A DRAFT LAW ON THE AMENDMENTS TO THE DISALLOWANCE OF VAT CREDIT IN BANKRUPTCY IS INTRODUCED TO THE STATE DUMA

A draft law containing amendments to article 146 of the Tax Code of the Russian Federation was submitted to the State Duma yesterday. The provision of law is dedicated to the value added tax in the bankruptcy proceedings.

The reason for the changes was the position of the Constitutional Court of the Russian Federation, which at the end of last year disagreed with the disallowance of VAT credit to companies that purchased goods or services from the bankrupt.

As it often happens, the position was expressed as an example of a specific dispute, in which the buyer of the bankrupt company faced the disallowance of VAT credit. But he applied to the Constitutional Court, which, in turn, saw a violation of the rights of buyers in similar situations.

The court noted that the Art. 146 of the Tax Code does not have a precise wording, in connection with which it is not clear, what tax credits the buyers of bankrupt companies can declare, and which cannot.

Such legal uncertainty can give rise to the double taxation, which is unacceptable.

In order to eliminate the conflict of laws, the Constitutional Court ordered to make amendments to the provision of law. Now, the updated subparagraph 15 of paragraph 2 of Article 146 of the Tax Code of the Russian Federation will contain a provision that the sale of goods, works or services, including those that were carried out after the debtor was declared bankrupt are not recognized as the VAT-taxable products or services.