At the beginning and end of each year, when the winning judgment from fellow lawyers is handed down, the author is often asked a question, "The court has ruled that the other party should pay liquidated damages, so does my client need to issue an invoice to the other party?" Here, the author will tell you the answer.

1、 Off-the-money expenses of default metals obtained from the purchaser

Article 3 of the Provisional Regulations of the People's Republic of China on Value Added Tax stipulates that taxpayers concurrently operating goods or taxable services with different tax rates shall separately calculate the sales of goods or taxable services with different tax rates; If the sales volume is not separately accounted for, the higher tax rate shall apply. Article 5 stipulates that when taxpayers engage in taxable sales, the value-added tax calculated and collected based on the sales volume and the tax rate specified in Article 2 of these Regulations is the output tax. Calculation formula for output tax: output tax=sales amount × Taxes. According to this regulation, the act of issuing an invoice represents that the taxpayer has engaged in taxable sales and obtained sales. So, does default metal affect sales?

According to Paragraph 1 of Article 6 of the Provisional Regulations of the People's Republic of China on Value Added Tax, sales amount refers to the total price and extra price fees collected by taxpayers for taxable sales activities, but does not include the output tax collected. Article 12 of the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Value Added Tax stipulates that the "non price fees" referred to in Article 6, paragraph 1 of the Regulations include the handling fees, subsidies, funds, fund-raising fees, return of profits, incentive fees, liquidated damages, late fees, interest on delayed payments, compensation, collections, advances, packaging fees, packaging rental, storage fees, quality fees Transportation handling fees and other extraneous charges of various nature.

According to the above provisions, "liquidated damages" belong to extraneous expenses and "sales". However, it should be noted that according to the provisions of Article 12 of the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Value Added Tax, only "liquidated damages collected from external buyers at the price" are considered "sales".

In other words, in the event of a taxable act, the seller shall issue an invoice for the extra price expenses of the default metal obtained from the buyer. For example, Company A sells timber to Company B, and after Company A delivers the timber to Company B in accordance with the agreement, the liquidated damages incurred due to Company B's delay in payment belong to "non price expenses" and "sales". Company A should issue an invoice to Company B for the liquidated damages collected.

2、 Precautions for Taxpayers Obtaining Extraordinary Expenses and Issuing Invoices

According to the above provisions, both "extra price expenses" and "the entire price charged by taxpayers for taxable sales" are "sales", and the invoicing form should be consistent with the sales price of goods, services, and services. According to the following rules:
First, the tax items of the extra price expenses and the price should be consistent, using the same code.

Second, the type of invoice issued for non price expenses should be consistent with the goods, labor, services, etc. sold.

Third, the input tax deduction for non price expenses is consistent with the main project deduction rules.

3、 Liquidated damages obtained in some cases do not require invoicing

According to the description in Part I, in the event of a taxable act, the seller shall issue an invoice for the extra price expenses of the default metal obtained from the buyer. Is it necessary to issue an invoice for liquidated damages obtained under other circumstances? For the above example:

1. If Company A breaches the contract and cancels the contract, and the contract is not performed, does Company B receive liquidated damages from Company A, do you want to issue an invoice?

2. If Company B breaches the contract and terminates the contract, and the contract is not performed, and Company A receives liquidated damages from Company B, does Company A need to issue an invoice?

3. If the timber delivered by Company A is defective and Company B receives liquidated damages from Company A, does it need to issue an invoice?

（1） No "business operations", no invoice required

Article 26 of the Detailed Rules for the Implementation of the Invoice Management Measures stipulates that units and individuals who fill in and issue invoices must issue invoices when business operations occur and business income is recognized. Invoices shall not be issued without business operations. According to this article, the prerequisite for issuing an invoice is the occurrence of "business operations". Therefore, in the first and second cases, due to the termination of the contract and the non fulfillment of the business operations, it is not necessary to issue an invoice.

（2） The purchaser shall not invoice the seller

What should be done with the third situation? Firstly, according to Article 1 of the Provisional Regulations of the People's Republic of China on Value Added Tax, entities and individuals that sell goods or process, repair, and repair services (hereinafter referred to as labor services), sell services, intangible assets, real estate, and import goods within the territory of the People's Republic of China should pay value added tax in accordance with these Regulations. According to this provision, taxpayers are entities and individuals that sell services, intangible assets, real estate, and imported goods. In addition, in accordance with Article 19 of the "Invoice Management Measures", units and individuals that sell goods, provide services, and engage in other business activities should issue invoices to the payer when they receive payments for external business operations.

In other words, the prerequisite for issuing an invoice is "to obtain income from selling goods, providing services, and engaging in other business activities." Therefore, only the seller can issue an invoice to the buyer. Therefore, even if the seller pays liquidated damages to the buyer, because the buyer has not engaged in taxable activities such as selling goods or providing taxable services, the buyer must not issue an invoice for the seller.