en
Rules for clarification of taxable turnover
Rules for clarification of taxable turnover
According to Article 163.1 of the Tax Code, this article applies to the taxable transactions of the supplier of goods, the performer of works, and the provider of services in the following cases:
when the transaction is fully or partially cancelled, including when goods are fully or partially returned;
when the nature of the transaction changes;
when the agreed compensation for the transaction changes due to a decrease in prices or for any other reason; or
when, after the taxpayer issues an electronic invoice, circumstances arise that provide grounds for the clarification of taxable turnover and such clarification is carried out in accordance with the legislation.
Expert Ismayil Baghirov comments on this legal requirement with examples.
First, let us consider the case of full or partial cancellation of the transaction, including full or partial return of goods.
Example 1. In March, a taxpayer supplied goods worth 23,600 manats (including 3,600 manats VAT) to a buyer. The value of the goods was credited to the taxpayer’s bank account in the same month. However, in April, the buyer returned goods worth 5,900 manats (including 900 manats VAT) to the seller. In this case, both the buyer and the seller must clarify the amounts of their turnovers for April. Since the seller charged VAT on the total amount when supplying the goods, he must reduce the VAT by 900 manats in the declaration for the returned goods, while the buyer must restore to the budget the 900 manats of VAT previously deducted on the returned goods.
When the nature of the transaction changes…
Example 2. In March, a taxpayer purchased goods worth 23,600 manats including VAT and claimed the VAT for deduction. In August, the goods were contributed to the charter capital of the enterprise as a share. According to Article 164.1.5 of the Tax Code, the contribution of property into the charter capital of an enterprise is considered a VAT-exempt transaction. Therefore, the nature of the taxable transaction has changed, and the taxable turnover must be clarified, since deduction of VAT paid on exempt transactions is not allowed. In this case, for August, the taxable turnover must be adjusted, and the VAT payable to the budget should be increased by:
20,000 × 18% = 3,600 manats.
When the agreed compensation changes due to a decrease in prices or for any other reason…
Example 3. On May 20, 2020, Company A supplied goods worth 1,180 manats (including 180 manats VAT) to a buyer, received the payment on the same date, and issued the corresponding electronic invoice. For this transaction, Company A declared 180 manats of VAT payable to the budget in the May declaration. In June, the price of the goods was reduced and agreed at 944 manats (including 144 manats VAT), and the buyer made the payment in that month.
In this case, Company A clarifies the taxable turnover for May in the June declaration and reduces the VAT payable by 36 manats (line 319 of the June VAT declaration).
180 – 144 = 36 manats.
Example 4. On June 28, 2020, Company A sold goods worth 11,800 manats (10,000 manats + 1,800 manats VAT) to Company B and received the payment on the same date. Nearly 30 days later, Company B claimed that the goods were overpriced and would be returned unless the price was reduced. Company A accepted this claim, and the parties agreed to set the value of the goods at 9,440 manats (8,000 manats + 1,440 manats VAT). The relevant documents were prepared on July 31, 2020.
In this case, Company A will show 11,800 manats (10,000 + 1,800 VAT) as turnover in the June VAT declaration and issue an electronic invoice to Company B. On July 31, 2020, since the agreed compensation for the transaction changed, the electronic invoice issued for June will be adjusted and reissued for 9,440 manats (8,000 + 1,440 VAT). In the July 2020 VAT report, with reference to Article 163, an adjusted turnover will be reflected, and the turnover will be reduced by 2,360 manats (2,000 + 360 VAT).
When, after issuing an electronic invoice, circumstances arise that provide grounds for clarification of taxable turnover, and such clarification is carried out in accordance with the legislation…
Example 5. In May 2020, Company A supplied goods worth 1,180 manats (including 180 manats VAT) to Company B, but in the electronic invoice issued to the buyer, the value of the goods was mistakenly shown as 1,298 manats (including 198 manats VAT). The value of the goods was paid by Company B in May. Accordingly, Company A calculated 198 manats of VAT payable in the May declaration, and Company B claimed 198 manats of VAT for deduction. In June, it was revealed that the value of the goods had been incorrectly stated in the May electronic invoice. In this case:
Company A clarifies the taxable turnover for May in the June declaration and reduces the VAT payable by 18 manats (line 319 of the June VAT declaration):
198 – 180 = 18 manats.
