Key points
The Italian Supreme Court (Corte di Cassazione) has ruled that downward VAT adjustments for cashback transactions are precluded where the upstream transaction is subject to the reverse charge regime. This means that businesses operating under the reverse charge cannot recover VAT relating to refunds offered to final consumers, because they have not actually paid the tax to the Treasury.
Introduction
Order no. 10259/2026 of the Italian Supreme Court (Corte di Cassazione) definitively clarifies the limits on the application of downward VAT adjustments in reverse charge and cashback contexts. This ruling is fundamental for businesses using consumer refund promotions, particularly in sectors where VAT is accounted for under the reverse charge.The Issue: VAT Adjustments, Reverse Charge and Cashback
The dispute arose from VAT refund claims submitted by a multinational company which, although operating upstream under the reverse charge, paid cashback directly to final consumers. The company considered cashback to be a reduction in the consideration, allowing a downward VAT adjustment to recover the tax.The Structure of the Commercial Transaction
The case involved a multi-tier distribution chain:* Upstream supply: The manufacturing company sold devices to retailers under the reverse charge, without charging VAT on the invoice.
* Downstream supply: The retailers sold the products to final consumers, applying ordinary VAT.
* Promotional transaction: The manufacturing company refunded part of the purchase price directly to final consumers through cashback.
The Italian Revenue Agency (Agenzia delle Entrate) refused the refund, arguing that the supplier could not recover a tax it had never paid, given the reverse charge mechanism.
The "Structural Break" Created by the Reverse Charge
The Italian Supreme Court (Corte di Cassazione), upholding the lower courts' judgments, dismissed the appeal, ruling that the application of art. 26 d.P.R. n. 633/1972 (downward adjustment) is subject to strict constraints. The reverse charge creates a "structural break" that prevents a downward adjustment in favour of the manufacturer.Absence of the Subjective Requirement
The reverse charge separates the person making the economic supply (the supplier) from the person liable for the tax (the purchaser). For a VAT adjustment, it is essential that the person claiming the refund and the taxable person liable for VAT are one and the same.Unchanged Objective Requirement
The cashback granted to the final consumer does not alter the original contractual consideration between the manufacturer and the upstream retailer. That amount remains unchanged, both for civil law and tax purposes.Moving Beyond the Precedents: Elida Gibbs and Cass. 10104/2020
The judgment clarified that the precedents relied upon by the appellant, such as the European ruling in Elida Gibbs (C-317/94) and Cass. n. 10104/2020, which allowed downward adjustments for indirect discounts, apply only under the ordinary VAT regime. Under that regime, the supplier is liable for the tax. By transferring liability to the purchaser, the reverse charge renders those principles inapplicable. For this reason, the request for a preliminary reference to the European Court of Justice was also rejected.Operational Implications for the Commercial Sector in Italy
Order no. 10259/2026 requires Italian businesses to rethink their marketing policies, particularly in sectors subject to the reverse charge (art. 17 d.P.R. n. 633/1972), such as mobile telephony, electronic devices, ferrous materials, energy and construction.Businesses offering cashback or final discounts will no longer be able to reduce the net cost of the initiative through tax relief if they operate under the reverse charge. Each price reduction will result in a lower profit margin, since the principle of VAT neutrality does not override the structure determining who is liable for the tax.
