acca event tax impact of commercial policies 25.11.2010 en

8/3/2019 ACCA Event Tax Impact of Commercial Policies 25.11.2010 En

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43rd ACCA ROMANIA TECHNICAL EVENT:

Tax Impact of the Commercial Policies

25 November 2010 Novotel Bucharest

Alina Mnescu

Stela Colun


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Colman Tax 2Tax Impact of the Commercial Policies

Agenda

1. Commercial and financial discounts

Accounting treatment VAT treatment

Tax optimisation solutions

Profit tax treatment

2. Sold vouchers and gift coupons VAT treatment. Practical aspects

3. Gift vouchers and gift cards Tax treatment (profit tax, income tax andsocial contributions)

4. Goods granted free of charge to stimulate sales Tax treatment (profittax, VAT) and accounting treatment. Justifying documents

5. Advertising lottery. Prizes Tax and regulatory


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Commercial discounts refer to discounts granted to the clients especially to

stimulate them to purchase more and are closely linked with the selling price of thegoods. These include:

rebates are received for quality damages and are applied on the selling price

remize are received in case the sales are higher than the agreed volume or if

the purchaser has a preferential status

risturn price reductions computed over the total amount of transactionsperformed with a third party, during a certain period of time

Financial discounts (sconto) are granted with a non-commercial purpose, as arule, to stimulate the client to pay before the payment deadline. Financial discounts

are not linked with a certain product, but with the value and the frequency of thepayments

1. Commercial and financial discounts. Accounting treatment


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Fix bonuses:

Store opening fee

Listing fee

Shelf positioning fee (charged in case the goods of supplier benefit of a preferential

positioning on the shelves of the shops)

Logistic fee (charged for the fact that suppliers have the possibility to deliver theirgoods in a centralised manner on the logistic platform of the purchaser, with no needto perform the dispatch of the goods to each store of this purchaser)



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Variable bonuses:

Advertising bonus (charged for direct and indirect promotion, of goods of thesupplier via the retailers chain, e.g. advertising performed via booklets/flyerspublished periodically by the retailer and addressed to its clients)

Turnover bonus (volume bonus)

Development bonus or turnover increase bonus (i.e. percentage quotas, increasing,depending on the value of the acquisitions performed by a company from a certainsupplier)

Claiming bonus (% from the entire turnover of the year: when such a conventionexists with a supplier, the supplier has no right to return physically the damagedgoods to the supplier. The supplier pays this bonus provided that he does not receiveback any product, irrespective of its damages.)



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Commercial discounts

Initial

Commercial discounts granted by the supplier and mentioned on the invoicereduce the acquisition price of the goods

Initial commercial discounts do not determine distinct accounting records

Subsequent

Commercial discounts received subsequently to the invoicing / grantedsubsequently to the invoicing, irrespective of the period to which they refer, arerecorded separately in the accounting, in the month in which these are granted,(account 609 Commercial discounts received, respectively the account 709Commercial discounts granted) against the third party accounts

Possible exception: contractual discounts invoiced at the beginning of the yearthat refer to the previous year => might affect the profit and loss account of theyear to which these refer.



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Financial discounts

Financial discounts received from the supplier represent income of the period,irrespective of the period to which they refer.

Recording the financial discount at the supplier:

Recording the financial discount at the purchaser:

VAT will be adjusted accordingly, if it was deducted / charged

667 Expensesregarding the financialdiscounts granted "

= 4111 Clients With the value of thefinancial discountsgranted to the clients

401 Suppliers = 767 Income fromfinancial discounts

obtained

With the value of thefinancial discountsreceived from thesuppliers



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Initial discounts:

Are not included in the taxable base at the date of supply of goods/services

Subsequent discounts:Reduce taxable amount after invoicing goods/services

Discounts are not included in / reduce subsequently the taxable amount of the tax if thefollowing conditions are cumulatively met:

Are granted by the supplier directly in the benefit of the clients;

Do not represent, in fact, remuneration of a supply of services/goods;

Invoice mentions:

In case of initial discounts: the value of the goods / services supplied,without tax, separately from the amount of the reduction, in minus. VAT isapplied to the difference resulted (net selling price).

