Taxation of trade: current state, problems and prospects

Savchenko Alina Alekseevna Bachelor, Department of Taxes and Tax Administration, Financial University under the Government of the Russian Federation 127083, Russia, g. Moscow, ul. Verkhnyaya Maslovka, 15 alina.savch@yandex.ru

Introduction to the article (Relevance)

Initially, trade was marked by the emergence of the division of labor in a natural way, which later evolved into commodity-money relations, which was directly related to the emergence of money ^[1]. Thus, at present, trading activity is a type of entrepreneurial activity that is associated with the purchase and sale of goods ^{[2, Article 3]}.

The sphere of trade has existed since the very beginning of the formation of society and is still dominant due to its special significance as a form of sale of goods, works and services. At the same time, it generates a significant percentage of the country's budget revenues from taxes levied on taxpayers engaged in entrepreneurial activities. In turn, tax payments help to finance the activities of the state, which is one of the most important areas of implementation of the activities of any state.

Despite the fact that the sphere of trade is one of the most developed spheres of world society and the most attractive in terms of the payback period, many questions and contradictions arise from the taxation side, which is expressed in the specific features of taxation of trade organizations.

The subjects of trade, as the history of the development of trade relations shows, primarily pursue the goal of making a profit. However, depending on the goals of activity in the trade sphere, there are two categories of trade organizations: commercial and non-commercial.

The subjects of commercial trading activity are legal entities of various organizational and legal forms that carry out trading activities, associations of several entities, as well as citizens engaged in trading activities and registered in accordance with the established procedure as individual entrepreneurs, as well as individuals applying a special tax regime "Professional Income Tax" ^{[2, Article 4]}.

The variety of socio-economic forms of ownership directly affects the interaction of subjects and objects of various forms of ownership, as well as the specifics of their taxation. It should be noted that regardless of the form of ownership and the purpose of the activity, the subjects of trade are further divided by types of trading activity and type of trading enterprise. According to the types of trading activity, there are three clusters, presented in the figure below (Fig. 1).

Figure 1. Classification of trade entities by type of activity

From the point of view of contribution to the national economy, commercial retail organizations are of the greatest interest. It is they who form the bulk of state revenues, which are subsequently redistributed in the national economy through various channels and serve as a source of economic growth and social development of society.

Economic and fiscal significance of the trade industry

Trade occupies one of the leading positions in terms of contribution to the production of the gross domestic product of the Russian Federation: in 2021, the share of the industry was 13.0% ^[3] (for comparison: real estate operations – 9.9%; mining – 12.8%).

In other words, the development of the sphere of trade is one of the priority goals of the state, therefore, the taxation of trade entities should be favorable and effective from the point of view of doing business in a comfortable environment.

Let's turn to the indicators characterizing the number of retail trade entities provided by the Federal State Statistics Service (Table 1).

Table 1 – Number of economic entities of retail trade ^[4]

Indicators characterizing the number of retail trade entities indicate a downward trend in organizations engaged in retail trade over the past 5 years. Despite the decrease in the number of trade organizations, the retail trade turnover is growing every year ^[4], which is reflected in the turnover indicators, and according to the reporting form 1, it is fair to note that the type of economic activity in question is one of the budget–forming activities and by the end of 2021 is 10% of the total amount of tax payments received to the consolidated budget of the Russian Federation (Table 2) ^[5].

Table 2 – Receipt of taxes and fees to the budget system of the Russian Federation by the main types of economic activity by the results of 2021 ^[5]

There is also a clear increase in the amount of receipts due to an increase in retail trade turnover, including an increase in the VAT rate from 18% to 20% in 2019 (Table 3).

Table 3 – Receipt of taxes and fees by type of activity ^[5]

As it was noted earlier, from the point of view of contribution to the national economy, commercial retail organizations are of the greatest interest.

Table 4 – Retail trade turnover of trading organizations and sale of goods at retail markets and fairs ^[4]

Retail trade turnover is 95.7% accounted for by trade organizations and individual entrepreneurs (Table. 4) operating outside the market, while the share of retail markets and fairs in April 2021 was 4.3% (in April 2020 – 96.0% and 4.0%, respectively).

I would like to pay special attention to the study of taxation problems:

- taxation of trade discounts and margins, which are one of the main elements in the formation of the profit of the organization and the creation of a system for attracting, retaining and loyalty of customers;

- taxation of gift certificates, which have firmly taken the place of one of the most common options for buying and selling products of retail chains, which in turn explains their relevance and the importance of considering problems from the point of view of organizations that implement them;

- taxation of thefts at retail outlets with free access of buyers to goods whose organizations are in demand among the population in order to obtain satisfaction with the quality of the selected product when buying, as well as in connection with the growth of shoplifting ^[6].

