Depending on the type of bonus, historically the Russian tax authorities treated them either as:
- a payment for the rendering of VAT taxable services by the purchaser of goods to the seller (if the place of supply of such services is Russia); or
- a discount to the price of goods sold that decreases the value of goods sold for VAT purposes.
In the latter case, the Russian authorities argued that the sellers should decrease the VAT base for the goods sold and the purchasers should adjust the corresponding amount of the Russian VAT previously reclaimed upon the acquisition of goods (and repay the respective amount of VAT). There have been two landmark court cases concerning this issue, and in both cases the Russian Higher Arbitration Court supported (directly or indirectly) the legitimacy of such an interpretation for volume bonuses. The conclusion of the Russian Higher Arbitration Court created tax risks associated with the adjustment of input VAT credits for Russian taxpayers in certain industries (in particular, retail stores) who tend to receive various incentive payments from suppliers.
The new rules regarding the treatment of bonuses for VAT purposes came into force on 1 July 2013. Now the payment of a bonus by the supplier to the purchaser for the fulfillment of certain conditions of a supply contract (including a volume bonus) does not change the cost of goods sold for the purposes of the VAT base determination in the seller’s VAT accounts, or the input VAT credit in the buyer’s VAT account. This treatment will not apply if the contracts for the supply of the goods explicitly state that the cost of goods sold will be reduced by the amount of a bonus.
Therefore if the parties have stipulated in the supply contract that the volume bonus payment decreases the value of goods shipped, then the seller should decrease the VAT base. The buyer then has a corresponding obligation to reverse the respective portion of Russian VAT that was previously reclaimed.
It is not clear, however, whether the new rules should apply to:
- bonuses paid after 1 July 2013 under contracts concluded before 1 July 2013
- bonuses paid after 1 July 2013 as a result of sales occurring before 1 July 2013.
Also, it is not clear whether the new rules completely mitigate the risk that the Russian tax authorities may still try to classify the provision of certain types of bonuses as a consideration for services rendered by the buyer to the seller. The residual VAT risk should be addressed separately for each individual case.
Although some uncertainties still remain the new rules introduce a greater clarity in the VAT treatment of bonuses.