On 29 March 2012, the Resolution no. 11637/11 dated 7 February 2012 of the Presidium of the Supreme Arbitrazh Court of Russia was published on the Russian SAC’s website. The Company (Leroy Merlin Vostok LLC ) was granted bonuses by its suppliers of goods for having achieved target volumes, as well as for the placement of goods in stores. No VAT was charged by the Company on received bonuses. The Company’s VAT treatment was challenged by tax authorities. The courts of three instances supported the Company. The Russian SAC supported the Company’s position as well.

The Russian SAC examined the VAT treatment of bonuses received by Company from its suppliers and concluded that bonuses do not represent payments for services but are directly related to the supply of goods and represent a form of trade discounts. Therefore supplier has the right to adjust output VAT previously charged on the given supply.

It will be however high risk to assume that all kinds of bonuses should lead to adjustment of the VAT base. Look into your trade discounts policy and analyse if restructuring of the bonus program (including backup documentation) might be required/of advantage.