THE PLEDGE IS NOT A DEAL, THE BRANCH IS NOT THE OWNER

The Bank received collateral for real estate under enforcement proceedings after the borrower, a foreign company, failed to fulfill its obligations under a secured loan agreement: after non-fulfillment of loan obligations and unsuccessful attempts to sell at auction, the property was transferred to the bank directly — according to bailiff acts.

The tax authority added VAT to the bank, stating the following: 

• ownership was transferred from a foreign company, not from its branch (although the bank referred to the fact that the company has a branch in the Russian Federation and it should be considered a VAT payer);
• the operation was of a compulsory nature — not contractual implementation, but foreclosure;
• the branch did not participate in the registration of the transfer, did not reflect the income in the accounts and did not pay tax.;

The company did not notify the bank that the income relates to its permanent representative office in the Russian Federation. 

The courts of three instances supported the tax service in both cases of challenging the decisions of the inspectorate (A40-231940/2024 and A40-248995/2024). The courts emphasized that the sale of collateral real estate in favor of the bank was not carried out as a result of the entrepreneurial activity of a foreign company, not through a separate unit, but forcibly as part of enforcement proceedings. The Bank, as a tax agent, was obliged to calculate, withhold and pay the appropriate amount of tax to the budget. Thus, a forced transfer of property is not equivalent to a transaction through a branch office.

 

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