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The debate on VAT on incentive rewards

6 Feb 2014

Positive judicial practice has been forming in Russia in relation to calculating VAT when receiving bonuses and other incentive awards. Taxand Russia discusses the background to the VAT debate.

The tax authorities have for a long time kept a close eye on companies’ revenue in the form of various incentive rewards (such as premiums and bonuses) which companies receive from their suppliers. The authorities have more than once attempted to make the companies pay VAT on these amounts under various pretexts: 

  • By obliging companies to recover VAT in relation to goods purchased which the tax authorities considered to be unlawfully deducted owing to discounts granted
  • Qualified such revenue as consideration for services and charged VAT on sale, etc

An example of a case where the court of cassation invalidated a decision in favour of the taxpayer is Resolution А32-29954/2010. The tax authority argued in this case that the beneficiary of the income should pay VAT on the incentive premiums to the budget irrespective of the terms and conditions of the contract, whether there are adjusting VAT invoices or not. The taxpayer applied for the case to be reviewed by the supervisory authorities. However the Russian Supreme Commercial (Arbitration) Court refused to review the case, pointing to the following:

  • Bonuses essentially represent a part of the goods’ value which is recovered
  • The amount of VAT by which the deductions should be decreased can be calculated in proportion to the overall amounts rather than based on the price of each item
  • If the VAT invoices are not adjusted, this does not affect the legal nature of a bonus which the parties booked as decreasing the accounts payable to the supplier, and does not exempt a company from decreasing VAT deductions previously received from the budget

Discover more: The debate on VAT on incentive rewards

Your Taxand contact for further queries is:
Valentina Akimova
T. +7 495 967 00 07

Taxand's Take

Whilst the VAT on incentive rewards debate continues on with taxpayers at odds with the tax authorities, Resolution A32-29954/2010 is seen as a step forward in the right direction by taxpayers. The ruling will once again boost tax disputes therefore multinationals should be prepared for increased scruntiny from the tax authorities in this regard and be prepared to take action. 

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