Company B clarifies the taxable turnover for May in the June declaration and adds 18 manats of VAT back to the budget (line 318 of the June VAT declaration).
According to Article 163.2 of the Tax Code, if, as a result of one of the cases specified in Article 163.1, the taxpayer:
has issued an electronic invoice for VAT and incorrectly stated the VAT amount in that invoice; or
has incorrectly stated the VAT amount in the VAT declaration,
then clarification is carried out in accordance with Articles 174.2 or 175.5 of the Tax Code. Clarification is made in the reporting period in which the change in the valuation base occurred.
Example 6. In May 2020, LLC A supplied goods worth 1,180 manats (including 180 manats VAT) to LLC B. However, in the electronic invoice issued to the buyer, the value of the goods was mistakenly shown as 1,400 manats (including 213.6 manats VAT). The value of the goods was paid by LLC B in May. For this transaction, LLC A calculated 213.6 manats VAT payable to the budget in the May declaration, and LLC B claimed 213.6 manats VAT for deduction. In June, it was discovered that the value of the goods had been incorrectly stated in the May invoice. In this case:
LLC A clarifies the taxable turnover for May in the June declaration and reduces the VAT payable by 33.6 manats:
213.6 – 180 = 33.6 manats.
LLC B clarifies the taxable turnover for May in the June declaration and adds 33.6 manats of VAT back to the budget.
Thus, the electronic invoices issued determine the VAT-taxable turnover for the seller and the deductible turnover for the buyer, and these amounts are equal to each other. If circumstances providing grounds for clarification of turnover are identified in the issued electronic invoices, then both the seller and the buyer must make the corresponding adjustments in their turnovers. When clarifying the turnover, the VAT amount payable to or refundable from the budget may increase or decrease for both parties.
According to Article 163.1 of the Tax Code, this article applies to the taxable transactions of the supplier of goods, the performer of works, and the provider of services in the following cases:
when the transaction is fully or partially cancelled, including when goods are fully or partially returned;
when the nature of the transaction changes;
when the agreed compensation for the transaction changes due to a decrease in prices or for any other reason; or
when, after the taxpayer issues an electronic invoice, circumstances arise that provide grounds for the clarification of taxable turnover and such clarification is carried out in accordance with the legislation.
Expert Ismayil Baghirov comments on this legal requirement with examples.
First, let us consider the case of full or partial cancellation of the transaction, including full or partial return of goods.
Example 1. In March, a taxpayer supplied goods worth 23,600 manats (including 3,600 manats VAT) to a buyer. The value of the goods was credited to the taxpayer’s bank account in the same month. However, in April, the buyer returned goods worth 5,900 manats (including 900 manats VAT) to the seller. In this case, both the buyer and the seller must clarify the amounts of their turnovers for April. Since the seller charged VAT on the total amount when supplying the goods, he must reduce the VAT by 900 manats in the declaration for the returned goods, while the buyer must restore to the budget the 900 manats of VAT previously deducted on the returned goods.
When the nature of the transaction changes…
Example 2. In March, a taxpayer purchased goods worth 23,600 manats including VAT and claimed the VAT for deduction. In August, the goods were contributed to the charter capital of the enterprise as a share. According to Article 164.1.5 of the Tax Code, the contribution of property into the charter capital of an enterprise is considered a VAT-exempt transaction. Therefore, the nature of the taxable transaction has changed, and the taxable turnover must be clarified, since deduction of VAT paid on exempt transactions is not allowed. In this case, for August, the taxable turnover must be adjusted, and the VAT payable to the budget should be increased by:
20,000 × 18% = 3,600 manats.
