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VAT taxation of bonuses and discounts
Will the new widely debated position of the Supreme Arbitration Court be applicable, notwithstanding contradictions with the official opinion of the Ministry of Finance?
Business practice between producers, suppliers and distributors of goods demonstrates that the granting of bonuses and discounts often constitutes a cornerstone of their relationships. In particular, the problem of VAT taxation on such incentives has often created misunderstandings between such parties and the tax authorities, which has led to additional charges of taxes and prolonged disputes1.
Generally, suppliers tend to increase the motivation of their distributors by allowing so-called “retrospective” bonuses subject to sales results for the previous period. Today two main mechanisms of granting retrospective bonuses exist: either the retailer sells a predetermined amount of goods and gets a premium from the supplier, or the retailer purchases the goods from the supplier for reduced prices and the difference received from the retail sales becomes his profit.
In December 2009 the Russian Supreme Arbitration Court (hereinafter referred to as the “Court”) examined one of the cases on VAT taxation of bonuses and discounts and came to several conclusions which may substantially influence the business practice in this sphere. However, as the new position contradicts certain official opinions of the Russian Ministry of Finance (as discussed below), its practical implementation may create substantial risks.
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