No. 77. Costs of shares in liquidated companies can be deducted whether or not an income is received on liquidation


Goltsblat BLP advises that, on 9 June 2009, the Presidium of the Supreme Arbitration Court of the Russian Federation (SAC RF) adopted Resolution No. 2115/09 on a case in which a taxpayer organisation deducted, for profit tax purposes, its costs associated with acquisition and sale of securities and the value of the shares in liquidated joint-stock companies, not having received any property at the time of liquidation.

A tax audit resulted in deduction of these costs being deemed unlawful.

The court of the first instance supported the taxpayer, indicating that the liquidation of the joint-stock companies resulted in retirement of the securities, so the taxpayer had legitimately applied clause 9, article 280 of the Tax Code of the Russian Federation (the Russian Tax Code) in writing off the retired securities at the time of their acquisition.

The court of appeal revoked the first instance court ruling and concluded that, on the basis of clause 2, article 277 of the Russian Tax Code, the value of the shares in a liquidated organisation may be deducted as costs only if the shareholder receives an income on liquidation and distribution of the assets of this organisation.

The cassation court upheld the position of the appeal court.

The SAC RF Presidium revoked the judicial acts of the courts of appeal and cassation and issued a decision in favour of the taxpayer, arguing as follows:

  • the taxpayer’s costs associated with acquiring shares in subsequently-liquidated issuer organisations meet the criteria set out in article 252 of the Russian Tax Code and are not classed as non-deductible expenses for determining the profit tax base (article 270 of the Russian Tax Code);
  • the procedure established in article 277 of the Russian Tax Code for determining the profit tax base envisages deduction of costs previously incurred by the taxpayer on acquiring shares, irrespective of any income received in the form of property from a liquidated organisation.

In the opinion of the SAC RF Presidium, no other approach is admissible making deduction of a shareholder’s costs dependent on whether any income is received in the event of such a liquidation and on whether the income on assessment of the assets exceeds the share acquisition costs.
The SAC RF Presidium also confirmed that, when a joint-stock company is liquidated, this does not involve sale or other retirement of shares by the shareholder taxpayer. Consequently, article 280 of the Russian Tax Code, which establishes how to determine the tax base for operations with securities, is not applicable to the situation in hand.

Let us recall that, according to the given article, a loss incurred on sale (retirement) of shares may not be deducted from incomes received from other activities.

Since the given situation does not involve either sale or other retirement of shares, the loss incurred by the shareholder taxpayer on the shares in liquidated organisations may, accordingly, be deducted from incomes from other forms of activity.

Previously, the courts supported the position taken by the tax authorities regarding deduction of losses on shares in liquidated organisations. The new resolution of the SAC RF Presidium changes judicial practice in the taxpayer’s favour.

For additional information, please contact:

Tatiana Vasilieva, Head of Tax Practice,
Goltsblat BLP,

Sergey Likhachev, Senior Associate,
Tax Practice,
Goltsblat BLP,

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