Features of tax accounting of discounts and margins

One of the most common tools for both price regulation and customer attraction is the provision of trade discounts.

There is no definition of the concept of "discount" in the documents of the accounting regulatory system, as well as in the legislation on taxes and fees ^[7]. In accordance with the customs of business turnover, a discount is usually understood as a reduction by the seller of the previously declared value of the goods. It is usually presented to the buyer who has fulfilled the conditions set by the seller.

According to the Civil Code of the Russian Federation, the seller of the goods is free to determine the price for it. The only exceptions are cases when prices set or regulated by authorized state bodies are applied (Article 424 of the Civil Code of the Russian Federation).

For tax purposes, the purpose of the wholesale discounts provided is important, leading to a significant change in prices ^{[8, Article 40, paragraph 1, paragraph 4]}. If the prices for such transactions deviate more or less by more than 20%, the tax authority has the right to make a reasoned decision on additional tax and penalties calculated in such a way, as if the results of this transaction were evaluated based on the application of market prices for the relevant goods.

At the same time, it is worth noting that in connection with the application of such discounts, disputes often arise between trade organizations and tax authorities on the legality of their use due to the fact that the list of legitimate discounts specified in Article 30 of the Tax Code of the Russian Federation is universal (for example: the decision of the Federal Arbitration Court of the West Siberian District of February 12, 2009 G. N F04-742/2009(245-A45-27); Resolution of the FAS of the Moscow District of 24.06.2013 No. A40-159085/12-153-1641 ; resolution of the Arbitration Court of the Moscow District of June 3, 2015 N F05-6127/15 in case N A41-51563/2014; resolution of the AC of the North Caucasus Federal District of 25.02.2015 No. F08-10984/2014 and others).

For example, if an organization applies a discount in its activities in an amount exceeding 20% of the market price level for an identical or similar product, then in the absence of a marketing policy, it will have to prove the grounds for its application.

The formation of a discount policy is not an easy task, because of this, some organizations probably omit this issue, which leads to questions from not only the tax authorities.

One of the important points in the preparation of a marketing policy is the inclusion in it of all possible discount options that the organization applies or may apply in the future. For example, when providing seasonal discounts on winter category goods, organizations should specify them in advance in their marketing policy in order to protect themselves from the time spent on confirming the use of the grounds for applying this discount. There is a category of goods for which sellers, due to seasonal fluctuations in consumer demand, also make discounts (for example, goods for holidays), but it is difficult to attribute these discounts to seasonal within the established norms of the Tax Code. And since, as we also noted, the preparation of marketing policy in the Russian Federation is not regulated by any regulations, when drawing up a discount policy, you can specify all possible options, including the example described above. Such examples also include:

- discounts when reducing payment terms;

- discounts for special categories of buyers;

- regular customers or employees of certain companies and others.

Note that in order to legally provide discounts in the last example, the organization will also need to fix a conditional "List of regular customers" in the internal document flow. Such a document may be an appendix to the regulations on the marketing policy of the organization.

It should also be noted that the establishment of a marketing policy in terms of discounts has differences between wholesale and retail trade organizations. So, for retail sellers, the discounts provided should be comprehensive without exception. Along with this, it is possible for wholesalers to fix only general rules and grounds for providing discounts and bonuses. It is also advisable for the wholesaler to indicate in the marketing policy that certain conditions for granting discounts are determined by the relevant agreements and additional agreements to these agreements, and it would not be superfluous to develop some internal standard of the company that would meet the needs of the organization in accounting and providing discounts.

Problems and prospects of gift certificate taxation

Along with the use of discounts, it is worth paying attention to the peculiarities of the taxation of gift certificates, which have firmly taken the place of one of the most popular gift options for various holidays.

It is important to note that the issues of gift certificate taxation are relevant not only for the Russian Federation. For example, gift cards are a timely and urgent problem in the US tax sphere ^[9]. In recent years, several manuals have been released on this emerging problem (using the example of 2011, Rev. Proc. 2011-17, I.R.B. 2011-5, January 6, 2011 and Rev. Proc. 2011-18, I.R.B. 2011-5, January 6, 2011).

Since the concept of a gift certificate is not legally fixed, all subsequent taxation is carried out taking into account the explanations of the Ministry of Finance, the Federal Tax Service of Russia and judicial practice, which is quite extensive in this matter.

