Retail surtax and its background

It is useful to define the range of services and the rules of pricing in policies

Net base, with two corrections

Guest writer:
Anita Mekler
partner
tax and legal services
PwC Magyarország

Guest writer:
Dr. László Szűcs
lawyer, partner
Réti, Várszegi and Partners Law Firm PwC Legal

The base of the retail surtax is the net sales revenue, but this needs corrections too: two other “sources” must be added to it. One of them is the sales revenue generated for the retailer by its services, and the other is the price discount offered by suppliers to the retailer. The latter is considered to be “revenue” even if the retailer passes on this discount to shoppers, by selling the products acquired cheaply at even lower prices to them, this way actually making a loss with the given products.

However, retailers don’t just sell products to consumers, but they also provide services to their own suppliers, based on a long-term framework agreement. The problem is that these long-term agreements name neither individual services, nor the prices that apply. Why? Because in addition to the framework agreement, individual short-term agreements are made from time to time, specifying prices and conditions, and these keep changing.

Price discount or price change?

When the tax base is set, price discounts must be taken into consideration. This is a complex thing, as the purchasing price of a product is basically a compromise that the retailer and the supplier reach, having weighed all the conditions, so basically the change of the purchasing price isn’t actually a discount, but the result of a negotiating process between the two parties. It has become perfectly clear in 2022 that due to the challenges occurring in the supply chain, suppliers don’t use standard prices in a given market.

It also requires complex analysis to define the services provided to suppliers and to specify their financial values. Retailers continue to offer such services to suppliers, in order to promote sales and improve the related conditions. Some of these services are connected to performing the contracts, while others have to do with product promotions. The latter also change on a monthly basis, because of the dynamically developing e-marketing. In certain cases it isn’t easy to define what qualifies as a service provided to a supplier, because suppliers and retailers – and their subcontractors – are obliged to cooperate.

Regulation, documentation!

All in all, we can say that the system of pricing and service providing is complex and varies from company to company. The authorities who inspect these simply can’t know and understand these in detail. It is a mutual interest of both parties to use standardised interpretations when there is an audit, therefore it is best if the different services and price setting rules are laid down in a regulation, and the process of negotiation between suppliers and the retailer is documented. It also helps if the retailer and its suppliers can explain why a certain price or related conditions had to change. //