According to the State Tax Letter[2008]875No. Notice of the State Administration of Taxation on the Recognition of several issues of Enterprise Income Tax Income ", the enterprise to buy one get a free first way of combination sales of their own products, is not a donation, should be the total amount of sales in proportion to the fair value of each product to recognize the sales income.

Some enterprises "buy one get one free", gifts are recorded in expenses or costs according to the gift, which reduces the enterprise income is tax-related risk, because this gift behavior is not a donation, so our tax agent firm suggests that the total sales amount according to the proportion of the fair value of each commodity to share to confirm the sales income. This treatment is reasonable and there is no tax risk.

In terms of VAT, some enterprises may directly invoice according to the actual sales, and the amount of gifts shall be indicated in the remarks column of the invoice. In this way, the VAT of gifts cannot be deducted, which will cause the enterprise VAT to be actually taxed according to the sales of "buy one get one free" two kinds of goods, which increases the burden of enterprises virtually. In order to avoid the extra tax due to the difference in treatment of the price discount actually given by the enterprise, our tax agent firm suggests that the enterprise indicate the sales volume and discount amount respectively in the "amount" column on the same invoice when selling, so that the VAT can be calculated according to the sales volume after the discount. The VAT on the gifts is not payable.

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