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Post-transaction discounts booked when incurred

In a judgment of 25 March 2015 (Case II FSK 955/14), the Supreme Administrative Court held that post-transaction discounts received by a taxpayer should be included in the accounting period in which the company received the discount. That case related to a construction company that had requested an individual ruling regarding the obligation to settle VAT adjustment invoices received from contractors.

The tax authority explained that the costs should be adjusted retroactively in connection with the discounts received. This has been the predominant position in rulings by the tax authorities for many years and has also found support in the judicial and administrative case law. The province administrative court set aside the ruling and held that post-transaction discounts should be treated as taxable revenue.

The Supreme Administrative Court resolved the case somewhat differently, holding that the lower court had reached the correct result but for the wrong reasons. According to the Supreme Administrative Court, as a result of receiving a discount, adjustments should be made to costs during the period when the discount is obtained, and therefore immediately. It would be against the rule of law to demand retroactive adjustments from taxpayers, as this would burden them with interest on tax arrears even though their actions were lawful at the time.

It is unlikely that this ruling will alter the current position of the fiscal authorities, but it may provide some hope to those taxpayers, who can have quite a problem making adjustments to costs.

Meanwhile, lawmakers have recognized this problem and work is now in progress to regulate and simplify the rules governing adjustments to costs and taxable revenue. Their aim is to enable taxpayers to adjust revenues and expenses on an ongoing basis if necessitated by such commercial circumstances as post-transaction discounts or returns of goods.

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