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Accurate determination of timing in VAT calculation for utility services
Accurate determination of timing in VAT calculation for utility services
Expert Commentary by Azer Ganbarov
As is known, the payments for services provided to the population by enterprises offering telecommunications, internet, utility, and similar services are mainly carried out through payment terminals via “Yığım” (Collection) companies. According to the contracts signed with these companies, payments are transferred to the service provider's account within a specifically defined time frame. However, payments may sometimes be delayed and carried over from one reporting month to another, or even from one fiscal year to the next.
According to Article 178 of the Tax Code, the reporting period for VAT is considered a calendar month. Therefore, such cases may pose additional tax risks for taxpayers during the timely calculation of VAT to the state budget. As a result, a question arises regarding the determination of the timing for taxable turnover when calculating VAT: should the time when the funds are paid by the population into the account of the “Yığım” company be considered the time of VAT calculation, or should it be the time when the funds are transferred from the company’s account to the enterprise’s bank account?
According to Article 166.1.1 of the Tax Code, the time of the taxable transaction is considered to be the moment the taxpayer receives the cash payment for the delivered goods (works or services), or, in case of non-cash payments, the moment the funds are credited to the taxpayer’s bank or other payment account, or to an account over which they have control, or the right to access the funds.
Additionally, according to Article 1.1.7 of the Law on “Payment Services and Payment Systems,” acquiring is defined as the services provided by payment service providers in processing and accepting transaction data carried out via payment instruments under a contract with the recipient of funds, resulting in the transfer of funds in favor of the recipient, or in the provision of cash. According to Article 3.3 of the Law, payment service providers include banks, non-bank credit institutions, the national postal operator, electronic money institutions, as well as payment institutions. Article 3.1.6 states that intermediary services for executing payment transactions are also considered payment services. Based on Articles 1.1.35–1.1.38 and 1.1.43 of the same Law:
- A payment account refers to an account opened for one or more users of payment services for carrying out payment transactions;
- A payment service refers to the services defined in Article 3.1 of the Law (specifically 3.1.6 for this case);
- A payment service user refers to the person using payment services either as the payer and/or the recipient of funds;
- A payment service provider refers to persons providing payment services to users in accordance with the Law, as defined in Article 3.3 (i.e., payment institutions);
- A payment institution refers to a legal entity that, under license, provides one or more types of payment services (excluding the issuance and operations with electronic money).
Enterprises providing telecommunications, internet, and utility services monitor the funds received from the population into “Yığım” companies through specialized software, and the resulting accounts receivable from the population are written off and reduced at that time.
Therefore, the transfer of the collected funds to the enterprise's account may be carried over from one reporting month to another or even from one reporting year to the next. However, since accounts receivable are written off and, in accordance with tax legislation, the taxable transaction time is determined as the moment the funds are credited to another payment account, in such cases the VAT calculation time is determined as the moment the funds are credited to the “Yığım” company’s account.
Example: “AA” LLC provides internet services and during the reporting month, rendered services worth 236,000 AZN to the population, including VAT. Although part of the funds – 212,400 AZN including VAT – was paid through payment terminals by the population, only 177,000 AZN was transferred to the company’s bank account by the “Yığım” companies. In this case, the taxpayer must indicate in the VAT declaration “Provided” column: 236,000 / 1.18 = 200,000 AZN, and in the “Received” column not 177,000 / 1.18 = 150,000 AZN, but 212,400 / 1.18 = 180,000 AZN, and calculate VAT to the budget as follows:
180,000 × 18% = 32,400 AZN.
Taking the above into consideration, if enterprises engaged in similar activities incorrectly determine the timing of taxable turnover during VAT calculation, it creates a risk of additional financial penalties. To eliminate such tax risks in advance, the time when the funds are credited to the accounts of “Yığım” companies should be considered the taxable moment, and VAT for that month should be calculated and declared to the state budget accordingly.
Expert Commentary by Azer Ganbarov
As is known, the payments for services provided to the population by enterprises offering telecommunications, internet, utility, and similar services are mainly carried out through payment terminals via “Yığım” (Collection) companies. According to the contracts signed with these companies, payments are transferred to the service provider's account within a specifically defined time frame. However, payments may sometimes be delayed and carried over from one reporting month to another, or even from one fiscal year to the next.
According to Article 178 of the Tax Code, the reporting period for VAT is considered a calendar month. Therefore, such cases may pose additional tax risks for taxpayers during the timely calculation of VAT to the state budget. As a result, a question arises regarding the determination of the timing for taxable turnover when calculating VAT: should the time when the funds are paid by the population into the account of the “Yığım” company be considered the time of VAT calculation, or should it be the time when the funds are transferred from the company’s account to the enterprise’s bank account?
According to Article 166.1.1 of the Tax Code, the time of the taxable transaction is considered to be the moment the taxpayer receives the cash payment for the delivered goods (works or services), or, in case of non-cash payments, the moment the funds are credited to the taxpayer’s bank or other payment account, or to an account over which they have control, or the right to access the funds.
Additionally, according to Article 1.1.7 of the Law on “Payment Services and Payment Systems,” acquiring is defined as the services provided by payment service providers in processing and accepting transaction data carried out via payment instruments under a contract with the recipient of funds, resulting in the transfer of funds in favor of the recipient, or in the provision of cash. According to Article 3.3 of the Law, payment service providers include banks, non-bank credit institutions, the national postal operator, electronic money institutions, as well as payment institutions. Article 3.1.6 states that intermediary services for executing payment transactions are also considered payment services. Based on Articles 1.1.35–1.1.38 and 1.1.43 of the same Law:
- A payment account refers to an account opened for one or more users of payment services for carrying out payment transactions;
- A payment service refers to the services defined in Article 3.1 of the Law (specifically 3.1.6 for this case);
- A payment service user refers to the person using payment services either as the payer and/or the recipient of funds;
- A payment service provider refers to persons providing payment services to users in accordance with the Law, as defined in Article 3.3 (i.e., payment institutions);
- A payment institution refers to a legal entity that, under license, provides one or more types of payment services (excluding the issuance and operations with electronic money).
Enterprises providing telecommunications, internet, and utility services monitor the funds received from the population into “Yığım” companies through specialized software, and the resulting accounts receivable from the population are written off and reduced at that time.
Therefore, the transfer of the collected funds to the enterprise's account may be carried over from one reporting month to another or even from one reporting year to the next. However, since accounts receivable are written off and, in accordance with tax legislation, the taxable transaction time is determined as the moment the funds are credited to another payment account, in such cases the VAT calculation time is determined as the moment the funds are credited to the “Yığım” company’s account.
Example: “AA” LLC provides internet services and during the reporting month, rendered services worth 236,000 AZN to the population, including VAT. Although part of the funds – 212,400 AZN including VAT – was paid through payment terminals by the population, only 177,000 AZN was transferred to the company’s bank account by the “Yığım” companies. In this case, the taxpayer must indicate in the VAT declaration “Provided” column: 236,000 / 1.18 = 200,000 AZN, and in the “Received” column not 177,000 / 1.18 = 150,000 AZN, but 212,400 / 1.18 = 180,000 AZN, and calculate VAT to the budget as follows:
180,000 × 18% = 32,400 AZN.
Taking the above into consideration, if enterprises engaged in similar activities incorrectly determine the timing of taxable turnover during VAT calculation, it creates a risk of additional financial penalties. To eliminate such tax risks in advance, the time when the funds are credited to the accounts of “Yığım” companies should be considered the taxable moment, and VAT for that month should be calculated and declared to the state budget accordingly.