Page 44 - Focus Group

VAT ON SUPPLY OF

WARRANTY REPAIR SERVICES

What are Warranty Repair the warranty repair services different Jurisdictions?
services? that may constitute to be
consideration for a taxable supply The tax authorities of Bahrain,
Assurance from the Singapore and the UK have
manufacturer to buyers that Why would costs incurred be released specific guidance on
if goods not meet expected recovered and from whom? this, indicating that recovery
standards or fail to perform of expenses in relation to said
during a specified time period, From a supply chain perspective, services are out of scope of VAT /
they would cover the repair there is a back-to-back supply GST (provided that it is recovered
under the supply of a warranty. of warranty services from the without any margin).
manufacturer to the distributor
This repair services is known as and subsequently, from the The main premise for the out

‘warranty repair services.’ distributor to the end customer. of scope tax position is that the
costs being recovered by the
Is there a separate However, in most cases, distributor are already embedded
consideration for Warranty these services are performed into the original sales price by the
Repair services? by the distributor on behalf manufacturer when supplying
of the manufacturer. As the
No separate consideration, distributor is merely fulfilling the goods with warranty to the
where it is performed under a the manufacturer’s obligation, it distributor and the subsequent
warranty period. The warranty recovers from the manufacturer recovery of warranty cost by the
is generally issued together with the costs incurred towards the distributor from the manufacturer
the supply of the goods, for a warranty repair services. does not constitute as a supply
single price. under the VAT law.
What is the VAT treatment
Nonetheless, there may be for recovery of costs under The National Bureau for Revenue
recovery of costs incurred under Warranty Repair services in (NBR), Bahrain released a public

44 TAX JOURNAL 2020 The Institute of Chartered Accountants of India (Dubai) Chapter NPIO