When the agreed compensation changes due to a decrease in prices or for any other reason…
Example 3. On May 20, 2020, Company A supplied goods worth 1,180 manats (including 180 manats VAT) to a buyer, received the payment on the same date, and issued the corresponding electronic invoice. For this transaction, Company A declared 180 manats of VAT payable to the budget in the May declaration. In June, the price of the goods was reduced and agreed at 944 manats (including 144 manats VAT), and the buyer made the payment in that month.
In this case, Company A clarifies the taxable turnover for May in the June declaration and reduces the VAT payable by 36 manats (line 319 of the June VAT declaration).
180 – 144 = 36 manats.
Example 4. On June 28, 2020, Company A sold goods worth 11,800 manats (10,000 manats + 1,800 manats VAT) to Company B and received the payment on the same date. Nearly 30 days later, Company B claimed that the goods were overpriced and would be returned unless the price was reduced. Company A accepted this claim, and the parties agreed to set the value of the goods at 9,440 manats (8,000 manats + 1,440 manats VAT). The relevant documents were prepared on July 31, 2020.
In this case, Company A will show 11,800 manats (10,000 + 1,800 VAT) as turnover in the June VAT declaration and issue an electronic invoice to Company B. On July 31, 2020, since the agreed compensation for the transaction changed, the electronic invoice issued for June will be adjusted and reissued for 9,440 manats (8,000 + 1,440 VAT). In the July 2020 VAT report, with reference to Article 163, an adjusted turnover will be reflected, and the turnover will be reduced by 2,360 manats (2,000 + 360 VAT).
When, after issuing an electronic invoice, circumstances arise that provide grounds for clarification of taxable turnover, and such clarification is carried out in accordance with the legislation…
Example 5. In May 2020, Company A supplied goods worth 1,180 manats (including 180 manats VAT) to Company B, but in the electronic invoice issued to the buyer, the value of the goods was mistakenly shown as 1,298 manats (including 198 manats VAT). The value of the goods was paid by Company B in May. Accordingly, Company A calculated 198 manats of VAT payable in the May declaration, and Company B claimed 198 manats of VAT for deduction. In June, it was revealed that the value of the goods had been incorrectly stated in the May electronic invoice. In this case:
Company A clarifies the taxable turnover for May in the June declaration and reduces the VAT payable by 18 manats (line 319 of the June VAT declaration):
198 – 180 = 18 manats.
Company B clarifies the taxable turnover for May in the June declaration and adds 18 manats of VAT back to the budget (line 318 of the June VAT declaration).
According to Article 163.2 of the Tax Code, if, as a result of one of the cases specified in Article 163.1, the taxpayer:
has issued an electronic invoice for VAT and incorrectly stated the VAT amount in that invoice; or
has incorrectly stated the VAT amount in the VAT declaration,
then clarification is carried out in accordance with Articles 174.2 or 175.5 of the Tax Code. Clarification is made in the reporting period in which the change in the valuation base occurred.
Example 6. In May 2020, LLC A supplied goods worth 1,180 manats (including 180 manats VAT) to LLC B. However, in the electronic invoice issued to the buyer, the value of the goods was mistakenly shown as 1,400 manats (including 213.6 manats VAT). The value of the goods was paid by LLC B in May. For this transaction, LLC A calculated 213.6 manats VAT payable to the budget in the May declaration, and LLC B claimed 213.6 manats VAT for deduction. In June, it was discovered that the value of the goods had been incorrectly stated in the May invoice. In this case:
LLC A clarifies the taxable turnover for May in the June declaration and reduces the VAT payable by 33.6 manats:
213.6 – 180 = 33.6 manats.
LLC B clarifies the taxable turnover for May in the June declaration and adds 33.6 manats of VAT back to the budget.
Thus, the electronic invoices issued determine the VAT-taxable turnover for the seller and the deductible turnover for the buyer, and these amounts are equal to each other. If circumstances providing grounds for clarification of turnover are identified in the issued electronic invoices, then both the seller and the buyer must make the corresponding adjustments in their turnovers. When clarifying the turnover, the VAT amount payable to or refundable from the budget may increase or decrease for both parties.