How to Account for VAT Calculation on Trade Discounts

Question:

 We are a business that sells goods to Company A and receives trade discounts based on sales volume. This trade discount is stipulated in a commercial contract between Company A and our business. In 2018, the total trade discount that our business received from Company A was 5 billion VND. According to the calculated discount amount, as of December 31, 2018 (the fiscal year-end), Company A issued invoices for the discount totaling 3 billion VND. The remaining 2 billion VND was adjusted by Company A in the following year (2019). We would like to ask: For the remaining 2 billion VND in trade discount that Company A has not yet invoiced to our business in 2018:

• Is Company A allowed to deduct this 2 billion VND discount as an expense in 2018?
• Is our business allowed to record this 2 billion VND discount in 2018?

Answer:

-Based on Article 22, Article 7 of Circular No. 219/2013/TT-BTC dated December 31, 2013, issued by the Ministry of Finance, which provides guidance on VAT calculation for trade discounts.

– Based on Circular No. 39/2014/TT-BTC dated March 31, 2014, issued by the Ministry of Finance, which provides guidance on invoices for the sale of goods and provision of services.

-According to the regulations:

• In principle, when a business applies trade discounts to customers (if any), the VAT calculation basis is the selling price after applying the trade discount to customers. In cases where the trade discount is based on the quantity or sales volume of goods or services, the discounted amount for the goods sold is adjusted on the sales invoice of the last purchase or the subsequent period. If the discount amount is determined when the sales promotion program (period) ends, an adjustment invoice should be issued along with a list of invoices that need adjustment, the adjusted amount, and the adjusted tax amount. Based on the adjustment invoice, the seller and the buyer declare the adjustment of purchase revenue, sales revenue, output VAT, and input VAT.
• In your case, if the trade discount was stipulated in the contract but Company A did not issue an adjustment invoice to reduce the selling price and VAT in 2018, then Company A is not allowed to declare a reduction in sales revenue and output VAT, and your business is not allowed to declare a reduction in purchase volume and input VAT in 2018 as per the regulations.