In terms of value added tax, the sale of a gift certificate on the territory of the Russian Federation is recognized in advance, on the basis of which the tax base and the obligation to calculate the tax arise (paragraphs 2, paragraph 1, Article 167, paragraph 2, paragraph 1, Article 154, paragraph 4, Article 164 of the Tax Code of the Russian Federation) ^{[8; 10]}. On the date of sale of the goods, upon presentation by the buyer of the certificate from the organization, the time comes again to determine the tax base in the amount of the sale value of the goods (excluding VAT) (paragraphs 1, 6 of paragraph 1 of Article 154, paragraph 14 of Article 167 of the Tax Code of the Russian Federation). At the same time, the organization has the right to deduct the amount of "advance" VAT (Clause 8 of Article 171, clause 6 of Article 172 of the Tax Code of the Russian Federation).

When determining the object of taxation by corporate income tax when selling a gift certificate from a seller using the accrual method, the prepayment amount is not recognized as income (clause 1, clause 1, Article 251 of the Tax Code of the Russian Federation), therefore, there is no object of taxation. At the same time, on the date of sale of goods to the bearer of the certificate, revenue (net of VAT) is recognized as income from sales (paragraphs 1 of Article 248, paragraphs 1, 2 of Article 249, paragraph 3 of Article 271 of the Tax Code of the Russian Federation) ^[11]. The specified income for the purposes of profit taxation is reduced by the cost of purchasing the goods sold (Clause 3, clause 1, Article 268 of the Tax Code of the Russian Federation).

Note that a slightly different approach is also used in the United States, where the entire amount of gift cards sold must be recognized before the end of the second taxable year following the year of preliminary receipt of income from the sale of such a card. Since gift certificates, in accordance with US law, are redeemed in the year of issue and in the next 2 years, identical income will be recognized for both financial and tax purposes. However, certificates not redeemed at the end of the second year following the year of issue should be included in taxable income ^[9]. A special procedure is provided for gift certificates issued for services. In particular, they will be taxed upon receipt of funds. However, according to Rev. Proc. 2004-34, I.R.B. 2004-22, 991, a trading company may defer recognition of income until it is received for financial reporting or tax purposes, but cannot be deferred for more than 1 year. The income must be recognized no later than the year following the year of payment.

One of the significant problems in Russia can be noted the problems of taxation of gift certificates in case of failure to declare it for sale. It was also revealed as a result of the analysis of foreign experience. Back in 2007, Offenberg^[12] revealed that Home Depot reported an additional $52 million in revenue from gift cards due to non-return. Later, in 2019, according to Maranjian's estimates ^[13], it was determined that 10% of the gift cards sold are never used. If, after the expiration of the period agreed by the parties, the buyer has not presented the gift certificate, the amount of advance payment received by the seller is considered to be gratuitously received property for profit taxation purposes and is accounted for in accordance with paragraph 8 of Article 250 of the Tax Code of the Russian Federation. VAT on such certificates cannot be deducted. At the same time, according to the Ministry of Finance (letter dated 07.12.2012 No. 03-03-06 /1/635 ), sub-clause 14 of clause 1 of Article 265 and Clause 19 of Article 270 of the Tax Code of the Russian Federation make it impossible to reduce taxable profit by the amount of VAT from written-off advances. But there is also judicial practice that proves that the courts have repeatedly confirmed the right of taxpayers to take into account VAT from written-off advances in expenses, if the tax was taken into account in income during the write-off (resolution of the AC of the Central District of 19.03.2015 No. F10-343/2015, resolution of the AC of the Far Eastern District of 04.03.2015 No. F03-518/2015, etc.).

Thus, one of the possible solutions based on judicial practice is the legislative establishment in article 155, paragraph 1, of the reflection in taxable profit of the entire amount of the gift certificate, including the calculated amount of VAT. In connection with this innovation, it seems possible to accept this VAT deduction due to the fact that there was no actual implementation – that is, procurement – under this certificate. This approach will allow you to equate gift certificates with property law and apply the approach to accounting for corporate income tax used in the assignment:

1) to reclassify the sale of certificates at the expiration of its application period into the implementation of property rights (reflecting income with VAT);

2) the amount of VAT paid during the sale of the certificate should be taken into account as part of expenses.

Manoilo V.A. proposes to take into account the considered sale of non-manufactured certificates as gratuitously received property ^[14], on the basis of clause 8 of Article 250 of the Tax Code of the Russian Federation. However, this approach does not reduce the risk of non-accounting of VAT paid by a trading company. On the other hand, going back to the US experience, we can single out a third option for optimizing the tax accounting of certificates – using special reserves. For example, in the USA it is a reserve for future payments of gift certificates. However, as the experience of this country shows, this type of reserve is also not always effective as a tool of tax optimization for companies ^[9].

