State Fiscal Service of Ukraine on the Marketing Nature of Motivational Payments
On 29 October 2015 the State Fiscal Service of Ukraine (the SFSU) issued Letter No.22983/6/99-95-42-01-15 ("the Letter"), in which it explained its current position regarding the interpretation of bonuses and other motivational and incentive payments.
Thus, the SFSU stated flatly that as payments made by a seller in favour of its distributor, in particular for accuracy of purchase forecasts, performance of agreed purchase plans or compliance with product range are aimed at stimulating the offtake of products (works, services), such expenses shall be related to marketing services.
At the same time, according to the Letter, motivational payments (bonuses) obtained by a distributor from a seller for achievement of particular delivery volumes of goods shall entail that distributor’s VAT liabilities in the amount of received motivational payments (bonuses).
However, it is still not clear whether the SFSU considers bonuses and other motivational payments as payments for marketing services at all times or only in the above cases.
It should be noted that sellers often motivate distributors not only to promote its products in the market, but also to support distributors, to form loyalty and to stimulate better-quality work as well as for other purposes, which, however, has no direct impact on the increase of sales. At the same time, the SFSU equates granting bonuses and promoting product sales.
Therefore, we cannot but refer to the previous position of the SFSU stated in the Generalizing Tax Advice "On classifying the costs of marketing and advertising services as expenses" of 2012. Earlier, the SFSU was more careful about interpreting motivational payments and noted that motivational payments may be related to marketing services, in contrast to its current stance.
It is quite possible that the Letter will cause a more aggressive approach on the part of local tax authorities, which now have a quite clear position of their superior authority on classifying motivational payments as payments for marketing services.
Considering the above, businesses will have to be more careful when delimitating motivational payments of purely marketing nature and payments that are merely a seller’s financial support provided to a distributor, for instance, if the latter has no cross obligations towards the seller.
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