The rules for VAT recognition in case of bankruptcy changed

18.07.2020

The rules for VAT recognition in case of bankruptcy are changed. The project was submitted to the State Duma.


On July 13, 2020, the State Duma introduced government bill № 987383-7 with amendments to article №146 of the Tax Code. The reason for the amendments is the decision of the Constitutional Court № 41-P made on December 19, 2019.


The dispute's essence was as follows: LLC purchased pigs from a bankrupt company and received invoices with the allocated amount of VAT and, based on these invoices, deducted VAT.
However, the tax authorities demanded to remove deductions and pay additional tax.


The Constitutional Court noted that the content of the Tax Code does not allow us to determine with certainty which operations of a bankrupt taxpayer are excluded from the object of taxation: all operations on the sale of the bankrupt's property, or only those that constitute the bankruptcy estate. This does not exclude double taxation when both the buyer and the seller pay VAT.


In this regard, the Constitutional Court instructed to amend the Tax Code. Under the bill, the wording of the article №146 of the Tax Code removes the uncertainty of its content, establishing that all operations on the realization of goods (works, services) and property rights of the debtor recognized as the bankrupt are not recognized as the object of VAT taxation.

 

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