Analysis and Suggestions of tax-related clauses of the contract (II) : settlement method and occurrence time of tax obligation

In the previous article, the agreement on tax status (general/small-scale taxpayers), contract price (including tax/excluding tax) and tax amount in the contract is analyzed, and the tax-related clauses are given when the corresponding contract is drafted.

Today, we will continue to analyze the settlement method of the contract price, because it will have important implications for the determination of the timing of tax liability, which in turn affects the cash flow arrangement of taxpayers. This paper mainly introduces the impact on the time of VAT tax liability.

First of all, the general principle, that is, the occurrence of taxable sales behavior, is the day of receipt of sales proceeds or the receipt of sales proceeds; If the invoice is issued first, it is the day of issuance of the invoice [1].

Article 38 of the Rules for the Implementation of the Provisional Regulations on Value-added Tax stipulates that different tax obligations occur at different times under different scenarios and different sales settlement methods.

Taking the sale of goods as an example, it is mainly selected from the invoicing date, collection date (including the actual collection date, the collection date agreed on the contract and the advance collection date) and the delivery date (including the transfer date deemed as sales).

Among them, the invoicing date is the first priority. As long as the invoice is issued first, the tax liability arises immediately. Therefore, from the point of view of the seller, it is beneficial to delay the invoicing as much as possible.

If there is no invoice issued first, the “collection date” and “delivery date” need to be discussed in different scenarios.

1. Direct payment for the sale of goods, whether or not the goods are dispatched, is made on the day on which the payment for the sale is received or on the day on which the proof to claim the sale is obtained (the “payment date”).

If the goods have been transferred to the other party and the sales revenue has been provisionally estimated, but neither the sales payment has been obtained nor the sales invoice has been issued, the tax liability arises on the day on which the sales payment has been obtained or the sales payment has been obtained (the “collection date”) [2].

2. If goods are sold on credit or by instalments, and there is a written contract, the tax liability shall occur on the day of the payment date agreed in the contract (the “payment date”); However, in the absence of a written contract or in the absence of a contract, the day the goods are shipped (the “delivery date”).

3. The production and sales of large machinery and equipment, ships, aircraft and other goods whose production period exceeds 12 months by means of advance payment shall be the day on which the advance payment is received or the payment date agreed upon in the written contract (the “payment date”).

4. The date on which other taxpayers are entrusted to sell the goods on a commission basis is the date on which they receive the consignment list from the consignment unit or receive all or part of the payment for the goods (the “collection date”); However, if the consignment list and payment are not received, it shall be the day on which the consignment goods have been issued for 180 days (the “delivery date”).

5. The sale of goods by means of collection acceptance and bank collection shall be the day on which the goods are issued and the collection procedures are completed (the “shipment date”).

6. The sale of goods (non-production period more than 12 months of large machinery and equipment, etc.) in advance is the day the goods are issued (the “delivery date”).

7. In the event of an act deemed to be a sale of goods, the tax liability shall occur on the day on which the goods are transferred (the “delivery date”).

Therefore, we can agree on the payment date in the contract terms according to the actual situation to determine the time when the tax obligation occurs, or we can reasonably delay the tax payment. It should be noted that the “collection date” agreed in the contract should be a clear collection date, as far as possible to avoid describing the date such as “payment within 45 days after receiving the goods” cannot be clearly pointed to; In this case, the “delivery date” should be taken as the date when the tax obligation occurs.

Take sales services as an example, basically the same as the sale of goods, but there are some special circumstances [3], we should pay attention to:

1. The date on which the proof to claim payment for the sale is obtained means the date of payment as determined in the written contract (the “Payment Date”). If no written contract is signed or the written contract does not specify the date of payment, it is the day of completion of the services (similar to the “delivery date”).

2. If the taxpayer provides the leasing service in the form of advance payment, its tax liability shall occur on the day on which the advance payment is received (the “collection date”).

3. If the taxpayer provides construction services and the project contractor impounded the pledge or security deposit from the project payment to be paid without issuing an invoice, the date on which the taxpayer actually receives the pledge or security deposit (the “collection date”) shall be the time when the tax obligation occurs [4].

4. The tax liability deemed to be for the sale of services arises on the day the services are completed (similar to the “delivery date”).

Finally, let's look at a case in the field of construction services to help us better understand.

The Owner and the construction party have signed a construction project contract, in which the written contract stipulates that during the construction process, the Owner shall measure the amount of work completed by the construction party on a monthly basis and pay 80% of the amount of work completed on the 15th day after the measurement of the project is completed.

The construction party received the project measurement document of August on September 10, 2024, showing that the construction party had completed the corresponding project cost of 20 million yuan. On September 20, the construction side received the project payment of 16 million yuan from the owner, and issued an invoice of 16 million yuan on the same day.

In this case, when does the construction party's tax obligation occur?

If the owner defaults and does not pay the $16 million for the August project until September 30, 2024, when should the tax liability of the construction party occur?

We list the relevant time points:

1. Construction service completion date: not completed;

2. Payment date stipulated in the contract: September 25, the 15th day after the completion of project measurement;

3. Invoicing date: September 20;

4. Actual collection date: September 20, September 30 after the default of the owner.

Therefore, according to the earlier judgment principle, in the first case, the date of occurrence of tax obligation is September 20, that is, the actual collection date or the invoice date; In the second case, the date of occurrence of the tax obligation is September 25, that is, the date of payment as agreed in the contract.

Through the agreement of the contract terms, in some scenarios, the occurrence of tax obligations can be reasonably delayed, and the monthly sales can be “distributed” within a reasonable range. For small-scale taxpayers who can enjoy the preferential policy of VAT exemption, if the monthly sales are more than 100,000 yuan, but the quarterly sales may be less than 300,000 yuan [5], there is a certain space for policy enjoyment.

Footnote:

[1] See Article 19 of the Provisional Regulations on Value-added Tax of the People's Republic of China

[2] See Notice on Issues related to the Timing of VAT Liability (No. 40 of 2011).

[3] See Article 45 of the Implementation Measures for Replacing Business Tax with Value-added Tax (Finance and Taxation [2016]36)

[4] See Article 4 of the Announcement on the Provision of Construction Services Abroad (No. 69 of 2016)

[5] See the Announcement on Matters Related to the Collection and Administration of VAT Reduction and Exemption Policies for Small-scale VAT Taxpayers (No. 1 of 2023).