Debt forgiveness exemption cancelled

13.10.2017

Legal update No 615

Goltsblat BLP advises that the President has signed Federal Law No. 286-FZ of 30 September 2017 modifying Article 251 of the Russian Tax Code, among other legal rules.

Under the law, income derived by companies and partnerships from members (shareholders) increasing the entity’s net asset value by reducing or terminating its obligations to the members (shareholders) is no longer exempt from corporate profit tax1. This tax exemption is replaced by another one, granted only for contributions to the entity’s property in compliance with the civil legislation.

The Tax Code changes come into effect on 1 January 2018.

This means that, starting from the next tax reporting period, income generated by a shareholder (member) forgiving a subsidiary’s debts without a simultaneous increase in its authorised capital will be subject to corporate profit tax.

In our view, these are crucial developments that should be factored into any arrangements for corporate restructuring or financial recovery of subsidiaries if grave tax risks are to be avoided.

Drawing on a wealth of tax consulting experience, Goltsblat BLP tax specialists will be happy to assess for you the risks and implications of various scenarios for subsidiary financial recovery and help you choose the best option from both the tax and commercial perspectives.
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1 See revised Sub-clause 3.4 and new Sub-clause 3.7, Clause 1, Article 251 of the Russian Tax Code

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