Nikita Zharov, head of TC tax practice, and Anastasia Arzhanova, junior tax consultant at TC, analyzed the specifics of the court ruling in a Kommersant article.

We have previously considered a legal dispute between Sitronics I.T. and VTB Bank. Then the case was referred to the Supreme Court of the Russian Federation for consideration. As a result, the judicial body ruled to charge the bank in favor of the IT company the amount of VAT for the use of software. At the time the contract was signed, these services were not subject to VAT, but during its validity the privilege was canceled, which raised the question of who exactly should pay the tax.

Changes in the tax legislation regarding the procedure for calculating and paying VAT always give rise to many disputes due to the indirect nature of this tax, so this dispute is not unique in its kind. Recently, similar disputes arose in connection with the increase of VAT rate from 18 to 20%.

However, this case is noteworthy because the Supreme Court of the Russian Federation once again reminded how to correctly pay VAT in connection with changes in tax legislation. The court emphasized: «if transactions between parties to turnover become taxable due to a change in legislation, then as a general rule the price at which the fulfillment of the contract, which did not include VAT, is paid should be increased by the amount of tax by virtue of the law... ».

In this case, the Supreme Court of the Russian Federation directs us to pay attention to whether the law amending the Tax Code of the Russian Federation in terms of VAT payment procedure provides for transitional provisions «which would allow us to conclude that the parties to the turnover have the right to continue the fulfillment of contracts at previously agreed prices without the need to pay VAT».

If there are no transitional provisions and (or) the law amending the Tax Code does not change the economic and legal nature of VAT or otherwise redistribute the burden of VAT from the buyer to the seller, the relevant legislative changes should not result in the seller paying VAT at its own expense without shifting the tax to the other party to the contract.