New: 2023-04-26
The Swedish Tax Agency considers that when a payment of a compensation nature aimed at compensating the person who has suffered damage and where the payment is made without consideration from the injured party, no VAT consequences arise. Such payments do not mean that there is a turnover . When there is a direct connection between a payment of damages and a delivery of goods or a provision of a service, it is a turnover. In such cases, the payment is a compensation for a new service or adjustment of previous compensation for goods or services provided.
When a delivery of a product or a provision of a service has taken place and the buyer is not satisfied with the seller’s performance, the parties can agree that the compensation should be reduced in relation to what was originally agreed. Such an agreement constitutes a change to the terms of the concluded agreement, i.e. an adjustment of the price which shall reduce the tax base for the transaction in question, unless the parties have agreed to the contrary.
In the Tax Agency’s opinion, it is irrelevant how the price reduction is calculated. The size of the payment is not decisive for whether the price reduction affects the tax base, e.g. that the amount is equal to the costs incurred by the buyer to restore an item to its original condition.
There are situations where the parties can choose between different options to arrive at the compensation for a provision. The compensation can be fixed or depend on factors established in the agreement. Within e.g. the construction industrycompensation is often made dependent on the time of completion, where the compensation may decrease in case of late delivery and increase in case of early delivery. The Swedish Tax Agency considers that compensation that is adjusted in accordance with what appears in the concluded agreement affects the tax base if the parties have not specifically expressed the opposite in the agreement. The distinguishing feature of such a contractual relationship is that it is clear from the agreement how the compensation is to be calculated. Only the occurrence of a certain determined condition means that the agreed compensation must be adjusted by an amount that can be determined on the basis of the agreement. An evaluation of possible damages and how these should be valued therefore does not need to be done.
Example: price adjustment agreement 1
AB Y has entered into an agreement with a seller for the delivery of new conference furniture. The agreement shows that AB Y ordered furniture with a dark gray frame. After two weeks, when the purchasing manager sees the new furniture in place in the conference room, it turns out that the frame is light grey. The seller is prepared to ensure that furniture with the ordered color is delivered, but at the same time offers a reduction in the price if AB Y takes the light gray furniture. AB Y accepts the price reduction.
The buyer considers himself satisfied with the seller’s performance in exchange for the price being reduced. The agreement constitutes an amendment to the terms of the concluded agreement. After the price reduction, AB Y cannot claim that there is an error in the delivery due to the color of the frame. The adjustment of the price shall reduce the tax base for the sale of furniture, since the parties have not agreed otherwise.
Example: price adjustment agreement 2
AB C has ordered a new large conference table in oak veneer with chairs. After delivery, it turns out that the veneer has cracked in some places. The seller calculates the cost of repairing the table at a certain amount because he has had similar damages in the past. The seller proposes to reimburse the buyer for the estimated cost. The buyer thinks it sounds good and accepts the seller’s proposal.
The agreement constitutes an amendment to the terms of the concluded agreement. After the price reduction, AB C cannot claim that there is a fault in the delivery due to the cracks in the veneer. The adjustment of the price shall reduce the tax basis for the table, since the parties have not agreed otherwise.
Source: skatteverket.se