Tax accounting of shortages and thefts in trade

As part of the consideration of the retail trade sphere, it is possible to identify a problem that acutely affects trade entities that sell through retail outlets with free access of buyers to goods ^[15]. The problem of accounting for shoplifting or shoplifting is relatively new and little studied. Commodity losses are most often understood as a shortage of a material object, the implementation of which, in turn, could bring profit to the organization (Table 5).

Table 5 – Different views on the concept of "commodity losses"

It is worth noting that the author's position is closer to the definition of Kostyukova and Lugovsky, which to a certain extent equates the concept of shortages to a number of signs of technological losses (first of all, a decrease in the number of goods).

On the basis of Article 252 of the Tax Code of the Russian Federation and Article 265 of paragraph 2, it is possible to write off the shortage identified by the seller of the outlet only if a criminal case is opened and if it is recognized that it is impossible to identify the perpetrators or in their absence. In other words, in order for a trade organization to write off the shortage that was incurred due to theft, it is necessary to open a criminal case for each incident that occurred to document the absence of the perpetrators of the shortage or theft. This opinion was based on the published letter of the Ministry of Finance of the Russian Federation in 2012 ^[20].

Taking into account judicial practice, at the moment there is a situation when, according to the norms of the Tax Code of a trade organization, a documentary basis from criminal authorities or the institution of a criminal case is not mandatory to confirm the fact of shortage or theft. In fact, the tax authorities do not accept other documentary evidence to account for the shortage of the organization in non-operating expenses, except for the issuance of a corresponding resolution by the investigator.

Due to the complex process of challenging this issue and the significant amounts of costs incurred along its course, trade organizations avoid controversial points and resort to writing off the shortage of material assets at the expense of the organization's net profit.

To solve this problem, the author proposes to introduce a standard of write-off in case of shortage or theft in non-operating expenses, for example, in the amount of 1% of the proceeds from the sale of the specified goods. It should be noted that in the studies, the overwhelming share of financial losses is due to theft of visitors (34%) ^[21]. At the same time, in 2013, when the bill on the introduction of such a standard was considered, representatives of trade organizations stated that they lose from 2 to 5 percent of revenue on theft every month ^[22]. In other words, the author suggests a size comparable to the size of advertising expenses (clause 4 of Article 264 of the Tax Code of the Russian Federation).

The proposed standard is based on statistical data reflecting the percentage of shoplifting. Rostec Corporation clarifies that "in Russia, sellers on average lose 1-2% of their annual turnover on thefts" ^[23]. And the costs of losses from theft in any case fall on the shoulders of ordinary buyers in the form of a percentage in the price of the goods. It should be noted that shoplifting is also common in foreign countries such as the USA, Great Britain and others, where their percentage varies in the range of 2-3% ^[24].

Taking into account the proposed, it is worth paying attention to the amount of lost income that will be formed in connection with the introduction of this standard (Table 6).

Table 6 – Calculation of the theoretical amount of lost income

It should be noted that the amount of income tax due to the application of the introduced standard will decrease by 9, 29% from the original version. At the same time, these "released" amounts can go to the establishment by organizations of a new system "Stop Shoplifter!" from Rostec, aimed at reducing the percentage of shoplifting or increasing sales turnover, which, accordingly, in the future will positively affect the growth of income of organizations and, as a result, the amount of tax on profit of organizations received by the budget of the Russian Federation.

Thus, the introduction of this standard will not only support trade organizations suffering from a large volume of thefts, but also reduce the burden on criminal and tax authorities in terms of resolving disputes, as well as obtaining supporting documents on initiated cases.

Conclusions

Summarizing the above, trade is a process of exchange of commodity and material values, the history of which originated from the Stone Age, and in modern realities it is a type of economic activity, often aimed at making a profit.

From the point of view of contribution to the national economy, commercial retail organizations are of the greatest interest. It is they who form the bulk of state revenues, which are subsequently redistributed in the national economy through various channels and serve as a source of economic growth and social development of society.

The main guideline in the process of improving tax administration, both the trade sphere in particular and the tax system as a whole, should remain the updating of the legislative framework, taking into account the relevance and effectiveness of some approaches and rules that have been established for a long time. That is why tax legislation should not only be updated along with the evolution of the processes of economic life, but also with an eye to the objectivity of the applied pricing policy in trade.

In the study:

1) the features of taxation of economic entities in the field of trade are identified and formulated based on the analysis of scientific literature, regulatory and legislative acts, explanations of the Ministry of Finance and the Federal Tax Service of Russia;

2) taxation problems have been identified when trading with gift certificates, when applying discounts and margins;

3) the directions of improving the taxation of trading companies aimed at specifying tax legislation and minimizing tax risks of all participants in tax legal relations are proposed;

4) the fiscal and economic effect of the proposals is assessed.