TC tax consultant Anastasia Arzhanova commented in Pravo.ru digest on the forthcoming consideration of the cases of Betasid Rus LLC and Germain Seed Alliance Russ LLC in the Supreme Court of the Russian Federation. In these disputes, the applicants are proving to the tax inspectorate their right to a preferential VAT rate of 10%. 

Specifics of forthcoming disputes

These cases involve issues related to the procedure for applying the reduced VAT rate of 10%. At present, tax legislation and Resolution No. 908 of the Government of the Russian Federation establish only two mandatory conditions: (1) the indication of goods in item. 1 п. 2 of Art. 164 of the Tax Code of the Russian Federation; (2) compliance of the code assigned to the goods with a specific code of the Eurasian Economic Union's TN VED and (or) OKPD 2, specified in the list approved by the Government of the Russian Federation. 

At the same time, law enforcement practice develops new criteria for application of the 10% VAT rate based on the interpretation of the law. In particular, analyzing the provisions of Article 164 of the Tax Code of the Russian Federation and Resolution No. 908 of the Government of the Russian Federation, financial authorities and some courts believe that in order to apply the reduced VAT rate it is also necessary to comply with one more mandatory condition - the goods sold must be food products by their purpose and use. 

Tax legislation does contain an indication that VAT at the rate of 10% is levied on the sale of food products. However, neither the tax legislation nor Resolution No. 908 of the Government of the Russian Federation contains a definition of «food products». 

The note to the list of HS codes of the EAEU states that HS codes of the EAEU, except for some codes, including codes for seeds, fruits and spores for sowing, apply exclusively to goods intended for food and feed purposes. This description coincides with the definition of «food products» specified in the Federal Law of 28.12.2009 No. 381-FZ «On the Basis of State Regulation of Trade Activity in the Russian Federation». At the same time, there is no similar note to the list of OKPD 2 codes. 

On this basis it follows that, firstly, not all codes specified in the Resolution of the Government of the Russian Federation No. 908 are assigned to food products used for food purposes. The list includes food non-food goods, which in the process of growth and (or) processing are further transformed into food or feed products. Secondly, with respect to the list of OKPD 2, there is no note explicitly stating that the said list applies exclusively to goods suitable for food. 

The question of whether it is actually necessary to comply with another criterion - the classification of goods as foodstuffs - or whether compliance with two formal criteria is sufficient for the application of the 10% VAT rate is to be considered by the economic panel of the Supreme Court of the Russian Federation. 

How often such disputes are encountered

It should be noted that over the last year such disputes related to the procedure of application of the reduced VAT rate of 10% have become much more frequent compared to previous periods. This is largely due to the lack of a unified approach to determining the conditions for applying the reduced VAT rate of 10% and changes in the legislation in terms of determining the list of goods, the sale of which is subject to the reduced rate. 

How decisions may affect practice

If the Supreme Court of the Russian Federation reconsiders the position it previously stated in its refusal ruling of 17.06.2022, No. 307-ES22-8901 in case No. A52-2712/2021, for many taxpayers the process of applying the reduced VAT rate will become much simpler and more convenient - it will be enough to determine whether the goods are named in Article 164 of the Tax Code of the Russian Federation and whether they are assigned a code specified in the list of the Government of the Russian Federation. It should be noted that in practice such formal criteria should be applied. In fact, the taxpayer does not have to analyze whether the goods are food products, if the legislator has independently defined them as such by placing them in the list. It was this argument that interested the judges of the Supreme Court of the Russian Federation, who referred both cases to the economic panel of the Supreme Court of the Russian Federation.