Application of tax clause in disputes with counterparties

Application of tax clause in disputes with counterparties

Alexey Stanchin, Senior Tax Consultant at Tax Compliance, commented on the results of a study by the Financial Director publication, which analyzed the use of tax clauses by companies.

Tax clause is a mechanism proposed by the Federal Tax Service of the Russian Federation to minimize tax risks. However, the tax clause will not protect from all risks, for example, from the insolvency of the counterparty or from tax claims. However, as Alexey Stanchin noted in his article, in disputes it will help to obtain compensation for losses at the expense of the counterparty and will have a disciplinary effect on the counterparty, which will allow not to bring the case to serious proceedings.

In order to comply with the conditions for the application of the tax clause it is necessary to take into account all the requirements set forth in Article 406.1 (compensation for losses) or Article 431.2 of the Civil Code of the Russian Federation (assurances of circumstances), depending on the mechanism adopted in the clause itself. 

It is also worth following a number of tips that are applicable to many contractual legal relationships:

  • The terms of the tax clause should be explicit and unambiguous
  • If possible, it is worth obtaining security for the tax clause.
  • The clause should reflect the evidence used to determine whether the circumstances for reimbursement of compensation have arisen.
  • The taxpayer in interaction with the tax authority should not take a "passive" position, otherwise not all losses will be compensated for

The full text of the article can be found here.