To stimulate demand, the seller within the loyalty program pays the buyer bonuses for achieving a certain amount of purchased goods. What will be the VAT consequences of such an action?
Incentive payments as a type of marketing services
According to item 14.1.108 of the Tax Code of Ukraine (hereinafter – the Tax Code) marketing services (marketing) are services that ensure the functioning of the taxpayer’s activities in the field of market research, promotion of sales of products (works, services), price policy, organization and management of the movement of products (works, services) to the consumer and after-sales service for the consumer within the economic activity of such a taxpayer.
One of the methods used by suppliers to promote goods on the market is the payment of incentive payments (premiums, bonuses, other incentives) in favor of third parties (organizations that purchase goods from the supplier and carry out their sales (distributors), which are a reward for the achievement of certain economic indicators by third parties (distributors) within the scope of their main activity and contribute to the revitalization of sales of the supplier's goods, stimulate the promotion of goods in distribution channels.
Since motivational and incentive payments (premiums, bonuses, other incentives) paid by the official distributor (supplier of products (works, services)), in particular, for the accuracy of purchasing forecasts, execution of the agreed purchase plan, compliance with the range of goods), are aimed at stimulating sales of products (works, services), such costs refer to marketing services.
Pursuant to item 185.1 of the Tax Code, the object of taxation with value added tax is the transactions of taxpayers for the supply of goods/services, the place of supply of which is located in the customs territory of Ukraine, in accordance with Article 186 of the Tax Code. Provision of services in accordance with item 14.1.185 of the Tax Code is any transaction that is not the supply of goods, or any other transaction on the transfer of the right to objects of intellectual property rights and other intangible assets or the granting of other property rights in relation to such objects of intellectual property rights, as well as providing services consumed in the process of committing a certain action or carrying out a certain activity.
Therefore, when the seller provides a reward (bonus) to the buyer in connection with the achievement of certain volumes of supply of goods purchased from such a seller, the object of value added tax (hereinafter – VAT) is the marketing services provided by the buyer, and motivational and incentive payments, in turn, are compensation for the cost of such services.
Therefore, the buyer, in case of receiving incentive payments (bonuses) from the seller in connection with the achievement of certain volumes of supply of goods purchased from such a seller, incurs VAT tax obligations for the amount of received incentive payments (bonuses).
