CONCESSION PROCEDURES

What is Consignment? Who are the Parties?

Consignment means the transportation of goods with an intermediary (broker) without any change in the ownership of the goods.

In consignment sales, goods are sent to a business (broker). During this sending process, the possession of the goods is transferred. In consignment sales, the company that sends the goods has a say in the sales and prices of the goods. The company that sends the goods to the broker determines the answer to the questions of at what price the goods will be sold by the broker and at what prices the return transactions will be realized.

To introduce the parties in consignment sales in terms; The company that sends the goods is called the consignor, and the party that will sell or transfer the goods to certain places at predetermined prices is called the consignee.

How to Document Consignment Transactions?

According to the Tax Procedure Law (TPL), the transportation of goods must be with a consignment note. For this reason, during the transportation of the goods, if the consignor company (consignor) carries out the transportation, the consignment note must be issued by the consignor company, and if the broker (consignee) carries out the transportation, the consignment note must be issued by the broker. In addition, it should be stated in the consignment note that the goods are transported for consignment purposes.

According to the VUK, the document issued by the seller to the buyer in order to show that the customer is indebted for the purchase transaction in return for the work done is called an invoice. In consignment transactions, the transaction is not based on a sales contract. Therefore, since it is not based on a sales contract and there is no transfer of ownership, there can be no invoicing between the consignor and the consignee.

However, as soon as the consignee delivers the goods to the final buyer, the sale transaction will be realized. Therefore, when the consignee transfers the goods to the buyer, the right of ownership of the goods is also transferred. In the meantime, the consignee invoices the consignee on behalf of the buyer at the sales price and the consignor invoices the consignee at the previously determined price.

Again, according to TPL, an invoice must be issued within 7 days after the sale of the goods. In consignment transactions, the dispatch date is not taken into account. In consignment transactions, invoicing transactions are carried out within 7 days at the latest after the consignee company sells the goods to the buyer.

How Does the Consignment Process Work? What are the Results?

The consignment process can be summarized in steps as follows;

• The consignor determines the price at which the goods will be sold by the broker (consignee).
• The consignor issues a consignment note to the consignee (or consignee to the consignor) (Consignment Note). The consignment note states that it carries consignment goods.
• The consignee sells the goods to the buyer.
• The consignee invoices the buyer at the sales price determined in advance by the consignor.
• The consignor invoices the buyer for a predetermined amount.

The results of consignment sales can be summarized as follows;

• The buyer is indebted to the consignee and the consignee is indebted to the consignor.
• The consignee makes a profit between the amount received from the consignor and the amount transferred to the buyer.
• The sales process is determined by the consignor.
• Between the consignor company and the buyer to whom the ownership of the goods is transferred, the transfer of ownership of the goods is provided by the consignor without any direct connection with each other.

What is the Taxable Event in Consignment Sales?

In Value Added Tax (VAT) law, the taxable event is the delivery.

Delivery takes place during the transfer of ownership of the goods. This may take place in the company's own warehouse at the time of delivery to its driver, or at the customer's workplace. The important thing here is not the place, but the delivery to the other party.

According to the VAT law, since the event giving rise to VAT is the delivery, the transaction in question must be declared with the VAT declaration in the month in which the delivery takes place. The VAT declaration, on the other hand, looks at whether the transaction has occurred in the relevant month, not the 7-day period for invoicing.

For example, let's say that the delivery took place on June 28. In this case, according to TPL, invoicing is made within 7 days after the sale. So the invoice date may be July 5. Even if this is the case, since the VAT law takes delivery into account and should be reported in the month of delivery, the VAT of the relevant transaction should be shown in the VAT declaration in June, even if the invoice date is July 5. Since there may be confusion in such cases, it would be logical to issue the invoice in June.

In consignment transactions, delivery takes place at the moment when the consignor delivers the goods to the consignee. Therefore, the goods sent from the consignor to the consignee are not included in the definition of delivery. In order to be shown in the VAT declaration for the consignor, consignee and buyer, the delivery of the goods to the buyer by the consignee must be realized.

How are Consignment Transactions Abroad?

The definition of consignment export and how it is done is explained as follows in the VAT - 2009/125 numbered application tamim issued by the Istanbul Tax Office:
"...In Article 4/h of the "Export Regulation" published in the Official Gazette dated 06.06.2006 and numbered 26190, consignment export is defined as sending goods to foreign buyers, brokers, branches or representative offices of the exporter abroad to be sold later.

Article 9 of the same Regulation contains the following provisions regarding consignment exports:

• Consignment export applications are made to the General Secretariat of the relevant Exporters' Associations.
• Consignment export requests related to the goods within the scope of the regulations that may be introduced by the Undersecretariat in terms of substance and/or country policy shall be finalized after the opinion of the Undersecretariat, and the requests related to the goods other than these shall be finalized directly by the General Secretariat of the Exporters' Associations.
• Customs declarations approved by the General Secretariat of the Exporters' Associations with consignment export notation must be submitted to the customs authorities within thirty days.
• Exporters shall notify the General Secretariat of the Exporters' Associations and the intermediary bank within thirty days after the final sale of the goods sent on consignment, together with the final sales invoice or a copy thereof issued by them and other necessary documents.
• The General Secretariat of the Exporters' Associations shall notify the intermediary bank of the information regarding the consignment export permits they have granted within five days following the notification of the final sale of the goods to them.
• The final sale of the consigned goods must be made within one year from the date of export. This period may be extended for two more years by the General Secretariat of the Exporters' Associations, upon application based on justified and compulsory reasons.
• The price of the goods sold within the period must be brought into the country within the framework of foreign exchange legislation, and if the goods cannot be sold, the goods must be brought into the country within the framework of customs legislation."

In the TPL General Communiqué No. 173, it has been determined that documents such as bills of lading, bills of lading, etc. used in international transportation and official documents issued by the Customs Administrations after the presence of the goods in the transportation vehicles is determined and sealed at customs entrances and exits will also be accepted as consignment notes. In the event that the sale is realized in the form of export, the customs declaration approved by the exporters' union by adding the consignment export annotation will be accepted as a consignment note. Although the final export invoice for the export transaction to be carried out on consignment will be issued upon delivery of the exported goods to the buyer by the consignee, a temporary export invoice will be issued for customs procedures during the shipment of the goods. This temporary invoice issued for customs clearance in consignment exports is not subject to revenue recognition. Revenue recording is made on the final export invoice as of the final sale day.

How are Accounting Records in Consignment Transactions?

Consignment sales go through some transactions as mentioned above. Therefore, each of these transactions is recorded in the accounting records by the consignor and the consignee. It will be useful to illustrate this issue on an example.

Example;

• Company X (consignor) sent 100 goods to Company Y (consignee) on consignment on January 15, 2020.
• Company Y sold all of its goods on March 20, 2020 for 150.000 TL + VAT and notified Company X.
• Company X issued an invoice to Company Y amounting to 100.000 + VAT on March 25.
• Assuming that the cost of the goods subject to sale to Company A is 75.000 TL, the accounting records should be as follows:

X Company (Consignor) (Company Sending Goods) Accounting Records

Y Company (Consignment) (Broker Company) Accounting Records