In case of subsequent discounts: the value of the reduction, with minussign.

1. Commercial and financial discounts. VAT treatment


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Practical aspects. Discounts versus services

Rules regarding services

A service supply represents any operation that does not constitute a delivery ofgoods.

In case of services supplied to foreign beneficiaries, as a general rule, these willbe taxable at the place where the beneficiary is established (B2B rule).



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Practical aspects. Discounts versus services

Bonuses qualifying as services:

listing fee

shelf positioning fee

store opening fee

logistic fee

advertising bonus

claiming bonus

These services will be invoiced by the retailers to the internal supplierswith 24% VAT

As regards external suppliers, retailers shall not charge VAT related to these fees andbonuses, due to the fact that these services are not taxable in Romnia, but at theplace of the beneficiary (i.e. outside Romania)



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Bonuses qualifying as price reductions:

turnover bonus

development bonus

Reductions granted after supply of goods/services must be invoiced by thesuppliers to the purchasers by issuance of invoices with minus sign.

Purchasers will reduce accordingly input VAT related to the intracommunityacquisitions and domestic acquisitions performed.



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Incorrect invoicing. Risks

Treating a service supplied by the retailer (e.g. store opening fee) as a commercialdiscount granted by the supplier => risk to deny the reduction of taxable amount atthe supplier level

Treating a commercial discount granted by the supplier (e.g. turnover bonus) as a

service invoiced by the retailer => risk to be denied the VAT deduction right at thesupplier level

To avoid risks, we recommend:

suppliers to issue invoices with minus sign for the price reductions

purchasers to implement the procedure for issuance of the invoices in the nameand on the account of the suppliers



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The client may issue invoices in the name and on the account of the supplier

Conditions that must be cumulatively met:

Parties must conclude an agreement stipulating this invoicing procedure

Contract shall stipulate expressly the events for which the supplier may issue

invoices in the name and on the account of the supplier, e.g. quantitive differences,qualitative differences, price differences, price reductions, etc.

A written procedure for acceptance of the invoice must be in place

Contract shall stipulate that the invoices issued by the purchaser will be consideredas being accepted by the supplier only if, within a X-days deadline, the supplier does

not communicate to the purchaser his refuse regarding the invoices thus issued.

The purchaser must be established in the Community and shall be registered forVAT purposes in Romania

1. Commercial and financial discounts. Tax optimisation solutions


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Conditions that must be cumulatively met (continued):

Both the supplier (if registered for VAT purposes in Romania) and the purchaser,must notify, via recommended letter, its competent tax authority, the application of

this invoicing procedure, with at least a calendar month before initiating it, and itshall enclose to this notification the agreement or the acceptance procedure

The invoice shall be issued by the purchaser in the name and on the account of thesupplier and it shall be sent to the supplier

The invoice must comprise the mandatory information

The invoice shall be recorded in a separate sales journal by the supplier, if he isregistered for VAT purposes in Romania


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Advantages for the purchaser:

Possibility to settle in advance the liabilities towards its suppliers with thesubsequent commercial discounts and with other ascertained differences:quantitative differences, quality differences or price differences

Availability in a shorter period of the invoices for adjusting the taxable amount ofthe intracommunity acquisitions performed

Possibility to apply the correct invoicing method in case of bonuses that qualify asprice reductions and that are treated by the purchaser as services


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Disadvantages for the purchaser:

The purchaser shall (re) open negotiations with its suppliers in order to amend theexistent contracts or to conclude separate agreements

The purchaser shall check if the national legislations of its EU suppliers allow theacceptance of the invoices that are issued by the purchaser in the name and on the

account of the suppliers

! This procedure may be applied only in relationship with the suppliers fromRomania and the EU. This procedure may not be applied in case of goods importedfrom outside of the EU.

The invoices issued by the purchaser in the name and on the account of thesupplier will be treated, from accounting and profit tax perspectives, as thesewould be invoices issued by the suppliers to the purchasers.


