Promotion is a trade promotion activity of a trader to promote the purchase and sale of goods and provide services by giving customers certain benefits. When a promotion is held, participating consumers are often interested in the “gift” of the program. According to business theory, gifts (also known as goods and services used for promotion according to the laws) are an indispensable part of a promotion program because they directly bring benefits to customers participating in the program and make an essential contribution to the success of the program the marketing campaign. Attractive and valuable promotional gifts are an extremely effective way to promote businesses and build brands. Therefore, giving ideas and choosing gifts that are unique, attractive and legally is an issue that enterprises need to pay attention to when implementing a promotion program.
(i) Goods and services used for promotion (gifts)
Under Article 94 of the Commercial Law 2005, goods used for promotion are goods and services that promotion traders are trading or other goods and services. Current legal regulations do not prohibit traders from using other traders’ goods as goods or services for promotion. In addition, according to Clause 2, Article 5 of Decree No. 81/2018/ND-CP, goods and services used for advertising do not include alcohol, lottery, tobacco, medicines for humans including all kinds of drugs that have been allowed to be circulated under regulations of the Ministry of Health (except for the case of promotions for drug traders), goods and services banned from circulation in Vietnam and other goods and services prohibited from promotion under legal regulations. Thus, goods and services used for advertising can be goods and services that such trader is doing business or goods and services of another trader. Moreover, these goods or services must be legally traded.
(ii) Some notes when choosing goods and services used for promotion (gifts)
First, ownership of goods used for promotion. According to the provisions of the laws on promotion, traders may use the goods and services of other traders for promotion. However, the goods used for promotion must be legally owned by the trader conducting the promotion. When making promotional registration dossiers with competent authorities, traders must provide purchase and sale contracts, sponsorship agreements, purchase invoices, etc., to prove their ownership of the goods used for promotion.
Second, advertising activities for gifts in promotions. Trade promotion legislation does not restrict goods used for promotion to be approved by the trademark owner of the goods. In addition, the prohibited acts in promotional activities also have nothing to do with the consent of the owner of the goods. Therefore, traders have the right to use any legally circulated goods as gifts. However, promotional activities are always associated with advertising activities, the use of images of other organizations and individuals for advertising without that organization’s or individual’s consent is prohibited under advertising regulations. Accordingly, traders are not allowed to carry out advertising acts containing other traders’ products without the permission of that trader.
Regarding intellectual property rights of gifts, the owner of an industrial property object (trademark, industrial design, etc.) has the right to prevent others from using the industrial property object if such use is not in some instances permitted by-laws (Article 125 of the Law on Intellectual Property 2005). Meanwhile, circulating branded products to the market is an act of using the trader mark according to Article 124 of the Intellectual Property Law 2005. This act is an infringement of intellectual property rights.
Thus, if considering only promotional activities, traders have the right to use any goods legally allowed to circulate on the market to use as gifts. However, because of the relevance to the use of images for advertising in promotional activities and the intellectual property rights to the trademarks/designs of the gift of the producer, traders need to pay attention to clarify the purpose of buying goods as gifts. Moreover, the traders need to stipulate in the contract, sales agreement that the seller agrees to allow the trader to use images/intellectual property rights of products to carry out advertising and promotion.
Third, note the material value used for promotion. The material value used for promotion for a promotional unit of goods or services must not exceed 50% of the price of such promotional goods or service unit before the promotion period, except for the case of sales promotion: giving samples, providing sample services; giving goods and providing services without collecting money, not accompanied by the purchase and sale of goods; selling goods and providing services with contest tickets; selling goods and providing services together with participating in programs of chance and organizing a regular customer program…
Fourth, invoices and tax issues for goods and services used for promotion. According to the provisions of laws, traders conducting sales promotion still have to issue invoices for selling goods and services for the case of goods and services used for promotion (except for goods that are internally circulated or consumed internally in the production process). In addition, the taxable price is determined to be zero for goods and services used for promotion under the provisions of commercial laws (register/notify with competent authorities under the laws). This means traders do not have to pay value-added tax for goods and services used for promotion. Conversely, in cases traders fail to comply with the laws on commerce, traders must declare and pay value-added tax on goods and services used for internal consumption, donation.
Moreover, value-added input tax on goods and services used for promotion is still deductible. Thus, traders need to note that goods and services used for promotion must also issue an invoice. On the invoice, the name and quantity of the goods must be clearly stated as promotional goods. The traders need to comply with promotional registration/information regulations under the laws to apply appropriate tax policies.
With the significant scale and influence of the “Flash sale” programs and the fierce competition in the business market, promotion is an indispensable activity to promote the business advantage of traders. Besides focusing on choosing quality gifts to attract consumers, traders need to pay attention to complying with the legal provisions on gifts so that the promotion program is implemented legally and under law regulations.
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