3 thoughts on “VAT on warranty replacements

  1. Warranty supply of parts to end customer through a dealership – the replacement parts are supplied ‘free’ to the end customer. At first, it is important to determine whether the parts replaced are actually covered by warranty in the supply contract or whether there is any replacement request entertained for out-of-warranty equipment for brand building exercise. Then, the warranty obligation lies only with the original equipment manufacturer (OEM) but the actual replacement is carried out at the dealership. When a warranty claim is made with the dealership by the end customer, the dealer seeks approval from OEM. Only after ‘in-warranty approval’ is received from OEM does.

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  2. The dealer replace the part. Now, the warranty replacement between OEM to end customer is not liable to VAT not because it is free but because the price for the replacement is built into the price of the equipment originally supplied and therefore tax has already been paid by OEM. However, the dealer who replaces the part does not carry any role in the warranty fulfilment. In fact, the dealer ‘delivers’ the part to customer but ‘supplies’ is made by OEM. Hence, there is another supply embedded here between dealer to OEM because dealer uses a tax-paid part from his inventory to replace it for the end customer. Alternatively, the OEM issues credit note to dealer for the part used in the warranty replacement. As such, warranty involves two supplies and neither of which are free. One is tax pre-paid (if original supply was after implementation date) and another is currently taxed though not involving end customer.

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