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Advantages for the seller:

Elimination of the risk of nondeductibility of the VAT in relation to the bonusesincorrectly invoiced by the purchaser as services

Disadvantages for the seller:

The seller losses the control over the settlements of the differences encounteredin relation with the buyer


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Sold vouchers

Case:

A retailer sells to individuals and to legal entities paper vouchers which can be usedsubsequently by the individuals (who received them free of charge from the initialbuyer) for paying goods purchased from the retail stores

The vouchers:

Have nominal values in RON, e.g. 50, 100 lei, including VAT

Are numbered and have security elements

Have limited validity

Have enumeration of the stores where they can be used

Have the mention that no change is granted

2. Sold vouchers and gift coupons


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Sold vouchers

Vouchers are classified as follows:

SPV single purpose voucher

MPV multipurpose voucher

SPV

The amounts paid for the supply of such vouchers are deemed as prepaymentsbecause at the moment of their sale all the elements for assessing the VAT treatmentare known, e.g. the VAT rate applied to the sale of the goods/services to be sold

Chargeability for prepayments - > cashing of the advance => obligation to charge VATand issue invoice or fiscal bill, as the case might be

ECJ C- 419 (BUPA Hospitals Ltd)



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Sold vouchers

MPV

At the supply date not all the information needed for assessing the VAT treatment areknown, e.g. the VAT rate applicable

MPV are not deemed as cash advances => no chargeable event for VAT

MPV = means of payment

Sale of MPV => VAT exempt without credit operation (i.e. transaction regarding othernegotiable instruments)

! VAT deduction right based on pro-rata



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Sold vouchers

Practical aspects

Issuance of invoices for the sale of MPV is not mandatory

Issuance of fiscal receipts in case of sale of MPV by the retailers is mandatory

The voucher must be defined on the fiscal bill as mean of payment

Accounting of sold vouchers by using account 419 Advance payments fromcustomers

When the goods are sold and the vouchers are used, the settlement of the VAT

initially charged is needed



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Gift coupons

Gift coupons could be:

Gift couponswith nominal valuewhich are granted free of charge and can beused for the acquisition of goods/services

Gift discount couponswith a certain percentageinscribed which are grantedfree of charge unconditionally and entitles their holder to receive thementioned reduction upon acquisition of goods/services

There are also Discount couponswhich are granted only if the value of thepurchases exceeds a certain limit

Why it is important to asses the VAT treatment?

Reduction of the taxable amount = > tax advantage

Attention! Sale below cost OG 99/2000



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Gift coupons

The question is: Price reductionor Goods granted free of charge?

Price reduction must cumulatively meet the following conditions: To be granted in the direct benefit of the client To be mentioned distinctly with minus sign on the sale document (i.e. invoice,

fiscal receipt) Not to represent the counterpart of a supply of goods/services

Attention!Under the EU jurisprudence, the grant of the price reduction isconditioned by prior acquisitions (ECJ case Boots Company Plc)As per the Romanian VAT legislation, no such condition is imposed

Gift coupons with nominal valuecarries the right to receive goods free of charge

Gift discount couponscarries the right to receive a certain percentage discountupon the acquisition of goods

Price reductions granted to clients individuals do not represent taxable income, inthe meaning of income tax

Goods granted free of charge: income from prizes or income from other sources?



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Gift coupons

Gift coupons with nominal valuecan be deemed as goods granted free of charge

In this case their VAT treatment should be assessed depending on their destination,e.g.:

Gift coupons granted free of charge during advertising campaigns to stimulate sales Gift coupons granted free of charge during protocol actions to commercial partners

Gift coupons granted free of charge to employees

Attention! Implementing this VAT treatment can prove very difficult in practice

Gift coupons with nominal valuecan be deemed as goods price reduction

Attention! There is a risk of reclassification in goods granted free of charge basedon the following argument: if the value of the good purchased is lower than the

value of the gift coupons => the good is received free of charge

Gift discount couponsshould be deemed as price reduction

Discount couponsshould be deemed as price reduction



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Particular type of gift coupons (e.g. gas coupons)

Case:A producer grants, upon the acquisition of its products from the retailer store agas coupon with a certain nominal value. This coupon is granted free of charge.

