The General Financial Directorate Specifies the Method for Determining the VAT Base for Donated Goods

A free-of-charge supply of goods for which input VAT was deducted on acquisition is generally subject to output VAT. The goods must not have been acquired with the intention of donating them. In that case, no right to deduct input VAT arises and the later donation is outside the scope of VAT. If the donation of goods is a taxable transaction, the key question is how to determine the VAT base correctly. 

For purchased goods, the VAT base is determined based on the purchase price, adjusted to reflect the actual condition of the goods at the time of donation. In simple terms, the real market value of the goods on the date of donation may be used. For goods acquired in another way, the VAT base is the price of comparable goods at the time of donation. If this price cannot be determined, the total costs incurred to acquire the goods as at the date of donation are used. 

From a VAT perspective, the purpose of the donation is not decisive. What matters is the objective value of the donated goods. A charitable, social or other public-benefit purpose therefore does not, by itself, allow the VAT base to be reduced below the level determined under the rules described above.

The Information explains in more detail how to determine the VAT base, especially for goods that have lost their normal commercial use and whose actual value for the taxpayer may be very low or almost zero. The Information expressly states that, in certain cases, the value of goods may be practically zero even if the goods have kept their original qualities and show no signs of wear or damage. As an example, the Information refers to unsellable textile products withdrawn from sale because of a long-term policy of seasonal collections. However, the key condition is that the taxpayer must be able to objectively prove the circumstances that led to the loss of the goods’ commercial value. 

If the goods can no longer be sold only because of the company’s internal business policy, such as seasonal sales policy, the taxpayer must prove that this is a long-term and consistently applied business strategy. At the same time, the taxpayer must show that sufficient efforts were made to sell the goods, for example through gradual discounts. All these facts should be properly documented. An essential condition is that the goods are no longer offered on the market and will not be offered on the market in the future. 

If the donation of goods is relevant to your company, we would be happy to review with you the correct VAT treatment, the method for determining the VAT base and the scope of documentation needed to support the chosen approach.

Authors:

Petr Drahoš, Senior Manager, Tax Department

Štěpánka Šťastná, Manager, Tax Department