Promotions and discounts in the light of VAT and PIT

Service-Tax

Promotions and discounts are another element of entrepreneurs' activities aimed at encouraging contractors to place orders and establish cooperation. The catalog of possible price preferences is very wide, while the very granting of promotions and discounts has specific effects in terms of income tax and tax on goods and services. Below, we present the analyzed issue in a comprehensive manner.

Consequences of granting a discount before the sale is made

If the price of the goods is lowered before the goods are delivered, both the seller's revenue and the buyer's cost will be reduced. It results directly from the content of Art. 14 sec. 1 of the PIT Act: income from business activity is considered to be the amounts due, even if they were not actually received, after excluding the value of the returned goods, granted discounts and discounts. As a result, if a discount or promotion was granted on the goods in question, the amount owed decreased, which consequently resulted in lower revenue for the vendor.

Similar tax consequences will arise on the part of the buyer. Reducing the amount due will cause the buyer to pay less, which will directly affect the amount of the tax cost.

Also in the field of value added tax, reducing the pre-sale price also reduces the VAT tax liability. According to Art. 29a paragraph. 1 of the VAT Act, the taxable amount is everything that is the payment that the supplier of goods or the service provider has received or is to receive for sale from the buyer, recipient or a third party, including received subsidies, subsidies and other surcharges of a similar nature, having a direct impact on the price of goods or services provided by the taxpayer.

The above implies that granting a promotion or discount before the sale results in a decrease in the amount of income in PIT and the tax base in VAT on the part of the seller. On the other hand, granting a discount to the buyer means that the buyer has to pay a lower price, but also a lower tax cost.

Promotions and discounts - granting a discount or promotion after the sale

It is possible that the seller grants a discount or promotion on goods that have previously been sold. Usually, such activities are accompanied by issuing a corrective invoice.

Granting a discount after a sale also reduces the seller's revenues and the buyer's costs. Pursuant to Art. 14 sec. 1m of the PIT Act, if the income correction is not caused by an accounting error or other obvious error, the correction is made by reducing or increasing the income achieved in the settlement period in which the correcting invoice was issued or, in the absence of an invoice, another document confirming the reasons for the correction.

A similar provision regarding the subject of tax cost adjustments can be found in Art. 22 sec. 7c of the PIT Act. In the light of this provision, if the adjustment of the tax deductible cost, including the depreciation write-off, is not caused by an accounting error or other obvious error, the adjustment is made by reducing or increasing the tax deductible costs incurred in the settlement period in which the correcting invoice was received or, in in the absence of an invoice, another document confirming the reasons for the correction.

Example 1.

The trader sold the goods in June. After the delivery of the goods, he decided to grant the customer a discount. Therefore, he issued and sent a corrective invoice in August. The reduction of the revenue and, accordingly, the cost of the parties to the transaction should be made in the month of receipt of the correcting invoice, ie in August.

Granting a discount or granting a promotion after the sale also has effects in the area of ​​due and input tax. Pursuant to Art. 29a paragraph. 10 of the Act, the tax base is reduced by:

  • amounts of discounts and price reductions granted after the sale;

  • value of returned goods and packaging, subject to;

  • all or part of the payment returned to the buyer received before the sale, if it did not take place;

  • value of the returned amounts of grants, subsidies and other payments of a similar nature.

Pursuant to the provisions of the VAT Act, the seller granting the price preference should issue a correcting invoice and send it to the buyer. On the other hand, the very moment of lowering the tax base depends on the moment of receipt of the invoice correction by the buyer. We distinguish between two situations:

  • the seller obtained confirmation of receipt of the correcting invoice before the deadline for submitting the VAT declaration for the period in which the buyer received the invoice - makes the correction in the settlement for the period in which the buyer received the correcting invoice;

  • the seller obtained confirmation of receipt of the correcting invoice after the deadline for submitting the VAT declaration for the period in which the buyer received the invoice - he makes the correction in the settlement for the period in which he will receive the confirmation of receipt of the correcting invoice.

As for the moment of settlement of the corrective invoice for the discount granted, the situation on the part of the buyer is significantly simplified. According to the provisions of the Act, the buyer receiving the discount is obliged to reduce the amount of the input tax in the settlement for the period in which he received the correcting invoice.

Example 2.

The trader sold the goods in June. After the delivery of the goods, he decided to grant the customer a discount. Therefore, he issued and sent a corrective invoice in August. The buyer picked it up in the same month. The confirmation of receipt of the correction invoice was received by the seller on September 10. The parties to the transaction should reduce the amount of output tax and, accordingly, the amount of input tax in the month of receipt of the correcting invoice, ie in August.