Whether to issue a zero-rated tax invoice for Dead Freight

Question

Dead Freight is a type of freight charge that functions as a penalty incurred when the specified tonnage in a contract cannot be loaded. I would like to know whether Dead Freight should be treated as an extension of freight charges, requiring the issuance of a zero-rated tax invoice, or if it should be treated as a penalty, in which case no invoice should be issued.

tflow_expert · Answer

The determination may vary depending on whether improper freight is viewed as a penalty (liquidated damages) or as freight. I have searched for National Tax Service rulings, but since no specific ruling on this matter has been identified, it is difficult to provide a definitive answer. 1. Grounds for viewing it as liquidated damages (not subject to taxation): Penalties or similar liquidated damages received by a supplier due to the cancellation by the recipient, without the actual supply of goods or services, are not subject to taxation (Basic Rule of Value Added Tax Act 4-0-1). 2. Grounds for viewing it as freight (subject to taxation): According to the provisions regarding despatch and demurrage (Basic Rule of Value Added Tax Act 4-0-1), in cases of despatch or demurrage between a shipowner and a stevedoring company or between a shipowner and a cargo owner, if the service provider receives an additional charge, it is considered subject to taxation; however, if it is simply a consideration without the provision of services, it is not considered subject to taxation. Separately, when a corporation pays a penalty that is not consideration for the supply of goods or services, the regulations regarding the receipt of expenditure evidence do not apply.

Whether to issue a zero-rated tax invoice for Dead Freight

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