In the Star Trans case, the Supreme Court of the Russian Federation supported a transportation company that had been arguing with the tax inspectorate over additional payments due to a subsidy received from the authorities. In the Kommersant article, TC tax consultant Ekaterina Kopylova analyzed the details of the tax dispute. 

What happened? 

The company, which applied the simplified taxation system «income», was engaged in the transportation of goods through the territory of Ukraine. In 2022, several vehicles were seized from the organization along with the cargo. To compensate for the loss, the company received a subsidy from the federal budget under the state program «Development of the transport system». It did not recognize the financial support received as income. Following an inspection, the inspectorate considered this approach to be unlawful and assessed tax on the subsidy paid by the state, recognizing it as income of the taxpayer. 

Three court instances sided with the inspectorate. However, the Supreme Court defended the company's rights and determined that the subsidy was of a targeted nature and should compensate for losses incurred by the company as a result of the seizure of vehicles; accordingly, the payment of the subsidy cannot be recognized as income of the company.

What was the previous practice on the issue of taxation of subsidies?

An interesting fact is that back in 2009 the Presidium of the Supreme Arbitration Court of the Russian Federation noted in its Resolution that «funds received by a company in the form of compensation for the above losses are not subject to inclusion in the tax base when calculating profits tax». That is, the position of the highest court was that the procedure for accounting for subsidies for profit taxation purposes depends not only on the conditions, but also on the nature (character) of their provision.

At the same time, for a long time this approach to taxation of compensatory payments of a compensatory nature was not supported by the Ministry of Finance of Russia.

Only in 2024 the position of the Supreme Arbitration Court was directly and indirectly reflected in Article 251 of the Tax Code of the Russian Federation. In this regard, it is not quite clear why the lower courts in the Star Trans case initially did not support the taxpayer's position on the taxation of subsidies, but preferred the inspectorate's position on the taxation of the losses themselves.

What significance does the fact of applying the simplified taxation system have in this dispute?

Given that the Supreme Court qualified the payment of a subsidy directly as compensation for losses, such an unambiguous legal nature of such payments will not be widespread, especially for organizations applying the general taxation system. For companies under the general system of taxation the issue of subsidies is not so acute, since subsidies, depending on their type, are directly named in the Tax Code of the Russian Federation as non-operating income (Article 250 of the Tax Code of the Russian Federation) or as income not taken into account in determining the tax base (251 of the Tax Code of the Russian Federation). And for the purposes of the simplified taxation system «income» tax authorities tend to recognize as income all receipts to the account of the organization.

It is quite likely that the approach of the Supreme Court may give rise to new disputes in practice related to the determination of the taxation of other receipts for companies applying the simplified taxation system «income». In this regard, if the position of the Supreme Court is extended to transactions not related to the receipt of funds from the budget, then, most likely, the simplified taxation system «income» will become more attractive in comparison with the simplified taxation system «income minus expenses».

Position of the Supreme Court of the Russian Federation

The position of the Supreme Court will be important: 

• First, the Court once again pointed out that in order to qualify a transaction as income, it is necessary to assess whether the taxpayer has received a real economic benefit. 
• Secondly, the Court, taking into account the legal nature of the received subsidy, determined that economic benefit should be recognized not simply as receipt of funds from the budget, but as a financial result in the course of economic activity. 

A different legal approach contradicts not only the purpose of granting the subsidy, which is to compensate for the damage caused, but also contradicts the general sense of income taxation, as it actually leads to taxation of the taxpayer's losses. 

The decision of the Supreme Court once again reminds taxpayers that the rules and procedure of taxation do not exist in isolation from the system of state regulation, including the mechanism of state financial support.

At the same time, the Court emphasized the peculiarity of the development of tax legislation along the path of progressive clarification of certain facts of economic life of taxpayers in the context of their multiplicity and versatility. Therefore, it was a deep legal and economic analysis of the situation of the transportation company that allowed the Court to understand the issue of the taxation of subsidies for companies applying the simplified taxation system «income».