PwC Alert - Tax authority clarifies uncertainties about VAT rules
October, 06th 2009
The Hungarian Tax Authority (APEH) has recently published an information bulletin on its website on the correct application of the VAT Act that came into effect in 2008. The material has clarified a number of uncertainties in connection with the valid interpretation of these rules.
Tax Authority APEH recently published an information bulletin on its website on the correct application of Section 71 (2) and (3) of the VAT Act that came into effect in 2008. The material has clarified a number of uncertainties in connection with the valid interpretation of these rules. In its latest Tax & Legal Alert, PricewaterhouseCoopers provided a summary of this information bulletin and highlighted a few additional issues that still remain ambiguous.
The bulletin emphasizes that the discount may only be provided at the same time as, or after the principal transaction; it is not possible to provide any discount before the principal transaction.
1. The application of Section 71 (3) of the VAT Act in connection with discounts provided in kind
Under this rule, the taxpayer may decide not to reduce the VAT base. Therefore, the tax base will not decrease; instead, the taxpayer or another person may supply additional goods or services to the extent of the discount. This rule was meant to provide the statutory basis of such loyalty programmes under which coupons or points given at the time of the purchase may be used later at the taxpayer or another retailer basically as a cash equivalent. In such cases, the seller is required to pay VAT on the coupons or points used. As a result, the goods transferred later by the original retailer or by another taxpayer do not qualify as an actual discount.
2. The application of Section 71 (2) of the VAT Act in connection with discounts provided in kind
If the taxpayer provides a retroactive discount in kind in connection with- and with regard to its own transaction, the original tax base may be reduced if the transaction is appropriately documented in accordance with Section 71 (2) of the VAT Act.
If the discount under Section 71 (2) of the VAT Act is provided at the same time as the transaction making the customer eligible for the discount is completed, it is possible to issue such an invoice that only includes the actual payable amount as a tax base and does not show the amount of the discount.
If the taxpayer provides a retroactive discount in kind, under Section 77 (3) of the VAT Act, the invoice of the original transaction (with regard to which the discount in kind is provided) must be modified appropriately by issuing a document that qualifies as an invoice.
This, however, does not mean that the invoice is actually adjusted or corrected, as only the quantities and the unit prices change, the tax base will remain the same.
It is, however, still uncertain what the correct interpretation of the abovementioned rules of the VAT Act is in connection with a so-called quantity discount. The essence of a quantity discount is that when the customers reach a set number of purchases, they will gain the right to a specific and invoiced price discount for the purchases of the period the discount applies to.
It is unclear whether it is an appropriate solution to issue a document that qualifies as an invoice and includes a reference to the last invoice only and that modifies the last invoice and the tax base to ensure that the agreed amount of discount is equal to the amount specified in the agreement on the discount, or if all invoices the discount applies to need to be referred to in the document that qualifies as an invoice.
PwC suggests checking the discounts in kind clients have provided by reducing the VAT retroactively over the past one and a half years, as in future tax audits the Tax Authority will likely focus on checking whether the strict accounting and documenting rules have been complied with.