Delivery as part of service or work

In compliance with provisions of part 6 article 97 of the Tax Code of Turkmenistan (hereafter-Code) sale of goods, implementation of works, rendering of services having auxiliary character with respect of the main transaction (taxable or not) are considered as part of such transaction. Deliver of goods, raw materials and other property, used at implementation of such works (services), provided by the contracts for performance of works (rendering of services) have auxiliary character.

These provisions shall be considered as performance of one transaction. I.e. main transaction is implementation of works for which equipment used for installation and assembly will be considered as expenses, forming volume of implemented works.

Consequently, in the acts of executed works shall be included

value of equipment installed, as well as implemented and accepted by the customer construction-mounting works, based on their contractual value.

Delivery itself is not considered as separate transaction (it is just a part of the main transaction) and consequently, does not create any income and costs, associated with them.

In tax returns on income tax of legal entities shall be indicated total value of gross revenue from implementation of works.

Herewith, this amount of income shall be indicated in tax returns, regardless the fact whether the acts of executed work will be signed or not. This is conditioned by requirements of part 3 article 168 of the Code, which state that incomes on long-term contracts are recorded in each tax period, in accordance with the volume of their actual implementation. Herewith, also shall be considered provisions of part 1 article 169 of the Code, in compliance with which, under long term contracts deductions are applicable in that reporting (tax) period, to which these costs are related, based on principle of even and linear generation of profit and costs.

Based on requirements of part 2 article 155 of the Code, value of inventory holdings included into material costs is determined based on prices of their acquisition, including commission fees paid to mediators, exchange duty, collections, excises on goods imported to customs territory of Turkmenistan costs for transportation and other expenses, associated with acquisition of inventory holdings.

I.e. in tax returns on income tax will be included value of equipment, liable to assembly and installation, based on mentioned above requirements. In case if all documents, confirming that acquisition price exceeds the value of deductions, applicable for determination of taxable income are available, this may increase the amount of deductions applicable for determination of taxable income.

However, shall be taken into consideration provisions of part 8 article 154 of the Code, which state that to the value of imported goods (works, services), directly related to deductions or through depreciation charges may be applicable provisions of article 36 of the Code (real market price) in case of overstatement of their purchase price.

If it is the long-term contract, then usually work-in-progress occurs. The value of implemented, but not accepted by the customer works are related to it. Herewith, for tax purposes the amount of work-in-progress is determined in compliance with Methodical Instructions on attribution of deductions to the reporting (tax) period, based on principle of even (linear) and proportionate generation of income and costs, approved by the order of the Head of State tax service of Turkmenistan dated March 23, 2006 № 15 and the order of the Ministry of economics and finance of Turkmenistan dated March 23, 2006 № 32. I.e. this amount may differ from accounting data.

At determination of taxable income shall be noted that there will be no problems if:

• Income will be recognized based on monthly prepared acts of executed works;
• If there is a lack of them, income will be recognized on a monthly basis, in compliance with the volume of actually implementation of works or based on principle of even and proportionate generation of incomes and costs;
• Expenses in part of delivered equipment will be included only at inclusion of it in the acts of executed works;
• Amount of work-in -progress, as well as deductions, applicable for determination of taxable income will be determined in compliance with Methodical Instructions on attribution of deductions to the reporting (tax) period, based on principle of even and proportionate generation of incomes and costs.