How VAT off-the-price expenses are taxed and accounted for

Taxpayers sometimes obtain off-price expenses other than the price in taxable sales activities, that is, value-added tax off-price expenses, and for the tax and accounting treatment of value-added tax off-price expenses, many taxpayers in practice do not grasp accurately enough, so there are certain tax risks. Now how to analyze the tax and accounting treatment of VAT off-price expenses.

1. Tax treatment

(1) Handling of value-added tax

(1) Scope of VAT off-price expenses (hereinafter referred to as off-price expenses).

1. Article 6 of the Interim Regulations stipulates that the sales amount refers to all the price and off-price expenses charged by the taxpayer for taxable sales, but does not include the output tax collected.

2. Article 12 of the "Detailed Implementation Rules") stipulates that the off-price expenses referred to in the first paragraph of Article 6 of the Regulations include handling fees, subsidies, funds, fund-raising fees, return of profits, incentive fees, liquidated damages, late fees, deferred payment interest, compensation, collection of funds, advance payments, packaging fees, packaging rentals, reserve fees, quality fees, transportation and handling fees and other off-price charges of various natures. However, the following items are not included:

(1) Consumption tax collected and remitted by the consumer goods subject to consumption tax entrusted with processing.

(2) At the same time, the following conditions are met:

1. The invoice for transportation expenses issued by the carrier department to the buyer;

2. The taxpayer forwards the invoice to the purchaser.

(3) Government funds or administrative fees collected on behalf of others that meet the following conditions at the same time:

1. Government funds established with the approval of the State Council or the Ministry of Finance, and administrative fees established with the approval of the State Council or provincial-level people's governments and their financial and price authorities;

2. Issue financial bills printed by financial departments at or above the provincial level when collecting;

3. The full amount of the money collected shall be handed over to the treasury.

(4) The insurance premiums collected from the purchaser for insurance at the same time as the sale of goods, as well as the vehicle acquisition tax and vehicle license fee paid by the purchaser on behalf of the purchaser.

3. Annex 1 of the "Cai Shui [2016] No. 36, hereinafter referred to as Document No. 36): Article 37 of the "Implementation Measures for the Pilot Project of Replacing Business Tax with Value-Added Tax" stipulates that sales amount refers to all the prices and off-price expenses obtained by taxpayers in taxable behaviors, unless otherwise stipulated by the Ministry of Finance and the State Administration of Taxation.

Off-price charges refer to charges of various natures charged outside the price, but do not include the following items:

(A) on behalf of the collection and in accordance with the provisions of Article 10 of the provisions of the government funds or administrative fees.

(2) Issuing invoices in the name of the entrusting party and collecting money on behalf of the entrusting party.

From the comparison between the above implementation rules and Document No. 36, it can be seen that the off-price fees are stipulated in the implementation rules as "fees charged by the seller to the buyer", while Document No. 36 only says that the seller "charges of various natures charged by the seller outside the price", and does not emphasize that the fees charged by the seller from the buyer. So, how should taxpayers master and apply these two expressions of off-price expenses in practice?

In fact, in recent years, business transactions are no longer a matter for both parties to the transaction, and sometimes third parties or more parties are involved, and in some cases, the seller will also receive additional fees from parties other than the buyer. Then, if VAT is levied on the off-price fees charged by the seller only on the off-price expenses obtained from the buyer, but not on the off-price expenses obtained from other parties involved in the transaction, this obviously violates the principle of tax fairness and will also cause tax loss. Therefore, the state issued Document No. 36 on March 23, 2016, the expression of off-price expenses no longer only emphasizes the costs obtained from the buyer, that is to say, since May 1, 2016, the implementation of Document No. 36, the scope of off-price expenses has been expanded, as long as there is a taxable sales behavior, the seller's acquisition of charges of various natures other than those specified by the state that are not off-price expenses, regardless of who is charged, should be recognized as off-price expenses.

The current effective implementation rules were amended and promulgated for the second time on October 28, 2011, and the state did not make corresponding amendments to the implementation rules after the second revision of the interim regulations on November 19, 2017. Therefore, in practice, taxpayers should study and understand the implementation rules and Document No. 36 in a comprehensive manner for the grasp of off-price expenses. As for the scope of off-price expenses, the implementation rules list the common off-price expenses, but due to the complexity of the taxpayer's actual transaction business, there will still be an exhaustive list. Because of the enumeration of the implementation rules, Document No. 36 only makes a general statement of the off-price expenses and does not repeat them, but further clarifies that the eligible government funds and administrative fees collected on behalf of the entrusting party, as well as the invoices issued in the name of the entrusting party and the funds collected on behalf of the entrusting party, do not belong to the scope of off-price expenses.

In addition, in practice, the following two issues should be paid attention to in the determination of extra-price expenses:

First, there must be a VAT taxable sale.

Article 6 of the Interim Regulations stipulates that sales amount shall be all the price and off-price expenses charged by "taxpayers for taxable sales". This shows that the off-price expenses are only incurred due to the "occurrence of taxable sales behaviors", and the non-profit expenses that do not belong to VAT will not be generated without "taxable sales behaviors".

