On April 11, 2024, the 16th Arbitration Court of Appeal within the second round of consideration adopted a long-awaited for many taxpayers ruling in the case of ECOPHARM PLUS LLC and took into account the conclusions of the cassation instance court, which sent the case for a new consideration. 

This dispute gave rise to many questions and discussions, since the approach of the courts of the first circle differs radically from the previously formed judicial practice on the procedure for taking bonuses into account when offsetting counter homogeneous claims, and the approach of the court of cassation instance, which referred the dispute for a new consideration, was never heard by the court of first instance.

TC Junior Tax Consultant Anastasia Arzhanova commented on the «new» approach to accounting for bonuses in the April tax digest of Pravo.ru. 

Factual circumstances

The Company entered into supply contracts for the supply of pharmaceuticals with a number of counterparties (the Counterparties). Additional agreements to the said supply contracts stipulated that in case the Company fulfilled certain terms of the contract on shipment of goods, the Counterparties undertook to pay it a bonus which did not reduce the price of goods and was not subject to VAT. 

Based on the results of fulfillment of the terms of the contract, the bonus was provided to the Company without changing the price of goods by reducing the Company's existing receivables for payment for goods for previous reporting periods (i.e. by offsetting counter similar claims). 

Based on the results of the tax audit, the tax authority concluded that in this case there was a gratuitous sale of goods in terms of the offset of counterclaims, and therefore the Company is not entitled to deduct VAT on such gratuitously received goods.

During the first round of consideration, the courts of first and appeal instance supported the tax authority's position, but the Arbitration Court of the North Caucasus District upheld the Company's position and sent the case for a new consideration.

How were bonuses accounted for before?

The procedure applied in this dispute for setting off the right to claim a bonus against a debt for payment for goods is a common commercial practice and is actively used by many companies which work with their suppliers under the bonus system.

As a general rule, bonuses (bonuses) paid to a buyer do not reduce the value of shipped goods for the purposes of calculating the VAT base, unless the reduction of the value of shipped goods by the amount of the bonus (bonuses) paid is provided for in a specific contract.

Thus, in the case when a bonus is paid to a buyer for fulfillment of the terms and conditions of a supply contract that does not provide for a change in the cost of goods by the amount of the paid bonus, there are no tax consequences in terms of VAT: the supplier does not reduce revenue by the amount of bonuses, and the buyer does not adjust deductions for purchased goods. Such payments are not subject to VAT and are not a gratuitous transaction or a discount that reduces the price of goods.

At the same time, back in 2014, the Supreme Arbitration Court of the Russian Federation clarified in paragraph 15 of the Plenum Resolution No. 33 of 30.05.2014 that the termination of a monetary obligation by offsetting counter similar claims is equal to the payment of goods in cash and does not mean the transfer of goods at zero price. 

A new approach to the accounting for bonuses

Twice in the first and second round of consideration, the court of first instance concluded that «bonuses received by the company from its suppliers for fulfilling the terms of supply contracts are directly related to the supply of goods, therefore, they are a form of trade discounts applied to the cost of goods, affecting the tax base for VAT». The court of first instance, siding with the tax authority, also noted that the tax authority confirmed that «the products were redeemed at the expense of the premium, as they were not paid in accordance with the terms of prepayment contracts». 

This approach of the court came as a surprise to taxpayers, who for many years had been guided by long-established court practice. The court of cassation instance had to remind about the already formed approach, which sent the case for a new consideration.

Many people were surprised that the court of first instance did not change its position within the second round of consideration and did not evaluate the Company's argument that payment by the buyer of the purchased goods by reducing the amount of the right of claim to the supplier is not a gratuitous realization due to the balancing of counter obligations. 

The court of appeal instance, within the framework of the second round of consideration, took into account the conclusions of the cassation court and once again voiced the main points on which the tax authorities and courts should be guided when considering this category of disputes. 

In particular, the court of appellate instance once again noted that the need to adjust tax deductions has been made by the legislator since 01.07.2013 dependent on the terms of the relevant contracts to be assessed by the courts under the rules of Art. 71 of the APC RF: as a general rule, the payment of a bonus does not reduce the value of shipped goods for the purposes of calculating the tax base for VAT, except where the reduction in the value of goods is expressly provided for by the terms of the contract (paragraph 2.1 of Art. 154 of the Tax Code of the Russian Federation). 

In the case under consideration, the terms of the Company's contracts with the Counterparties did not contain provisions defining the parties' will to transfer property free of charge. On the contrary, the provision of bonuses and bonuses was conditioned by the Company's performance of specific counteractions: fulfillment of the shipping plan, purchase of a certain amount of goods, compliance with financial discipline.