Ask a tax advisor on the topic of Other questions to tax advisors

Donation of a product as a bonus

May 1, 2011 | 30,00 EUR | answered by Dipl.BW/SB Ulrich Stiller

Dear Sir or Madam,

as an accountant, I am responsible for a retailer who sells medical therapy beds (value approx. 2,200.00 € net) to ordinary walk-in customers in his store. The retailer sources these beds (buys them in) from his wholesaler. There are contractual arrangements between the retailer and the wholesaler regarding the selling price, payment terms, and so on. At irregular intervals, so-called promotional campaigns are carried out, such as the "Spring Promotion" in spring 2011. For this, the retailer must purchase an additional product from his wholesaler, e.g. a heating mat (similar to a large heating pad) valued at approximately 80.00 € net. The retailer is instructed to give away this product as a gift when a bed is purchased, free of charge. So, if a customer buys a bed during the "Spring Promotion," they automatically receive a heating mat as well. The retailer incurs the cost of 80.00 € net for this. Due to a tax audit by the tax office in December 2010, there were significant problems with this. The tax office did not recognize this type of gift, arguing that the retailer cannot be obligated to purchase the additional product and give it away. Since this results in pure loss for the retailer, this behavior is not considered entrepreneurial. As the retailer could not prove who the heating mats were given to, all heating mats were treated as personal withdrawals and subject to additional taxation. However, as these "promotions" continue, I have suggested assigning a separate article number to all additional "heating mats" internally by the retailer. The wholesaler only delivers a package of a certain number of heating mats without an article number or code. It is proposed to note these on the purchase invoices and issue a receipt to the customer with the same article number. This way, it can be tracked which heating mat reached which customer, eliminating the possibility of personal withdrawal. I would like to hear your opinion on this matter, can the tax office simply assume a personal withdrawal, whether my thought process is correct, and how to properly and correctly book this transaction. (Please provide the account number) Thank you for your effort.

Sincerely,

Dipl.BW/SB Ulrich Stiller

Dear advice seeker,

Thank you for your inquiry, which I would like to answer based on your information and in the context of your commitment in a initial consultation as follows:

According to § 4 paragraph 1 sentence 2 EStG, withdrawals are all assets (cash withdrawals, goods, products, uses and services) that the taxpayer has withdrawn from the business for himself, for his household, or for other non-business purposes during the fiscal year.

Based on your description, I cannot see that a private withdrawal is present.

There are contractual agreements between the retailer and the wholesaler. Here, the free "addition" of the heat mats could be regulated, i.e. by presenting the contract documents, the auditor's opinion could be refuted.

Of course, the retailer can be obligated by the wholesaler to carry out such actions. We have freedom of contract in Germany. If nothing was actually agreed in writing, then the wholesaler could confirm the facts in writing.

For the future, it is advisable to document the situation between the retailer and the wholesaler in writing.

Your proposed approach for the future is correct and therefore recommended. You book the purchase of beds and heat mats as normal merchandise purchases and the sales as revenues.

I hope I could be of assistance.

Best regards,

Ulrich Stiller
Tax consultant / graduate economist