FBK Legal in Tax Disputes Journal
The Journal ?Tax Disputes? has published Gerenzal Chimidova?s article titled ?Who Wins from Tax Clauses: Companies or the Federal Tax Service??
In the article, the lawyer gives her honest opinion on benefits of tax clauses for businesses. Gerenzal notes that tax clauses may be used as a protection measure against risks associated with problematic counterparties. They allow companies to avoid financial losses in the amount of VAT deductions and promptly settle disputes with controlling bodies without issuance of a tax audit report.
The lawyer describes how that measure works: the buyer learns about a VAT gap from a notification sent by the Federal Tax Service, makes a voluntary adjustment of its liabilities without issuance of a tax audit report by deciding not to deduct VAT, and under the tax clause the supplier reimburses the costs incurred by the buyer in the amount that it did not deduct.
The buyer as a taxpayer is willing to settle a VAT deduction issue without a tax audit report, because tax auditors may decide that the taxpayer has caused damage to the state budget.
By now, court decisions related to tax clauses have been mostly unfavourable for buyers. There are several reasons for that. For example, claimants incorrectly name requirements based on tax clauses as recovery of damages and courts dismiss their claims to recover pecuniary losses pursuant to articles 15 and 393 of the Russian Civil Code because of the failure to prove conditions required to impose civil law sanctions.
But there are some favourable court decisions when buyers recover pecuniary losses under tax clauses. So tax clauses can work as a protection mechanism.
The lawyer analyses a decision of the Supreme Court related to a situation when a company filed a lawsuit to recover damages from a counterparty that had engaged an unreliable subcontractor. The claims were dismissed by courts of first, second and third instance but the Supreme Court ordered a retrial. According to Gerenzal, despite the fact that the claims were not based on tax clauses, the position that the Supreme Court expressed gives hope that courts will be less likely to refuse buyers and will recover funds under tax clauses.
It is worth remembering a conclusion made by the Supreme Court about the possibility to impose such kind of civil law sanctions as recovery of damages. This can be done when the tax burden increases because of circumstances that would not have occurred if the other party to the agreement had fulfilled its obligations.
