I purchase a product: list price 78 euros; they apply a 25% discount; how much do I get if I sell it at the same price as the list price?
We’ve got two options: first the discount is applied to a list price with VAT excluded taxable income.
If we make a whole price sale, in other words VAT included list price, the margin profit we get is the same as the applied discount that is 25% and the markup is 33,33%. The margin profit is 19,50 euros.
This calculation is independent from the VAT applied value and the margin stay the same, 25%.
Let’s see the second option: the discount is applied to the list price that is VAT included:
If the VAT value is equal to 22%, you can notice that the margin profit will be lower, equal to 8,49%, the mark up will be 9,28% with a 5,43 euros margin profit.
The situation changes as the VAT value changeswe can get a margin up to 22% if the VAT is equal to 4%.
Therefore if we apply the same discount to products with different VAT value, our profitability will vary.