The gas station:

accepts the coupons and treats it as a means of payment=> no reduction of thetaxable amount

Recovers the value of the coupons from the producer: outside the VAT scope

The producer:

Incurs a promotional expense vs. granting of goods free of charge



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3. Gift vouchers and gift cards

Gift vouchers (tichete cadou):

are regulated by special laws represent securities issued on paper may be purchased only from specialised companies authorised by the Ministry

of Finance may be used as means of payment in the accepted stores

Gift cards (carduri de cadouri):

prepaid cards issued in electronic format currently issued by a company, that also is authorised to issue gift tickets

may be used as means of payments in the accepted stores to perform

electronic payments and online payments no assimilation of the gift cards may be performed with the gift tickets due to

the form conditions =>tax advantages proper to gift tickets may not be applied to the gift cards


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A. Case when a company grants gift tickets / gift cards to its own employees

Are dueAre dueAs a general rule,are not due

As ageneralrule, arenot due

Socialcontributions

and salaryrelated taxes

Taxable incomewith 16% salary tax

Non taxable incomeif certain conditionsare met (occasion,destination, notexceeding 150 lei)

Employee

Fully deductibleexpenses forvalues taxedwith the salarytax

Social expensesfor the valuesnot deemed tobe taxable withsalary tax

Employer

Gift cardsGift vouchers

Taxable with 16%salary tax

Deductibleexpenses

Profit tax /

Income tax

EmployeeEmployerTax


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Colman Tax29Tax Impact of the Commercial Policies


B. Case when a company grants gift tickets / gift cards to individuals outside

of an employment relationship

Might be exempt from

certain contributions,other contributionsare not due or are notapplicable

N/AAs a general rule,are not due

N/A

Socialcontributions

and salaryrelated taxes

Income from othersources taxed with16% income tax

Individual

Expenses: protocol

marketing

advertising

Company

Gift cardsGift vouchers

Income fromother sourcestaxed with 16%income tax

Expenses: protocol

marketing

advertising

Profit tax /

Income tax

IndividualCompanyTax


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Colman Tax30Tax Impact of the Commercial Policies

4. Goods granted free of charge to stimulate sales

Case 1:

Sales agents of a distributor grants, directly, free of charge, goods traded by thisdistributor, to the stores where the goods are traded.

These goods are removed from the stock location based on lists prepared by thearea sale managers

Case 2:

A distributor grants to the consumers, individuals, free of charge, goods which henormally trades: cosmetic products.

Products are granted trough a promotion agency, that distributes them, via itspromoters, in various locations (e.g. commercial galleries of supermarkets).

These products are handed over by the distributor to the agency based on deliverynote.


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4. Goods granted free of charge to stimulate sales

Practical aspects

Profit tax. Goods granted free of charge by the distributors in order to stimulatesales represent deductible expenses.

VAT. Goods granted free of charge by the distributors do not represent a supply ofgoods for consideration and, therefore, in this case the VAT is not due and it is notmandatory to issue the invoice.

Condition. These shall be goods the same as the goods normally sold to the client.

Accounting:

Rule: Delivery note shall be issued (Case 2)

Recommendation: delivery note shall specify at the rubric Name of goods mentionGood granted free of charge in order to stimulate sales.

Practice. If delivery note is not issued, but the consumption note => protocolexpenses (Case 1)


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A distributor of cosmetic products organises an advertising campaign, grand prizebeing a trip to Paris

A. Profit tax: advertising expenses

B. VAT

When goods granted free of charge in order to stimulate sales are not produced by the

taxable person and/or are not normally traded by the taxable person, their granting freeof charge is not deemed as supply of goods if:

It can be objectively proved that these can be used by the client in connection withthe goods/services which he purchased from the taxable person;

or

Goods/services are supplied to the final consumer and the value of the goodsgranted free of charge is lower than the value of the goods/services supplied to theclient.

