In the event that the Company uses the free transfer of packages for the packaging of goods sold to customers and does not reflect the cost of the package when selling the product (in the customer's check), there is a likelihood of a dispute with tax authorities during the passage of a tax audit for the addition of VAT tax liabilities for such a free distribution.

In accordance with clause 14.1.13 of Article 14 of the Tax Code of Ukraine (hereinafter - PKU) the free transfer of goods, works, services, non-current assets is the transfer of them without the requirement of compensation for their value or their return. In accordance with paragraph 188.1 of the Tax Code, the VAT base for the supply of goods, works and services is determined on the basis of their contractual value (in the case of controlled operations - no lower than the usual prices determined in accordance with Article 39 CCU), taking into account national taxes and fees. The free transfer of goods provides that the contractual value is zero, therefore, VAT liabilities for this transaction are also zero (if this is an uncontrolled transaction). Gratuitous transfer of goods, works, and services is not related to economic activity, since it is not intended to receive income. Thus, in the free transfer of goods, works, services, non-negotiable assets, the taxpayer is required to calculate VAT obligations in accordance with clause 198.5 "g" of the Tax Code, based on the tax base determined in accordance with paragraph 189.1 of the Tax Code, if under the time of their acquisition or production of the tax amount were included in the tax credit.
The second possible way of accounting for packages in sales costs (in accordance with IPSAS 16) as advertising materials that are not subject to VAT under the DPS letter "On assigning a tax credit to the amount of VAT on goods purchased for advertising", which will require compliance procedures:

• order of the head of the carrying out of advertising actions. The order should specify the date, place and purpose of their conduct, the terms and the range of persons responsible for the organization and implementation of preparatory works, and it is necessary to specify that such an event is carried out solely for advertising purposes. If during the promotional activities a free transfer of goods is planned, then the order indicates the number of each item of the goods and other information that would also indicate the advertising nature of the activity;
• plan of preparation for carrying out of advertising actions. This document is a significant proof of advertising, pre-sale measures. The document outlines a calendar plan of activities specifying terms and responsible persons;
• cost estimates for advertising activities. The document specifies the nomenclature and the number of samples of goods, promotional materials and other TMC that are intended to be transmitted during the events;
• invoices for the issue of the TMC from the warehouse. When carrying out free transfer of goods and distribution of advertising materials, the person responsible for their transfer, receives the corresponding material assets in the warehouse of the enterprise under the report. The release of material assets from the warehouse is executed by the expense invoice;
• report on holding promotional events. Upon completion of promotional activities, the responsible persons make a report on the actual costs of their conduct and submit them for approval by the head.

Otherwise, the batches will carry a double load and the packaging and promotional materials that are recorded in the account 209 and are written off on sales costs.

Director, Auditor AKF Business Partners Ltd Natalia Zuprik