the transaction) is decisive.
Article 78.1 of the LIVA establishes that the base of the Tax will be constituted by the total amount of the consideration of the operations subject to it. In addition, number 2 of section three of the aforementioned article establishes that discounts and rebates are justified by any means of proof admitted by law and are granted prior to or simultaneously with the time when the transaction is carried out. On that basis, they will not be included in the VAT base, except in the case in which the price reductions constitute remunerations for other transactions.
That is to say, those discounts that are granted prior to or simultaneously with the moment in which the operation is carried out will be excluded from the base of the Tax. Therefore, the taxable amount at the time of purchase of the goods or services acquired with such discounts by consumers in the distribution chains will be the consideration actually paid at the time of purchase or the usual selling price of the product minus the discount offered.
However, discounts may also be granted after the transaction has been carried out, in which case the discount will entail a change in the tax base in accordance with article 80.1.2 of LIVA.
An example of this is the granting of chain discounts, in which there are several entrepreneurs or professionals involved in the chain of production and distribution of goods. In them, the manufacturer of the product in an attempt to build customer loyalty, or perhaps to publicize their new products, initiates promotional campaigns through loyalty cards, vouchers, discount vouchers … etc., all through their distributors, who redeem these discounts to end consumers, but who are not really the grantors of them.
In this case, both the ECJ in its Judgment of October 24, 1996 (Case C-317/94, Elida Gibbs) and successive pronouncements of the Directorate General of Taxes and the Courts of Justice have concluded that the granting of these chain discounts to final customers determines the reduction of the taxable base for the delivery of products from the manufacturer to the distributor. This does not include, however, a correction of the tax charged or of the deduction made by the distributor, nor does it affect any of the intermediate transactions which, where appropriate, may exist from the first delivery by the manufacturer to that which takes place in favor of the final consumer.
Therefore, manufacturers who routinely use these loyalty formulas should consider recovering excess VAT paid on sales of these discounted products. To this end, it is essential to determine the correct procedure for rectifying the tax amounts charged and to correctly determine the accrual of the discounts granted, as well as the supporting documentation to be kept in order to avoid problems in any verification procedure on the part of the Administration.
Sonia Alvarez Martín