Almost year and a half ago, the important legislative amendments concerning the possible issuance of corrective VAT invoices in case of retroactive amendments of the physical volume/contractual prices of a particular transaction entered into force. As a further development, Decree No. 1137 “Concerning Forms and Rules on the Drawing-up (Maintenance) of Documents Applied to VAT Settlements” January 26 2011 established the format of corrective VAT invoices and the procedures for its issuance and maintenance for VAT purposes. Generally, these amendments were aimed at resolving an ambiguity in the VAT law concerning granting retroactive bonuses and have initially been welcomed by the business community.
However, from a practical standpoint, questions arise with regard to filling in corrective VAT invoices on bonuses granted by a supplier to its customer, for example bonuses for volume of supplies calculated on complex indexes for a particular period. If such bonuses calculated on the basis of complex indexes of supplies are granted and if such bonuses are qualified as payments adjusting the value of the supplied goods, literally following to the provisions of Decree No. 1137 a seller is obliged to issue a corrective VAT invoice for each initial supply. This situation significantly complicates documentary flow for VAT purposes and leads to substantial additional administrative cost for the counterparts and, in some cases, may divorce taxpayers of the right to recover VAT.
In view of the above issues several taxpayers petitioned the Supreme Arbitration Court of the Russian Federation (SAC) with the joint claim to disable certain provisions of Decree No. 1137 with regard to their obstacle of issuance of an aggregated corrective VAT invoice indicating the amounts of total supplies in relation to which the bonuses have been granted. In the claim, the taxpayers pointed out that when the value is adjusted because of granting bonuses or discounts or rebates calculated on the basis of the aggregated value of the supplies for a particular period, there is no opportunity to issue a properly drawn up corrective VAT invoice. Besides, it was also pointed out that in the case at hand the customer’s right to receive the bonuses on aggregated value of goods arises after the supply of goods at the previously defined price. Accordingly the counterparts do not agree to adjust the price of a single point-of-sale or a single consignment of goods.
In examining the claim and the provisions of Decree No. 1137, the SAC in its decision of January 11 2013 No. 13825/12 stated that the rules regulating the issuance of corrective VAT invoices should be applied only in cases when the price adjustments and/or amendments in quantity (volume) occur and are not available for other cases, influencing the value of goods.
Importantly, the SAC noted that Chapter 21 of the Tax Code concerning VAT and other regulatory legal acts does not stipulate special provisions covering the bonuses granted by sellers to their customers with regard to the aggregated value of volume of the acquired goods determined by the agreement between parties without changes in the price of such goods. In the Decision, definitions of “value” and “price” are listed as different in the context of Chapter 21 of the Tax Code; therefore, the value may be adjusted because of either the price or volume of amendments or for other reasons. The SAC stated that the amendments into the VAT chapter of the Tax Code, which introduced the necessity of VAT recovery adjustments for a buyer upon price changes and introduced the concept of corrective VAT invoices, are relevant for price changes of goods in accordance with an agreement between counterparts. This was confirmed by the Russian government’s representatives during the court process.
Taking the above mentioned into account, the court came to the conclusion that there is no discrepancy between the disputed provisions of Decree No. 1137 and the provisions of the Tax Code. Accordingly, the SAC adjudicated on refusal to satisfy the taxpayers’ claim.
Having recognised current ambiguity in tax legislation with regard to corrective VAT invoice issuance upon granting the Bonuses, the SAC did not disclose which procedure of the issuance of the said VAT invoices should be applied by the taxpayers. Besides, in its decision the SAC does not directly touch on the issue concerning the qualification of the bonuses for VAT purposes (that is whether a supplier and a buyer should adjust VAT amounts - similar to the procedure of granting discounts - or not).
It is important to note that, based on the indirect SAC arguments, it may be concluded that the court, pointing to the absence of grounds for corrective VAT invoices issuance upon granting the bonuses, confirmed that for VAT purposes such bonuses should not be viewed as discounts which adjust the price and/or volume of dispatches. Following this approach, it may further be assumed that from a VAT perspective the discussed bonuses represent a neutral payment which does not lead to obligation of the adjustments of either output VAT amounts (on the seller’s side) or input VAT amounts (on the buyer’s side).
From a practical standpoint, intentions of both the seller and the buyer to adjust the price and the documents supporting such intentions and the fact of actual price adjustments (or their absence) are of key importance for tax qualification of the bonuses.
At the same time, we believe that the issuance of the discussed decision of the SAC does not settle the existing issues and ambiguities with respect to the VAT implications upon granting the bonuses.
Alexei Matveev (Alexei.Matveev@ru.ey.com), tax director, Ernst & Young Moscow
