Court Legalizes Discounts

The Presidium of the Supreme Arbitration Court (SAC) has ruled in favor of the company Dirol Cadbury (the Russian branch of the foreign company) in its dispute with the Federal Tax Service’s Interdistrict Inspectorate in the Novgorod Region. The tax authorities insisted that the company’s system of distributor discounts did not exempt the company from VAT and income taxes.

Retail chains pass on discounts to their customers. The system is commonly used world wide to push a certain product or else to get rid of older products to make room for new ones. Such mechanisms have been in practice in Russia for at least the past ten years and have not previously elicited objections from the tax authorities. Nevertheless, the tax collectors in Novgorod considered the company’s use of such discounts as an attempt to lower their tax base by the amount of the discounts.

The SAC Presidium, however, determined that the discounts on the goods for the company’s distributors were justified as a means of incentivizing their sale. Thus, Dirol Cadbury rightfully decreased the prices on their goods by the amount of the discounts, and adjusted their VAT tax base The SAC Presidium’s decision may become precedent to recognize the discount system as officially permitted in Russia.