5. Advertising lottery. Prizes


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C. Income tax

Income from prizes comprise income in cash and/or in kind in form of prizesobtained further to commercial practices concerning the promotion of products viaadvertising, under law (OG 99/2000)

Income tax = 16% x (gross income from prizes non-taxable income of 600 lei / eachprize)

D. Trading market goods and services

Advertising campaign = promotion practice of products / services that tend tostimulate via the participants the hope of a gain via lottery

Advertising campaign are admitted only if the participants are not imposed anydirect / indirect expense, in addition to the purchase of the good / service



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E. Practical aspects

Legal. Preparation of the Regulation for the advertising campaign, authenticated andsubmitted to a public notary before starting the operation

Accounting and profit tax. Advertising expenses deductible based on the Regulationfor the advertising campaign and the invoice issued by the travel agency

TVA . If VAT is deducted => supply for consideration. Recommendation: do notdeduct VAT at the acquisition

Income tax:

Tax computation: by grossing up Tax payment: by 25th of the next month Tax reporting:

Return 100, by 25th of the next monthStatement 205, annually, by 30 June


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Governing legislation

This presentation was prepared based on our expertise and relevant provisions fromthe following legislation:

Fiscal Code Law no. 571/2003, with subsequent amendments; Government Decision no. 44/2004 approving the Norms Methodological Norms

for Applying the Fiscal Code, with subsequent amendments; Relevant ECJ Cases; Law no. 193/2006 on granting gift tickets and nursery tickets, with subsequent

amendments; Government Decision no. 1317/2006 approving the Methodological Norms for

applying the Law no. 193/2006; Government Emergency Ordinance no. 58/2010 amending the Fiscal Code Law

no. 571/2003 and other financial and tax measures; Law no. 95/2006 regarding the reform in health field, with subsequent

amendments; Order of the president of the National House of Health Insurance no. 617/2007

approving the Methodological Norms on establishing the justifying documentsfor acquiring the statues of insured person, respectively of the insured person

without payment contribution, as well as for applying the enforcement measuresto receive the amounts due to the National Unique Fund of Health Insurance, withsubsequent amendments;

Law no. 19/2000 regarding the public pension system and other social insurancerights, with subsequent amendments;


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Governing legislation (continued)

Order of the Ministry of labour and Social Solidarity no. 340/2001 approving theNorms for applying the Law no. 19/2000, with subsequent amendments;

Law no. 76/2002 on unemployment insurance system and for encouraging theoccupation of labour force, with subsequent amendments; Government Decision no. 174/2002 approving the Methodological Norms for

applying the Law no. 76/2002; Government Emergency Ordinance no. 158/2005 regarding vacations health

insurance holidays and indemnities, with subsequent amendments; Common Order of the Ministry of Health and of the president of the National

House of Health Insurance no. 60/32/2006 approving the Methodological Norms for

applying the Government Emergency Ordinance no. 158/2005; Law no. 200/2006 on creation and use of the Fund to guarantee payment of salaryreceivables;

Government Decision no. 1850/2006 approving the Methodological Norms forapplying the Law no. 200/2006;

Law no. 346/2002 on insurance for work accidents and professional diseases,republished;

Common Order of the Ministry of Labour, Social Solidarity and Family and of theMinistry of Public Health no. 450/825/2006 approving the Methodological Normsfor applying the Law no. 346/2002, with subsequent amendments;


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Governing legislation (continued)

Law no. 130/1999 on certain protection measures of the employed persons,republished;

Order of the President of the National Agency for Tax Administration no. 101/2008approving the template and the content of forms used to declare taxes, duties andcontributions by self-taxation and withholding;

Order of the President of National Agency for Fiscal Administration no. 2371/2007approving certain forms provided by the Fiscal Code.


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COLMAN TAX SRL

41 Frumoasa StreetBucharest, Sector 1

Romania

Dr. Stela Colun Managing PartnerMobil: +40 748 733 865

E-mail: [email protected] Manescu Managing PartnerMobil: +40 728 182 395E-mail: [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]

acca event tax impact of commercial policies 25.11.2010 en

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