Since its introduction in 2014, the advertising tax has undergone substantial changes, and countless non-binding position letters have been published to help with its interpretation.
Companies have developed their systems to gain information easily for tax reporting. However, based on our experiences, some companies – perhaps due as a precaution or risk avoidance – pay advertising tax on promotional materials, which are not taxable based on the law. Significant tax saving could be achieved, for example, by those who typically account for the production costs of marketing or advertising materials related to encouraging retail sales.
Why is the calculation of tax liability problematic?
The publication of an advertisement and, in case of meeting specific conditions, the ordering of the publication of an advertisement are taxable. A publisher of advertising should declare the advertising tax in its annual tax return, whereas the tax liability related to ordering the advertisement is to be paid and declared on a monthly basis. The tax base and tax amount are different for the publication itself and for the ordering of the advertisement. Furthermore, different tax bases and tax amounts apply to advertising for own purposes and advertising for other purposes. Based on the released legal interpretation, it is also known that advertising tax base can be linked to the publication of advertising under two legal titles. (An example among many: in the case of newspaper advertising for retail promotion, the income of marketing contribution and the tax base of the production cost of newspaper are to be combined.)
This complex legislation implies that the records should be so detailed enough so that the information linked to the activity types could be properly separated.
Moreover, the obtainment of specific statements results in further administrative burdens for persons ordering the publishing of advertising to be exempted from tax liability. However, if you do not make this step a part of your accounting practice, it could result in further burdens, as the tax exemption may become necessary to be supported on an invoice-by-invoice basis.
How to reduce the tax?
The legislation, although the law is relatively brief, may raise questions of interpretation, but more essentially, the legislation also allows tax planning possibilities:
- Did you know that not all advertisement production costs automatically generate tax base? Or does your company automatically calculate advertising tax on all incurred advertising expenses?
- Have you ever had a debate with your business partner on who is obliged to pay the advertising tax?
- Have you ever a failed at an attempt to obtain the advertisement publishing statement from a business partner who ultimately refused to provide it, as they did not consider themselves as taxable?
- Did you know that in the case of retail sales, advertising contributions or slotting fees paid to the retailer, the correct wording of the contracts has a great importance in determining the tax liabilities?
Risk and tax saving possibilities?
The declaration on the publication of advertising is due on May 31, simultaneously with annual taxes (in the case of a fiscal year other from the calendar year, the due date is the last day of the fifth month following the end of the base fiscal year). Consequently, it is very much on the agenda to overview the advertising tax declaration process, to correct any mistakes resulting from potential misinterpretations, thereby reducing the risks. Our experienced consultants are at your disposal to assist you in these issues. We particularly look forward to hearing from our partners who account for significant marketing and advertising production costs in connection with encouraging retail sales, as substantial tax savings can be achieved by proper interpretation and by developing a well-conceived structure.
If you have any questions in connection with our services, please contact our advisor colleagues.