Is the test product I received free of charge?
Entrepreneurs often receive from other entities various types of products intended for testing and checking suitability for use in the course of their business. It is a marketing activity aimed at making it possible to check the offered product before concluding a contract, as well as to encourage the choice of this product. A product made available for testing without being paid for it may result in the taxpayer's income from receiving the goods free of charge.
Testing product received free of charge
In accordance with the provisions of tax laws, income may also include (apart from money and monetary value) the value of items or rights received, as well as the value of other benefits in kind, including the value of items and rights received free of charge or partially against payment, as well as the value of other free or partially paid benefits.
Statutory regulations do not include the definition of free receipt of goods or free benefits, but only indicate how the taxpayer should calculate the value of the income obtained on this account. Namely, the value of the goods or rights received, including those received free of charge, is determined on the basis of market prices used in the course of goods or rights of the same type and species, taking into account, in particular, their condition and degree of wear, as well as the time and place of obtaining them.
The basic condition for recognizing the receipt of goods free of charge as income is its actual receipt by the taxpayer. It is not enough, therefore, to undertake to hand over the goods in question. The moment of obtaining revenue is recognized when the goods are received free of charge.
The entrepreneur undertook to hand over the goods to the taxpayer on September 14th free of charge. The actual handover, however, took place on October 19. This means that the moment of the emergence of income from the free receipt of goods should be set on October 19.
The above position was confirmed by the Supreme Administrative Court in the judgment of 5 February 1997 SA / Sz 1191/96, in which the judges decided that:
From the wording of the provision of Art. 11 sec. 1 of the Personal Income Tax Act, it follows that only the concept of "received" applies to benefits in kind. Thus, income within the meaning of Art. 11 sec. 1 will be only the values of received benefits in kind, and not - as required by the regulation in relation to money and monetary values - also put at the disposal of the taxpayer.
Correct classification of the product for testing
One problem in tax matters is whether there is an element of free of charge when the goods are submitted for testing. In the opinion of the tax authorities, the receipt of goods by the entrepreneur, not related to the incurring costs or other equivalent, and causing him a material gain, the value of which can be determined, should be classified as free of charge. Therefore, it follows from the above that the entrepreneur's action is to be one-way.
On the other hand, the doctrine states that since making the goods available for use and testing for a trial period, free of charge, constitutes a promotion of the product, the entrepreneur does not receive any financial gain, because the possibility of checking the quality of the product and its usefulness will not increase the company's assets in any way. Moreover, it will not contribute to an increase in revenues at the expense of another entity. The only possible benefit that can be indicated is the chance to reduce the costs resulting from making the wrong decision as to the purchased product.
Equivalence of benefits
As already indicated above, we are dealing with the receipt of goods free of charge when the performance of one party does not correspond to any performance of the other contractor. In the case analyzed by us, however, it is worth considering whether there is some kind of equivalence. It should be recognized that the supplier of goods expects an opinion about the product from the entrepreneur testing the given goods. This opinion is valuable information for the entrepreneur, which in fact could not be obtained in the course of his own business. It is this opinion that is considered to be an equivalent performance and disqualifies the transfer of the goods as free of charge.
A similar thesis was presented by the Supreme Administrative Court in its judgment of 16 June 2011, II FSK 788/10, where it was stated:
The basic feature of the free benefit is that the beneficiary is not obliged to provide any consideration, e.g. price reduction due to the sale of a good or a provided service. The concept of gratuitous benefits includes those which result in gaining benefits at the expense of another entity, or which result in a gratuitous, i.e. non-cost or other form of equivalent, gain of property for that person, having a specific property or financial dimension. The key feature of a gratuitous service is therefore that the recipient of such a benefit is not obliged to provide any consideration. Therefore, in order for a given benefit to be considered free of charge, it is necessary for it to consist solely in a unilateral gain on the part of the entity that obtained the benefit.
It should be noted that there is no uniform position in the doctrine and jurisprudence on this issue, and each case should be considered separately and individually. If the taxpayer finds himself in such a situation, it is worth considering applying to the competent authority for an individual interpretation in his case in order to resolve doubts.
Receipt of free goods as a free gift
In business transactions, there are situations when a taxpayer, when buying goods, receives an additional product for testing in the form of a free. In such situations, it must be remembered that there will be no free performance if the value of the goods or services received free of charge is included in the price of other goods and services purchased.
It is also worth noting that the knowledge of the taxpayer receiving this type of goods is important. Namely, if the buyer knew that he would also receive a free product in the form of an additional product, there is no gratuitous performance and, as a result, no income from non-agricultural business activity is generated. In this case, it should be assumed that the price of the free product was included in the price of the purchased product. If, on the other hand, the buyer did not know about the gratuity received, it may be considered that this generated income classified as gratuitous performance.