In this case, initial parameters stipulated in the contract change, therefore, an adjustment invoice for the difference in cost (as per item 3 of clause 168 of the Russian Tax Code) shall be billed.
The adjustment invoice is executed in addition to the original one. It shall specify the number and date of the original invoice along with all its numbers and the new data. After that, the difference (the amount of decrease) that will be registered in the sales/purchase books of the seller and the buyer shall be determined.
On the grounds of such invoice, the supplier approves the difference between the amount of tax before and after the change of the commodity’s cost (the discounted sum). The customer registers the adjustment invoice for the discount’s sum in the sales book for the purpose of restoring the tax sum (sub-clause 3 of item 3 of clause 170 of the RTC.)
Granting a Discount After Shipment: an Example
Let’s consider an example of granting a discount to a customer after shipment of commodities. The cost of the commodities per the supply agreement is denominated in Euros, while the payment shall be in rubles. The Euro exchange rate is determined per the Central Bank’s rate on the date of writing off of the amount from the customer’s bank account.
According to the supply agreement d.d. 01.16.2017, Alpha LLC supplied three office cabinets to Star LLC at the price of 590 Euros (VAT inclusive). The Euro exchange rate on the day of shipment comprised 83 rubles per Euro. Over the course of installation, it turned out that internal panels of the cabinets have a color different from that stated in the specification. The customer opted not to return the goods, and requested a 20 per cent discount. The supplier agreed with the proposal, and the parties signed an additional agreement.
There are two possible courses of action from now on.
Variant 1. The discount agreement was executed in the same quarter of the year than the original realization.
The discount agreement was signed on 03.29.2017. Alpha LLC’s accounted did the following:
- registered invoice no.3 d.d. 01.16.2017 in rubles for the shipment price of 146,910 rubles (590 Euros x 83 rubles x3), including VAT of 22,410 rubles: three cabinets at the price of 41,500 rubles (VAT exclusive);
- registered invoice no.3 d.d. 01.16.2017 in the sales book, and transferred it to the customer.
- executed adjustment invoice no.50 for invoice no.3 d.d. 01.16.2017 for the difference of the discount to the customer (20 per cent). The VAT difference comprised 4,482 rubles at the exchange rate on the date of shipment;
- registered adjustment invoice no.50 d.d. 03.29.2017 in the sales book and transferred it to the customer.
Star LLC’s accountant acted as follows:
- registered invoice no.3 d.d. 01.16.2017 in the purchase book to the VAT amount of 22,410 rubles.
- registered adjustment invoice no.50 d.d. 03.29.2017 in the sales book for the amount of VAT difference of 4,482 rubles.
Therefore, VAT operations of the supplier and the customer are reflected in the tax statement for Q1 2017: 22,410 rubles per the original invoice, and 4,482 rubles per the adjustment invoice.
As a result, the supplier has to pay VAT of 17,928 rubles, and the customer 17,929 as well.
Variant 2. Discount agreement executed in the quarter following the quarter of original realization
The discount agreement was singed on 04.28.2017. Accountants of both companies act the same in case of the operations of 01.16.2017. This means that, in the statement for Q1 2017, the supplier specifies VAT for charging, and the supplier for deduction to the same tune of 22,410 rubles as per Euro exchange rate on the date of shipment.
Alpha LLC acted as follows:
- executed adjustment invoice no.60 d.d. 04.28.2017 for invoice no.3 d.d. 01.16.2017 for the difference to the amount of the discount (20 per cent). VAT difference comprised 4,482 rubles on the date of shipment;
- registered invoice no.60 d.d. 04.28.2017 in the sales book and transferred it to the customer.
Star LLC’s accountant acted as follows:
- registered adjustment invoice no.60 d.d. 04.28.2017 in the sales book to the amount of VAT difference of 4,482 rubles in order to restore VAT.
It’s worth mentioning that the tax base calculated at the time of shipment is not subject to change when adjusting the cost of shipped goods and billing the adjustment invoice. Therefore, if the cost of commodities is denominated in foreign currency, all operations (should there had not been any advance payment) are calculated for the rate on the day of shipment. For that reason, the exchange rate on the date of adjustment agreement doesn’t matter to both the supplier and the customer.
Discount to the Customer in a Different Tax Period
If the adjustment agreement and the adjustment invoice have been executed in different tax periods, the supplier is entitled to demand VAT deduction only in the quarter when the adjustment invoice has been billed and the additional agreement has been concluded. The customer, however, is obliged to restore VAT in the quarter when the additional agreement / adjustment invoice have been executed, whichever occurs earlier. Therefore, if the agreement has been executed before the adjustment invoice, the customer’s liability to charge the VAT may occur earlier than the supplier becomes entitled to demand the deduction.
Adjustment invoices are subject to the right of requesting a deduction for three years as of its execution (as per item 10 of clause 172 of the RTC).
There is no need to submit a clarified VAT statement for the period when the commodities have been shipped.