In the actual business activities of taxpayers, there will be situations where the transaction contract cannot be performed, that is, there is no VAT taxable sales. In this case, if the buyer breaches the contract and pays liquidated damages to the seller, then the liquidated damages obtained by the seller do not fall within the scope of off-price expenses and do not need to pay VAT.

Second, it must be an off-price fee obtained by the seller.

Article 6 of the Interim Regulations stipulates that sales amount refers to all the price and off-price expenses charged by taxpayers for taxable sales. Obviously, the off-price charges are included in the sales, and the sales are the payments received by the seller. Therefore, only the off-price charges obtained by the seller can constitute "VAT off-price charges". In the actual business transaction activities, due to the fault of the seller, the seller will also pay the off-price fee to the buyer, but the off-price fee obtained by the buyer does not belong to the off-price VAT and does not need to pay VAT.

(2) Determination of the basis for taxation of off-price expenses

Article 1 of the "Guo Shui Fa [1996] No. 155) stipulates that the off-price fees and overdue packaging deposits charged by general VAT taxpayers (including taxpayers themselves or on behalf of other departments) to the buyer shall be regarded as tax-included income, which shall be converted into tax-free income and incorporated into sales amount for VAT purposes at the time of taxation.

From the above policy provisions, it can be seen that the off-price expenses obtained by general VAT taxpayers are regarded as tax-included income, which need to be converted into tax-free income and included in sales for VAT calculation.

In the same way, if a small-scale VAT taxpayer obtains an off-price expense, it should also be regarded as tax-included income, and then converted into tax payable and sales.

(3) Issuance of invoices for off-price expenses

According to Article 6 of the Interim Regulations, sales amount refers to all the price and off-price expenses charged by taxpayers for taxable sales, and it can be seen that off-price expenses and prices constitute sales, that is, off-price expenses are part of sales. Therefore, when a taxable sale occurs, if the price and the off-price expenses can be charged at the same time, then the off-price expenses and the off-price expenses should be issued on one invoice when the sales invoice is issued; If the out-of-price charges and the price are not charged at the same time, the out-of-price charges shall be invoiced separately. However, regardless of whether the price and off-price expenses are charged at the same time, when the off-price expenses are invoiced, the invoice code shall be selected according to the applicable commodity code of the goods, services, services, intangible assets and immovable properties sold, and other corresponding columns and remarks columns shall be filled in according to the filling rules of the main business (i.e., the business that collects the price). In addition, the type of invoice should also be the same, that is, if the price is issued with a special VAT invoice, then the off-price expenses should also be issued with a special VAT invoice; If the price is issued with an ordinary VAT invoice, then an ordinary VAT invoice should also be issued for the off-price expenses.

(2) Treatment of income tax

(1) Treatment of enterprise income tax

Article 5 of the "Regulations" stipulates that the total income of an enterprise in each tax year, after deducting non-taxable income, tax-exempt income, various deductions and allowable losses of previous years, is the taxable income.

Article 6 stipulates that the income obtained by an enterprise from various sources in monetary and non-monetary forms shall be the total income. Including: (1) income from the sale of goods; (2) Provision of labor income; (3) Income from the transfer of property; (4) Dividends, bonuses and other equity investment income; (5) Interest income; (6) Rental income; (7) Royalty income; (8) Receiving income from donations; (9) Other income.

Article 22 stipulates that the other income referred to in Article 6 (9) of the Enterprise Income Tax Law refers to the income obtained by the enterprise in addition to the income specified in Article 6 (1) to (8) of the Enterprise Income Tax Law, including the income from the excess of enterprise assets, the income from the deposit of the packaging materials that have not been returned within the time limit, the amount payable that cannot be repaid, the receivables that have been recovered after being treated as bad debt losses, the income from debt restructuring, the income from subsidies, the income from liquidated damages, and the income from foreign exchange.

From the above policy provisions, it can be seen that the total income of enterprise income tax payers in each tax year, after deducting non-taxable income and tax-exempt income, has the obligation to pay enterprise income tax. In addition to the collection of funds, advances, funds, and fund-raising funds, the off-price expenses of other projects can bring an increase in economic benefits to the enterprise, so the off-price expenses of other projects are obliged to pay enterprise income tax in addition to the collection of funds, advances, funds, and fund-raising funds.

(2) Treatment of individual income tax

Article 7 of the Decree No. 35 of the State Administration of Taxation stipulates that the income from production and operation of individual industrial and commercial households shall be the taxable income after deducting costs, expenses, taxes, losses, other expenses and losses of previous years that are allowed to be made up in each tax year. Article 8 stipulates that the monetary and non-monetary forms of income obtained by individual industrial and commercial households engaged in production and operation and activities related to production and operation (hereinafter referred to as production and operation) shall be the total income. Including: income from the sale of goods, income from the provision of labor services, income from the transfer of property, interest income, rental income, income from donations, and other income. The other income mentioned in the preceding paragraph includes the income from the surplus assets of individual industrial and commercial households, the income from deposits for unreturned packaging materials that have been overdue for more than one year, the payables that cannot be repaid, the receivables that have been recovered after being treated as bad debt losses, the income from debt restructuring, the income from subsidies, the income from liquidated damages, and the income from foreign exchange.

