Businesses usually also undertake marketing activities to support sales. one marketing methods are the use of sales support materials, including printed advertising and information materials. How to tax the transfer of such materials to a contractor?
Among the most popular materials supporting sales, the so-called POS (point of sales materials) should be distinguished by articles such as flyer stands, wobblers, advertising folders, stickers or mockups. In the light of last year's amendment to the VAT Act, it is particularly important that printed advertising and information material be properly qualified.
As a preliminary point of view, it is necessary to state the legal status which gives rise to doubts about printed advertising and information material. Subject to Article 7(1) VAT Act by delivery of goods, the transfer of the right to dispose of goods as owner. But in thought Article 7(2) The Goods and Services Tax Act (hereinafter: VAT Act) by the supply of goods shall also be understood as the transfer free of charge by the taxable person of goods belonging to his undertaking, in particular:
- the transfer or use of goods for personal purposes of the taxable person or his employees, including former employees, shareholders, shareholders, members of cooperatives and their household members, members of the bodies constituting legal persons, members of the association,
any other donations,
- where the taxable person has been entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax due on the acquisition, import or manufacture of those goods or their components.
For this matter, it is crucial to amend the VAT Act, resulting in a change in the content of the provision Article 7(3).:
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- on 31 March 2013 it provided that the provision Article 7(2) „does not apply to printed advertising and information material, low value gifts and samples transmitted’;
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- from 1 April 2013 the following shall apply: section 2 does not apply to small-value gifts and samples transmitted where such transfer is made for purposes related to the economic activity of the taxable person.’
As is shown by the comparison of the above mentioned versions of the provision, the current wording does not refer to ‘printed advertising and information material’. This gave rise to doubts for taxpayers whether the supply of such articles should be subject to a tax obligation under the VAT Act in the new state of the law.
Despite the year since these changes entered into force, the issue remains controversial. Tax payers are still questioning whether the free transfer of printed advertising and information material is taxable.
The disputed issue concerned the individual interpretation of the Director of the Tax Chamber in Warsaw issued on 21 January 2014, The signature. IPPP2/443-1151/13-2/AO.
The facts presented show that the company purchased printed advertising and information materials such as folders, catalogues or paper bags in order to pass them on to the chains of shops which it purchased goods. All printed materials included either the company logo or the logo, photo or description of the goods advertised.
When purchasing these materials, the company had the right to reduce the tax due.
The applicant indicated that the purpose of the transfer of these materials was advertising and information on the goods offered by the company and the incentive to purchase them, without the counterparty being given the possibility to use the goods in an economic sense.
The interpretative body pointed out that VAT is based on this consumption tax, which is implemented by adding it to the price of goods purchased by consumers. He pointed out that VAT is charged to the consumption of a given commodity (or service) by which the use of the acquired goods (or service) should be understood as having the effect of meeting any need by the consumer.
In view of the above VAT assumptions, the Authority concluded that the printed advertising and information materials referred to in the request for interpretation do not constitute goods which may be consumed. Thus, the recipient of the goods transferred does not consume them and, as a result of the delivery, no need is met – there is no asset delivery as the counterparty is not given the possibility to use the goods in an economic sense.
In the interpretation, the Authority also referred to the regulation on ‘low-value gifts’. According to Article 7(3) The VAT Act of low value gifts is not understood as the supply of goods. According to Article 7(4) gifts of little value shall be understood to be delivered by the taxable person one goods:
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- Of a total value not exceeding the amount in the tax year 100 PLN, if the taxable person keeps records to identify them;
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- which are not included in the records referred to in point 1, if the unit purchase price of the goods (excluding tax) and where there is no purchase price, the unit cost of production, determined at the time of transfer, does not exceed 10 PLN.
Oran stated that even if there was an unpaid transfer of advertising and information material, the unit purchase price of which exceeds 10 PLN This is not an activity with which the VAT Act would impose a tax obligation.
In conclusion, according to the interpretation under discussion, the free transfer of printed advertising and information material to counterparties is not an activity with which the VAT Act would create a tax obligation, regardless of the limitations resulting from the ‘low value gifts’ regulation.