Granting a discount in the light of VAT

Service-Tax

In the course of trade, a situation in which the entrepreneur gives his contractor a rebate very often occurs. The reasons for granting such a discount, as well as its nature, may be different, which also raises some doubts as to the method of VAT settlement on the part of both the seller and the buyer. Let's check how to settle the discount!

Granting a discount in the light of VAT

First of all, it should be pointed out that the discount may be granted at the time of sale, and then its value is obviously not included in the sale amount. The discount can also be granted after the transaction is completed. In such a situation, in accordance with Art. 29a paragraph. 10 of the VAT Act, the tax base is lowered, among others by the amount of discounts and price reductions granted after the sale. How should this reduction be made? According to the provisions of the act, the seller should then issue a corrective 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.

Example 1.

The seller granted an after-sale discount and issued a corrective invoice. He sent it to the buyer on September 23. On September 27, the buyer received the invoice and sent the confirmation of receipt to the seller, who received it on October 5. Both the seller and the buyer will settle the credit note on the tax return for September.

Example 2.

The seller granted an after-sale discount and issued a corrective invoice. He sent it to the buyer on September 23. On September 27, the buyer received the invoice, but delayed the return of the acknowledgment of receipt, and did so only on October 29. On the same day, the seller received the confirmation. The buyer will settle the invoice in the tax return for September, while the seller will settle the invoice in the return for October.

But what if the seller does not receive a confirmation of receipt of the correcting invoice at all? The VAT Act also provides a solution for such a situation. Well, according to Art. 29a paragraph. 15 point 4 of the Act, the seller may correct the settlement when he has not received confirmation, despite the documented attempt to deliver the corrective invoice and when the buyer knows that the transaction was carried out in accordance with the conditions specified in the correcting invoice. The legislator does not specify how the above two conditions should be met by the seller. In practice, however, it has been assumed that proof of an attempt to deliver a corrective invoice may take place, for example, by presenting the document in the form of a returned registered mail, not picked up by the buyer, or by other correspondence addressed to the contractor in connection with issuing a corrected invoice. On the other hand, as regards the condition of proving that the buyer knows the course of the transaction, it can be mentioned, for example, that the seller repaid the amount resulting from the correcting invoice via the bank account.

Example 3.

On June 30, the seller issued a correcting invoice for the discount granted. He sent the invoice to the buyer by registered mail. On July 7, he received the return of the parcel with the note "not picked up on time". On August 1, the seller returned to the buyer the difference resulting from the discount through his bank account. The seller will settle the correcting invoice in the declaration for August, because this month both conditions of art. 29a paragraph. 15 point 4 of the Act.

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.

A cash bonus is also a discount

In the course of trade, sellers often provide contractors with a monetary bonus in order to encourage them to make purchases. Such a bonus, understood as a bonus for achieving a certain level of purchase or timely payment, is also considered by the tax authorities as a discount. A dispute arose over this understanding of the cash bonus, as taxpayers were of the opinion that such a cash bonus should be understood as an award that is not subject to VAT.

The courts presented various positions on this subject, therefore, in order to work out a uniform, the Supreme Administrative Court issued a resolution of June 25, 2012, file ref. act I FPS 2/12, in which we read:

(...) However, it is impossible to share views according to which the essence of the bonus is different from the essence of the rebate, because the bonus is a reward for achieving a specific result and therefore has an incentive nature, and the rebate is only a reduction in the transaction price or service. It is hard not to notice that the discount, even related to one transaction, is also of an incentive nature. Although it boils down to lowering the price, the reduction is usually related to the encouragement to conclude a transaction, for example as a result of price negotiations. (...) Undoubtedly, therefore, the cash premium for a given period, in economic terms, essentially amounts to the return by the seller to the buyer of a part of the remuneration previously paid for the transactions made with the buyer - as a result, the global value previously determined for these transactions is reduced, and thus the value of individual transactions, reduced proportionally.

The conclusion from the above judgment is that the payment of a cash bonus to the buyer for achieving a certain sales volume or timely payment is the discount referred to in the VAT Act.

Example 4.

The wholesaler decided to increase sales, and therefore offered its contractors a cash bonus of 2% of the purchase value when purchasing goods for an amount exceeding PLN 12,000 per month. In January, Mr. Wiktor purchased goods from the warehouse for the amount of PLN 15,000. For this reason, he received a cash bonus of PLN 300 in February. The wholesaler issued a corrective invoice for sale on February 15. Mr. Wiktor received the invoice on February 17. Taxpayers will settle the cash bonus in the declaration for February.