Indirect rebate - tax consequences related to its granting and receipt

Nowadays, many companies, in order to increase the attractiveness of their enterprise, promote it by giving discounts. More and more often you can meet the so-called indirect discount. What is an indirect rebate and what are its tax consequences?

What is the indirect rebate?

Indirect rebate is granting a rebate not to a direct contractor, but to another recipient who is part of the distribution chain of a given product or service.

Usually, it is granted due to the fact that a certain level of turnover is exceeded.

This is done in the following way: company X (taxpayer) delivers the goods to company Y, and the latter transfers these goods to company Z. In this case, the indirect discount is granted to company Z, but by company X.

Granting an indirect discount and VAT

The regulations do not explicitly define the issue of indirect rebates. However, in a situation where we are dealing with an indirect discount, the appropriate procedure seems to be to reduce the tax base, and therefore also to reduce output VAT.

The Community Directive on VAT No. 2006/112 / EC of the Council of 28 November 2006 specifies that: "the basic feature of the tax is its proportionality to the price of goods and services, regardless of the number of transactions that take place in the production and distribution process preceding the stage of charging this tax, that is, consumption. "

Accordingly, VAT should not be charged to entities that are not the final recipients of the goods or services in question. This tax should be neutral, i.e. in a situation where the price of goods or services has been reduced with an indirect discount, the output VAT should also be reduced proportionally.

Intermediate discount - documentation

Granting an indirect discount should be documented with a credit note. It should include:

• data identifying the taxpayer and the entity that received the indirect discount,
• identification of the transaction covered by the discount,
• discount value along with the determination of the gross value and the amount of VAT, by which the output tax is reduced.

Please note that the credit note is a completely different document than the credit note.

Correction of VAT by the entity granting the indirect discount

An important issue is to determine the moment when the taxpayer, i.e. the entity granting the indirect discount, should demonstrate the discount in the tax settlement. Two moments can be distinguished here: the moment of the actual granting of the discount and the moment of issuing the accounting note. According to the tax authorities, the reduction of the tax base, and thus the output tax, may take place in the settlement period in which the taxpayer transferred the funds covered by the indirect discount to the final recipient. In other words, the right time to show the indirect rebate is when you transfer the money.

Receipt of an indirect discount and VAT

When it comes to receiving an indirect discount, the question also arises when and whether it is necessary to correct VAT by the buyer of the indirect discount at all? As it has already been mentioned above, an indirect discount is documented with a note, and in accordance with the regulations, the need to reduce the amount of input tax occurs when a discount is received and documented only with a correcting invoice.

However, in this situation, in the opinion of the tax authorities, the reduction of the input tax is necessary. The reason for this is the need to maintain a balance. Because if the entity granting the discount made adjustments to the output tax, the entity receiving the discount is obliged to reduce the input VAT.

Correction of VAT by the entity that has been granted the discount

The regulations do not specify the moment when the buyer of the indirect discount should reduce the input VAT. On the other hand, it was assumed that it should be done in the month or quarter (depending on the method of tax settlement) in which the entity received money for the discount granted. The period of the granted indirect discount is irrelevant here.

Granting an indirect discount and income tax

According to the tax authorities, the entity granting the indirect discount may classify it as tax deductible costs. The condition for such offsetting is showing the relationship with the income generated by the taxpayer. The taxpayer granting the discount may show it in the revenue and expense ledger as “Other expenses” in column 13.

Indirect discount and income tax

The indirect discount should be recognized by the buyer in the tax ledger of revenues and expenditures as "Other revenues", in column 8. Due to the fact that the receipt of cash was not accompanied by any action on the part of the provider of the indirect discount, the moment when the revenue arose is defined as the date of receipt discount.