We are analyzing the case of a company that activates in retail and wants to promote its products by offering them, for free, to clients, individuals or companies, as samples or promotions “1+1 free”.
Products granted for free as samples
According to the Fiscal Code, the goods granted for advertising purposes include, but are not limited to, the products offered free of charge during promotional campaigns, samples provided for product testing or demonstrations at sales points.
At the same time, for organizing promotional campaigns, it is necessary to have a decision of the company management, which should include information about the objectives, the allocated budget, the period of deployment, the description of the targeted clients, the products that will be granted, the criteria for granting etc.
1. VAT treatment
In order to have the right to deduct the VAT, the purchased goods must be used in the benefit of certain operations that give them the right to deduct the VAT – operations that can be found in art. 297, align. (4) and (5) of the Fiscal Code.
Also, there is no obligation to collect VAT, because, in the sense of art. 270, align 8 lit. b, of the Fiscal Code, the delivery of samples is not considered delivery of goods, and the respective products will be granted on the basis of a delivery note of the goods.
2. Accounting treatment
Upon their purchase, you will book the entry of the goods that are the subject of the samples, as follows:
% = 401
The discharge of the products consumed by customers is made when the goods are delivered (based on the delivery note, not at the time of consumption), regardless of the quality of the customer (individual or company).
623 = 371
3. Tax treatment
1. From the corporate income tax perspective
According to the Fiscal Code, are deductible those expenses made for the purpose of gaining taxable income, including advertising and publicity expenses, which represent the expenses incurred to popularize the name of the taxpayer, the product or the service, as well as the costs associated with producing the necessary materials for disseminating advertising messages, when advertising and publicity is done by its own resources.
Goods that are granted in the context of advertising campaigns as samples, for testing or demonstrations at sales points, as well as other goods awarded for the purpose of stimulating sales, are also included in the category of advertising and publicity expenses,
2. From the tax on micro-enterprise perspective
From the micro-enterprise point of view, it remains relevant that this expense is made for the purpose of economic activity, having the role of advertising, with the appropriate justifying documents.
”1+1 free” promotions
Compared to samples, the promotions “1+1 free” are considered, according to OUG 99/2000, sales with bonuses.
Selling with bonuses is a commercial practice in which – at the sale, or the products/services offer – the consumer is offered, free of charge, immediately or within a certain term, bonuses in the form of goods/services.
For the supplier, granting a free product is equivalent to granting a 100% discount for that product.
1. VAT Treatment
For the purchased goods it is allowed to exercise the right to deduct the VAT, an aspect covered expressly by art. 297 align. (5), in which it is specified that the taxable person has the right to deduct the tax for the cases provided in art. 270 align. (8), if the operation does not contravene the provisions of align. (4). Alin. (4) refers to the right to deduct the amount of VAT deductible for purchases made for the purpose of carrying out taxable transactions and/-or exempt from VAT with the right of deduction (exports, intra-Community deliveries).
Also, as in the case of samples, the free granting of goods to each buyer within the sales stimulation campaign represents an operation directly related to the increase of sales, in which case, the adjustment of the deducted VAT amount is not performed.
2. Accounting treatment
We present below the case of a product granted free of charge in the amount of RON 100 and the initial purchase price being RON 80.
Booking of the sale invoice:
- 411 = % 119
- 707 100
- 4427 19
Collection of the invoice:
- 5311 = 411 119
- 607 = 371 80
- 623 = 371 80
- Product A: 2 pcs. X RON 100 => 238
- Discount: -119
- Total Value: 119
- Of which VAT: 19
3. Tax treatment
Like the samples, we place the “1+1 free” promotions in the category of publicity and advertising expenses, taking into consideration the necessary justifying documents. We mention the fact that in order to carry out a large campaign, a Regulation of the campaign, for the purpose of customer loyalty, is necessary to be authenticated to the notary and made public on the company website.
Therefore, granting free products is a way to stimulate sales, provided that the VAT related to these products granted to customers and the expenses remain deductible.
Finally, we reiterate the fact that operations of samples distribution or offering gratuities can be carried out, based on the justifying documents presented previously. Their purpose should be to promote and increase the company’s sales, and the commercial organization of the sale must take into account the conditions of GO no. 99/2000.