On 5 April 2013, the Russian president signed Federal Law No. 39-FZ (the “Law”) which introduces amendments to the Russian Tax Code regarding the VAT treatment of bonuses that are provided by the supplier and the application of consolidated correcting VAT-invoices.
Implications for taxpayers
The Law resolves current uncertainty as to the VAT recognition of bonuses granted to the buyer by the supplier of goods, works and services for fulfilling contract terms. The Law also eliminates the practical difficulties with the issuance of correcting VAT-invoices if the value of supplied goods (services, works, property rights) has changed.
The Law comes into effect one month after the official publication and not earlier than the start of a new VAT period (1 July 2013). Given that the Law has no retroactive effect, taxpayers still should consider possible tax risks connected with the VAT recognition of bonuses granted in prior tax periods open for a tax audit.
What the law says
The Law introduces the following amendments to the Russian Tax Code:
- Bonuses (rewarding incentives) granted by the supplier of goods, work or services for fulfilling contract terms do not decrease the VAT base for the supplier and the amount of VAT is offset for the buyer, unless the relevant agreement directly provides that bonuses decrease the contract's value. Thus, the Law eliminates the uncertainty of the VAT treatment of bonuses related to the position of the Russian Supreme Arbitrazh Court in the Leroy Merlin case (Decision No. 11637/11 dated 7 February 2012).
- If the VAT base should be corrected due to a change in the value of supplied goods, work, services or property rights, a single consolidated correcting VAT invoice may be used in order to account for all VAT invoices that should be corrected. Currently, separate VAT invoices for every original VAT invoice must be prepared, which causes significant difficulties for the majority of companies that have a significant number of supplies. It should be noted that the current form for correcting VAT invoices and rules of its completion established by Government Resolution No. 1137 dated 26 December 2011, do not provide for the possible issuance of a consolidated correcting VAT invoice. Thus, the practical application of consolidated correcting VAT invoices will become possible only after the resolution is amended.
- An increase in the value of supplied goods, works, services, or property rights caused by an increase in their price or quantity, is recognised for VAT purposes in the tax period when the document confirming consent of the buyer to the relevant change was prepared (e.g., notification of the buyer and alteration of the agreement). Formerly, such alterations had to be accounted for in the period when the shipment took place (i.e., by filing amended VAT declarations for the relevant prior tax period).
Actions to consider
Companies engaged in distribution, retailing or purchasing activities should review the bonus provisions of their supply contracts and, if necessary, make relevant amendments in order to eliminate potential VAT risks.