Occasionally the goods stored in warehouses due to shrinkage, tap andbreakagecan be written offwithin the limits of the norms and/or excess of natural loss. Logically question arises in such a case:what to do with input VATdeclared on such goods? The answer is in the following.
The tax credit includes amounts of tax paid/accrued in case of implementation of transactions, including the acquisition or manufacture of goods (including in case of their importation into the customs territory of Ukraine) and provision of services (para.198.1 of the Tax Code of Ukraine dated 02.12.2010, № 2755-VI, hereinafter – TCU).
According to paragraph 198.2 of TCU, date of classification of tax amounts as the tax credit is the date of the event that has occurred earlier:
- date of debiting the funds from the bank account of the taxpayer to pay for goods/services;
- date of receipt of goods/services by the taxpayer.
In accordance with para.198.3 of TCU, the tax credit of the reporting period is to be determined on the basis of an agreed (contractual) cost of goods/services and consists of tax amounts accrued (paid) by the taxpayer at the rate established by para.193.1 of TCU during this reporting period, due to:
- acquisition or manufacture of goods (including when they are imported) and services;
- acquisition (building, construction) of capital assets (fixed assets, including other non-current tangible assets and incomplete capital investments in non-current capital assets), including when they are imported.
The tax credit accrual is carried out regardless of whether such products/services and fixed assets to be used in taxable transactions within the economic activities of the taxpayer during the tax reporting period, as well as whether the taxpayer has carried out taxable transactions during such a reporting tax period.
According to paragraph 198.5 of TCU, the taxpayer is required to accrue tax liabilities based on the tax base determined in accordance with para.189.1 of TCU, and to prepare not later than the last day of the reporting (tax) period and register in the Unified Register of Tax Invoices (hereinafter − URTI) in deadlines established by TCU for such registration, the consolidated tax invoice for goods/services, non-current assets (for goods/services, non-current assets, acquired or made before 1 July 2015 − if during of such acquisition or manufacture, the amounts of tax to be included in the tax credit ), in case if such goods/services, non-current assets intended to be used or starting to be used:
a) in transactions that are not subject to taxation in accordance with Art. 196 of TCU (except cases of conducting of transactions provided by paras.196.1.7 of TCU) and which place of delivery is outside the customs territory of Ukraine;
b) in transactions that are exempt from taxation in accordance with Art.197, sub-section 2 of sec. XX of TCU, international contracts (agreements) (except conducting transactions provided by paragraphs 197.1.28 of TCU and transactions provided by para.197.11 of TCU);
c) in transactions carried out by the taxpayer within the balance, including transfer for non-production use, transfer of production non-current assets in the non-productive;
d) in transactions that are not economic activities of the taxpayer.
According to the para.14.1.36 of TCU, economic activity is an activity of a person, which is associated with the production (manufacturing) and/or sale of goods, performance of works, provision of services, and aimed to receive an income and which is carried out by such a person independently and/or via separate subdivisions, as well as through any other person, that acts in the interests of the first, in particular, under commission contracts, order and agency agreements.
The tax liabilities in accordance with paragraph 198.5 of TCU are determined by goods/services, non-current assets:
- acquired for the use in taxable transactions − at the date of their acquisition;
- acquired for the use in taxable transactions, which start to be used in non-taxable transactions, − on the date of their actual use, as defined in the primary documents, prepared in accordance with the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” of 16.07.1999, № 996-XIV.
According to para.189.1 of TCU in case of conducting of transactions in accordance with para.198.5 of TCU, tax base for non-current assets is determined based on the balance (depreciated) value established at the beginning of the reporting (tax) period, during which such transactions are carried out (in the absence of accounting of non-current assets − on the basis of the normal price), and for goods/services − based on the cost of the acquisition.
Therefore, taking into account the mentioned above provisions, in the event of writing off goods within the norms of natural loss, when the acquisition of which the VAT amounts were classified as tax credit, the tax liabilities are not accrued by a VAT payer.
If the goods are written off excess of the norms of natural loss, due to which they cannot be used in the framework of economic activity of a VAT payer, the taxpayer is required to accrue tax liabilities not later than the last day of the reporting (tax) period, when their writing off, based on the taxation base determined in accordance with para.189.1 of TCU, and to prepare not later than the last day of the reporting (tax) period and register in URTI within the deadlines established by TCU for such registration, the consolidated tax invoice for goods/services, non-current assets (for goods/services, non-current assets acquired or manufactured before 1 July 2015 − if during of such acquisition or manufacture, tax amounts were included in the tax credit).
