Box of products as a sample of goods
Boxes of products, transferred by a company without consideration, containing the same goods as well as boxes with mixed goods constitute samples referred to in Article 7.7 of the VAT Act. So their transfer is not chargeable with VAT – such position was confirmed by the Director of the Fiscal Chamber in Łódź in a binding ruling of 26 February 2016, ref. no. 1061-IPTPP1.4512.2016.2.AK.
Doubts about tax classification of transferred goods were brought by a company from the food sector, a producer and manufacturer of margarines and fats and various bakery products (bread, cakes, etc.) sold in frozen form. The company is planning a marketing campaign where it will give the said boxes of products to potential customers, thus enabling them to test the same and get familiar with the brand, which ultimately should translate into higher sales. The applicant noted that a potential customer must have several goods of the same type at disposal in order to be able to check what processes they undergo and whether they respond in the same way or differently. For example, time of baking, taste or best before period may be subject to verification.
The tax authority agreed with the applicant’s opinion – the said boxes of products may be – under certain conditions – classified as samples of goods and therefore their transfer may be excluded from VAT.
Let us remind – Article 5.1 of the VAT Act stipulates that VAT shall be charged, among others, on the supply of goods against consideration, which pursuant to Article 7.2 shall also mean the transfer by a taxable person of goods constituting property of his undertaking without consideration as donation, where the amount of input tax on the acquisition, import or manufacture of such goods or their components was wholly or partially deductible from the output tax. The quoted provision shall not apply, however, to gifts of small value and samples, provided that they are transferred for the purposes connected with the undertaking operated by the taxable person (Article 7.3 of the VAT Act). Definition of a sample may be found in Article 7.7 of the VAT Act, pursuant to which a sample shall mean an item or small quantity of goods identifiable as a sample, which enables to assess the features and properties of the goods in their final form, provided that their transfer (handing over) by a taxable person:
- is aimed at promoting such goods, and
- in principle does not serve the purpose to satisfy the needs of the ultimate recipient with respect to such goods, unless satisfaction of the needs of such recipient is an inherent element of promoting those goods and is to convince the recipient to buy the promoted product.
The tax authority noted that the transfer of a sample is not chargeable with the tax if it is made for promotional and advertising purposes, i.e. it enables the recipients to get familiar with the features and effects of the goods, and consequently to find their advantages, drawbacks as well as differences in comparison to other products available on the market. The transfer of a sample is aimed only at convincing the recipient to make the purchase. Essential in this regard is lack of commercial nature of the transfer, assessed on the basis of the quantity or value of the offered goods. So we cannot talk about a sample where the quantity and value of transferred products may cover, both in terms of value and quantity, a potential demand (or a part thereof) of the customer, eliminating or limiting the need to make the purchase, to which the “sample” was in fact only to convince.
The authority has found that in the presented factual situation samples are transferred, although the company planned to provide boxes containing from 5 to 20 pieces of products. The position of the tax authority in the binding ruling should be seen as favourable for taxpayers because in fact it does not limit the notion of a sample to only 1 piece of product, enabling more flexible approach to the case and the transfer of larger quantities. No need to pay the output tax should not only lower the costs of marketing campaigns but convince the taxpayers to carry them out more often. Nevertheless, it should be remembered that each business situation should be assessed on a case by case basis whether samples are transferred, i.e. whether all statutory conditions are met and the goods are transferred for promotional and advertising purposes. While in the case of discussed frozen products we may actually speak about testing of e.g. different ways of baking, it will be difficult to prove to the tax authority that the aim of providing a box of exactly the same pens is to enable a potential recipient to get familiar with the properties of those pens.