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DISCOUNTING: WHEN CAN IT BE “BYPASSED”?

 It does not always make sense to go in a straight line, often, it’s much more efficient to find more affordable workarounds. This is exactly what the accounting community does in response to innovations in the field of discounting long-term debt. Naturally, it is far from always possible to find workarounds, but in many situations they exist.

 What loans and debts are not discounted?

 Consider the situation from the position of the debtor, as he is most not interested in discounting. Why? It can lead to the appearance of so-called “virtual” income, which can affect the growth of the size of the object of taxation and, as a consequence, income tax (of course, this applies only to payers of this type of tax).

 Discounting does not apply to current liabilities. They, according to paragraph 4 P (s) BU 11, are such liabilities that must be repaid within 12 months from the balance sheet date, or during the operating cycle.

 In addition to current liabilities, debts and loans are not subject to discount:

  1. Having a return period of not more than 1 year.
  2. Contracts that do not specify a final maturity. Despite certain precautions, such debts and loans are legal. In accordance with article 1049 of the Civil Code, loans that do not contain a deadline for repayment in the contract must be repaid within a 30-day period from the moment the lender submits claims for repayment.
  3. Poste restante. This option of obligations has much in common with the previous type, while being also completely safe from the point of view of jurisprudence.

 Loans of the second and third type are attractive in the sense that they, in fact, have a short-term status, since lenders may receive a request at any time to make a return of the borrowed funds. If the lender does not present any requirements, then the statute of limitations under the contract will never expire.

 This option allows realistically long-term liabilities to be presented as short-term ones and to get rid of the need for discounting. There is also a method with an exemption from the need for discounting, involving the continuous prolongation of short-term debt. However, such agreements carry certain risks.

 Discounting does not apply to overdue debts irrespective of their type (short-term and long-term). They automatically turn into short-term ones, and, as already mentioned above, only long-term ones are subject to discounting.

 In case of missing the loan repayment term:

  • it is impossible to accurately determine the full discount period, and this parameter is required when calculating the discount;
  • the discount was automatically depreciated and the rules for accounting for arrears entered into force.

 Not discounted and commodity debt. The discount obligation only affects debts that are refundable in cash. The present value is discounted from future payments, and for commodity debts such payments in cash are not logically provided.

 Discounting interest arrears

 In this case, the discount is determined by the contractual interest rate. If it is equal to the market, then the real value of the obligations taken corresponds to the nominal, and this means that the discount is zero. The accounting rules do not provide for discounting long-term debt in the field of finance leases. Clause 3 P (c) BU 10 and 11 indicates that these provisions are applicable solely to the disclosure and evaluation of information on obligations prescribed by other accounting provisions, as well as receivables. In turn, debts in the field of financial leases are estimated and reflected in the standard P (s) BU 14.

 Income tax

 It has already been mentioned that with respect to the amount of the discount, the tax difference on income tax is not provided. In clarification No. 341/6 / 99-00-07-02-02-06 / IPK of January 29, 2020, the STSU confirms this provision. It is important to note that the issue concerned the long-term type of debt on a loan that was issued by a non-resident, however, most likely, in its explanation the STSU had in mind all discount operations. Thus, the tax authority noted that tax differences for adjusting the financial result of taxation in the context of transactions related to discounting debt in the norms of the Tax Code are not provided.

 Based on this, we can conclude that when determining the financial result before taxation, discounting operations must be displayed in accordance with the general accounting rules. The costs and revenues that arise when discounting debts to debtors and long-term liabilities directly affect the object of taxation – the financial result before income tax.

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