As companies battle the recession, bartering comes in handy
By: Carsten Lexa
Money helps a lot when it comes to exchanging goods. One buys the goods, pays with cash and takes the goods away. So far, so good. But what if free cash to spend is a rare thing? For example in times like today, when the economy is not doing well and money is scarce?
Today, more and more companies turn to third party networks to contribute and use barter schemes. Of course, bartering is nothing new: It is a medium in which goods or services are directly exchanged for other goods and/or services without a common unit of exchange, e.g. money (according to Wikipedia). Firms routinely arrange exchanges on their own. But cultivating relationships with business partners in such a way, that barter schemes can be discussed and established among each others takes time and presents numerous hurdles. Let´s assume the owner of a restaurant needs printing services with a value of $ 10.000,00. Where can he find a printshop with an owner who is hungry for a $10.000,00 meal?
Formal barter schemes can help. One of the biggest providers for example is Bartercard, the largest exchange network with trades through its network worth more than $ 2 billion and 75.000 members in more than 9 countries. By using such a provider, the restaurant owner in the example above would owe $ 10.000,00 to the exchange network, not the printshop. The provider provides the business partners and makes sure that every member of the network honors the services of the other members. It therefore provides security and accountability, something informal bartering cannot provide in an adequate way.
What are the additional advantages of such barter schemes, other than security and accountability? The biggest advantage is the fact that no money is needed to “pay” for services and goods. Another one is the fact that a member can “buy” services first throught the network and pays later in his own services and goods – sometimes months later, if nobody wants his services or goods earlier. And finally such a scheme can work not only in one country, but – ideally – worldwide, as long as the members accept the scheme.
Even in Germany such barter schemes are tried and – especially among small and midsize compamies – found helpful. But currently, no big exchange networks exist. So, member of traditional business networks try to establish their own barter networks. Reason is that a company owner who knows another company owner through a traditional business network and has done business with him in a traditional way using cash will be more open towards doing barter transactions with this person than with a total stranger.
Is barter the holy grail for companies in recession times? Probably not. But it can be a helpful to do business if cash is scarce. The difficulty is to find the right partner.
For inquiries please contact the author: kontakt@kanzlei-lexa.de
Carsten..great post.. but what about general taxation issues once an exchange occurs?
Also could there not be potential transfer pricing abuses with parent/subsidiary or related companies bartering between each other?
Bartering is definitely coming back! There are a lot of Websites that offer online trading. I came across the Website http://www.barterquest.com, they do a real good job. Never thought, that bartering could be that easy. You only have to create an account and there you go! You can offer your items in different categories, like goods or services and search for something you want. It’s really easy to find partners for potential trades. Indeed, it’s a great tool for companies and individuals!
Ainsley, taxation is an interesting issue – it is not fully explored in Germany.
In Germany, a strong opinion says that in a barter scheme there is no intention in profit making. Therefore, bartering cannot be taxed. Also, there is no erned income for members of barter schemes, because barter scheme members do not pursue a self-employed or commercial activity. BUT one must always take into account each individual case. If the requirements for a commercial activity are present, all existing taxation rules will apply.
One must also consider that in Germany barter schemes are relatively small at the moment. The discussion about taxation therefore regularly goes into that direction that members in a German barter scheme offer their services and products privately. The discussion will move into another direction I suppose, if barter schemes will become bigger in Germany.
In Australia, the home country of Bartercard, barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions. The Australian Taxation Office has expressed its views in Taxation Ruling IT 2668 on the taxation consequences of Trade transactions: “When an entity that is a member of a trade exchange makes a taxable supply to another member, there is a liability for tax, including goods and services tax (GST).” (Source: Bartercard.com)
Thanks Carsten
The postion in Canada as far as tax concerned is much the same as in Australia. For the offical position of the Canada Revenue Ageny please see:
http://www.cra-arc.gc.ca/E/pub/tp/it490/it490-e.html