Article 4 of the "Cai Shui [2000] No. 91) stipulates that the balance of the total income of sole proprietorship enterprises and partnership enterprises (hereinafter referred to as enterprises) in each tax year after deducting costs, expenses and losses shall be regarded as the production and operation income of individual investors, and the five-level excess progressive tax rate of 5%~35% shall be applied to calculate and levy individual income tax according to the taxable item of "production and operation income of individual industrial and commercial households" in the individual income tax law. The term "total income" as used in the preceding paragraph refers to the income obtained by an enterprise from engaging in production and operation and activities related to production and operation, including sales revenue from commodities (products), operating income, income from labor services, income from project prices, income from leasing or transfer of property, interest income, other business income and non-operating income.

From the above business income of individual industrial and commercial households and sole proprietorship enterprises and partnership enterprises that pay individual income tax, it is consistent with the recognition principle of enterprise income tax taxable business income. Therefore, in addition to the collection of funds, advances, funds, and fund-raising funds, the off-price expenses of other items are subject to individual income tax.

2. Accounting treatment

Although the off-price expenses are a part of the sales volume, in terms of accounting treatment, the off-price expenses of all items cannot be included in the "main business income" account, but should be included in the corresponding accounting accounts according to the nature of the off-price expenses obtained and the accounting regulations of the accounting accounts. The following is a description of the common accounting treatment of off-the-money expenses:

(1) Collect incentive fees, quality fees, return of profits, and subsidies

In essence, the amount of incentive fee, premium fee, return of profits, subsidies and other amounts collected by taxpayers in sales activities is invisible in terms of price, that is, the original price has been increased, therefore, the amount of incentive fees, quality fees, returned profits, subsidies and other types collected by taxpayers should be included in the "main business income" account.

(2) Collect handling fees and packaging rents

The handling fee is charged by the taxpayer on the basis of providing certain services, and the rental of the packaging is charged by the taxpayer when the taxpayer leases the packaging to the buyer, so the handling fee and the rental of the packaging obtained by the taxpayer should be included in the "other business income" account.

(3) Collect liquidated damages and compensation

Liquidated damages are payments made in violation of the provisions of the contract or prior agreement; Indemnity is compensation given to the injured party; Therefore, the liquidated damages and compensation obtained by the taxpayer should be included in the "non-operating income" account.

(4) Collect interest on deferred payment and late fees

The interest on deferred payment charged by the taxpayer is equivalent to the interest on the deposit and should be offset against the "financial expenses" account.

The late payment penalty charged by the taxpayer in the sales activity is generally due to the delay in payment by the buyer, and the so-called late payment penalty charged is essentially the interest on the deferred payment, which should also be offset by the "financial expense" account.

(5) Collecting funds, fund-raising funds, collecting funds, and advancing funds on behalf of others

The funds and fund-raising funds collected by taxpayers in sales activities in accordance with relevant regulations are of the nature of special funds, so they should be included in the "other payables" account; Payments collected on behalf of others are clearly collected on behalf of others and should therefore also be included in the "Other payables" account.

Advances on behalf of others are obviously funds advanced in advance on behalf of others and will be recovered in the future, so they should be included in the "other receivables" account.

(6) Collect packaging fees, transportation and handling fees, and reserve fees

Packaging costs, transportation and handling costs, and storage fees are generally expenses incurred by taxpayers in sales activities, and if these expenses are borne by the other party, it is obvious that the "sales expenses" account should be deducted.

In addition to funds, fund-raising, collection and advances, other off-price expenses will affect the annual accounting profit of taxpayers. Whether the off-price expenses are included in the "main business income" account, the "non-operating income" account, the "other business income" account, or the "financial expenses" account and the "sales expenses" account are offset have no impact on the accounting profit of the taxpayer for the year, but it will have an impact on the calculation of the taxable income recognized by the taxpayer when the taxpayer conducts the annual income tax final settlement. Because the inclusion of off-price expenses in the "main business income" account and the "other business income" account will increase the calculation base for calculating the pre-tax deduction limit for advertising expenses, business publicity expenses and business entertainment expenses, taxpayers should carefully screen the nature of the off-price expenses obtained in practice and include them in the corresponding accounting accounts to avoid tax risks.

Source: Tax House, Author: Li Xiaoyu. The content of this article is for general information purposes only and is not intended as formal auditor, accounting, tax or other advice, and we cannot guarantee that such information will remain accurate in the future. No person should act on the basis of the information contained herein without having due regard to the relevant circumstances and obtaining appropriate professional advice. The articles reproduced in this issue are for academic exchange purposes only. The original copyright of the article or material belongs to the original author or original copyright owner, and we respect copyright protection. If you have any questions, please contact us, thank you!