Commodity shortages - what tax consequences?
During the course of business, entrepreneurs often face shortages of goods. Their causes may vary, and their nature has consequences in terms of tax law. As practice shows, their settlement often causes problems for taxpayers. Let's check how to account for shortages of goods on tax grounds.
Shortage of goods - tax consequences
We can divide shortages in goods into:
faultless shortages - arise as a result of random events. They can also be natural shortages taking into account the specificity of business activity and resulting from incorrect accounting records.
culpable shortages - arise as a result of the negligence of responsible persons and are a consequence of inadequate security.
On the other hand, according to the general rule, only those expenses that affect the achievement of income or the preservation or protection of the source of income may be tax costs. Moreover, the expense cannot be included in the catalog of expenses that cannot be classified as tax deductible costs. Therefore, it should be assumed that tax deductible costs are all rationally justified expenses related to the conducted activity, the purpose of which is to achieve, secure and maintain the source of income; however, when determining tax-deductible costs, each case, except for those clearly indicated in the Act, requires individual assessment in terms of a direct relationship with revenues and rationality of actions to recover them.
Thus, including shortages as tax deductible costs depends on the individual situation in which the event occurred. Losses resulting from lack of diligence or irrational action of the taxpayer are not tax deductible costs, even if they fall within the standards established by a given economic unit.
This position is confirmed by the tax authorities, an example of which can be the individual interpretation of the Director of the Tax Chamber in Poznań of February 18, 2009, ref. No. ILPB1 / 415-969 / 08-3 / IM:
(...) The identified deficiencies (losses) may be recognized as tax deductible costs, if they arose irrespective of the taxpayer's will, and therefore are not at fault. For this purpose, the fact of suffering a loss should be properly documented, and such a document may be, for example: a protocol describing the event, indicating the date of the event, its cause and the exact calculation of the loss, supplemented by a police report in the event of theft or a report of damage to the insurance institution and a written report. explanations by persons materially responsible (...).
A similar position was presented by the Director of the Tax Chamber in Warsaw in the letter No.IPPB3 / 423-418 / 13-2 / MS of September 9, 2013, which reads:
(...) The description presented in the application shows that the main reason for the identified inventory shortages are thefts resulting from random events, not attributable to the persons responsible for the proper functioning of the store, or any other persons, i.e. as a result of unforeseeable events, unavoidable by a rationally operating economic entity.
Therefore, in principle, the position of the Applicant should be considered correct, because the legislator allows for the recognition of losses as tax deductible costs. Nevertheless, it should be assumed that only those losses, the occurrence of which in the course of the activity of a given type are inevitable, ie are a normal, although unwanted consequence of operating in a given industry, are tax deductible costs ... (...).
As a result of the rainfall, the sugar warehouse was flooded and the goods were destroyed. It was found that the warehouse was properly secured against flooding. In such a situation, the company may include the resulting loss as costs.
In a situation where due diligence was not taken in securing the warehouse against flooding, e.g. an employee forgets to close the door, it would not be possible to count the losses as losses in goods.
VAT deduction and shortages of goods
Pursuant to Art. 86 sec. 1 of the VAT Act shows that the taxpayer has the right to reduce the amount of tax due by the amount of input tax to the extent that the goods or services are used to perform taxable activities. The above regulations mean that the taxpayer is entitled to reduce the output tax by input tax only to the extent that the goods and services are used to perform taxable activities. Thus, the possibility of reducing the amount of output tax by the amount of input tax related to the purchase of goods and services that are not used at all for taxable activities, i.e. for activities exempt from VAT and activities not subject to VAT tax, was excluded.
Therefore, in a situation where the purchase of a given goods by a taxpayer is made with the intention of using the goods for activities subject to tax on goods and services, despite the loss of the goods for reasons beyond his control, i.e. without fault, his right to deduct in connection with the above-mentioned . the acquisition is retained, and thus there are no grounds for making any adjustments to the tax deducted.
Taxation of shortages of goods
Pursuant to the provision of Art. 5 sec. 1 of the VAT Act, the following are subject to taxation: paid delivery of goods and paid services within the territory of the country; export of goods; import of goods; intra-Community acquisition of goods for consideration within the territory of the country; intra-Community supply of goods.
The delivery of goods means the transfer of the right to dispose of the goods as the owner. Pursuant to statutory provisions, goods are understood as movable items, as well as all forms of energy, buildings and structures or their parts, which are the subject of activities subject to tax on goods and services, which are listed in the classifications issued on the basis of the provisions on public statistics, as well as land.
On the other hand, a service is any service for consideration, which is not a supply of goods and which is characterized by the fact that the recipient (consumer) obtains even a potential benefit. The essence of the benefit relationship is any behavior for the benefit of another person. A service is a bilateral legal relationship and requires an entity acting as the recipient (consumer of the service, buyer of the service) and the provider (performing the activities, providing the service). The provision of services therefore has a very wide scope.
It does not follow from the above-mentioned provisions that the shortage of goods is a supply of goods or services, therefore it is not subject to tax on goods and services. The finding of both culpable and non-culpable shortages does not result in any obligations related to the settlement of the VAT due.
Therefore, there is no obligation to calculate the output tax on the value of the identified losses and this fact cannot be documented with a VAT invoice.
Such a position was expressed by the Director of the Tax Chamber in Bydgoszcz in a letter of 27 July 2012 no. ITPP1 / 443-608 / 12 / KM, in which we can read:
(…) Pursuant to Art. 5 sec. 1 point 1 of the Act of March 11, 2004. on tax on goods and services (i.e. Journal of Laws of 2011, No. 177, item 1054, as amended), hereinafter referred to as the Act or the Act on VAT, taxation of the above-mentioned tax, are subject to paid delivery of goods and paid services within the territory of the country. (...)
It does not follow from the above-mentioned provisions that the shortage of goods is a supply of goods or services, therefore it is not subject to VAT tax. The identification of both culpable and non-culpable shortages does not result in any obligations related to the settlement of the VAT due. (...)