Taxation for executive liability insurance

Legislation

In accordance with the current regulatory framework of the Russian Federation, the insurance company acts as a tax agent for personal income tax payments. The full list of income that must be taxed is specified in Article 208 of the Tax Code. Article 217 defines a detailed list of all receipts from which fiscal payments are not required.

Regarding the procedure for calculating the amount of payments that must be paid to the state budget, it is necessary to rely on the requirements of Article 213 of the Tax Code of the Russian Federation. In accordance with the provisions of this article, when calculating personal income tax, you need to take into account:

• type of contract with the insurer;
• if the agreement with the insurer is terminated early, those contributions for which the taxpayer previously received a social deduction are taken into account;
• requirements for collecting tax from insurance payments, contributions for which were made by third parties instead of the policyholder.

Tax accounting

Expenses in the form of insurance premiums under MTPL contracts carried out in accordance with the MTPL Law, paid to an insurance organization licensed to operate under MTPL, are taken into account by the taxpayer in tax accounting as part of other expenses associated with production and (or) sales. These expenses are named in paragraph 2 of Article 263 of the Tax Code of the Russian Federation. Inclusion is carried out in the amount of actual costs for their implementation in the following order.

Costs can be included in expenses only within the limits of insurance rates approved by law. Insurance tariffs for compulsory motor liability insurance, their structure and the procedure for application by insurers when determining the insurance premium are approved by Decree of the Government of the Russian Federation of May 7, 2003 No. 264.

If an organization accounts for expenses and income on an accrual basis and the validity period of the MTPL agreement falls on several reporting or tax periods, then the recognition of expenses is carried out evenly over the period of its validity. This applies to the situation when, according to the terms of the insurance contract, the insurance payment is paid at a time (clause 6 of Article 272 of the Tax Code of the Russian Federation).

However, the absence of clear instructions in the Tax Code of the Russian Federation gave rise to questions from taxpayers about how to correctly comply with this requirement in the case where the insurance contract was not concluded from the beginning of the reporting (tax) period?

The amendments made to this paragraph by Federal Law No. 58-FZ dated 06.06.2005 apply to legal relations that arose from January 1, 2005, and tell us exactly how to break down payments.

Clause 6 of Article 272 of the Tax Code of the Russian Federation has been supplemented with the provision that the proportion for uniform inclusion of insurance payments in expenses must be determined based on the number of calendar days of the contract in the reporting period. That is, when breaking down the amount, you should write in the denominator not 12 months, but the number of calendar days of the contract in a given year. The same principle is recommended to be used in accounting.

Personal income tax on various insurance payments

Each type of insurance contract will be taxed differently.

According to OSAGO

If the owner of a vehicle has an issued MTPL policy, then in the event of a road accident and damage to property or health of third parties, the insurance company will reimburse the costs incurred to compensate for the damage.

When filing an income tax return, the taxpayer must include insurance payments received both in the country of residence and abroad.

At the same time, based on the provisions of Article 213 of the Tax Code, individuals who have received compensation under mandatory insurance contracts are exempt from paying personal income tax, and such proceeds will not be subject to taxes. MTPL insurance is mandatory in Russia; therefore, compensation for damage received by the policyholder should not be subject to a 13% tax.

An exception may be payments the amount of which exceeds the amount of damage caused.

Personal voluntary insurance

Payments received by a taxpayer under voluntary life insurance contracts are not included in the calculation of the tax base when calculating the amount of personal income tax payments. This is stated in Article 213 of the Tax Code of the Russian Federation. This applies to survival contracts, as well as event insurance.

Important! The tax amount is not calculated if monthly payments were made by the taxpayer himself or his relatives and family members.

For property insurance

Compensation for property insurance will be subject to fiscal payments if the amount of compensation payment is greater than the value of the property for which the insurance policy is issued.

If an insured event occurs on real estate, then taxation on insurance payments will be determined as follows:

• If the property is destroyed, the basis for the calculation will be the difference between the insurance coverage paid by the insurer and the value of the property, which is valid on the date of the event specified in the insurance contract, to which the amount of insurance payments under the contract is added.
• In case of property damage - the difference between the amount of insurance coverage and the costs of restoration, which are increased by the amount of insurance payments made by the insured.

The controversial issues of recognition in tax accounting of expenses are considered: for insurance of risks from interruption in production under a property insurance contract; insurance of property owned by third parties; insurance premiums in case of early termination of the contract. When calculating income tax, the recognition of expenses for property insurance has the features established by Art. 263 of the Tax Code of the Russian Federation, according to which, the costs of compulsory property insurance are taken into account in full, and the costs of voluntary property insurance are taken into account only for those types of insurance that are listed in paragraph 1 of Art. 263 Tax Code of the Russian Federation. The tax base may take into account insurance premiums for voluntary insurance of the following property: transport, cargo, fixed assets for production purposes, intangible assets, objects of unfinished capital construction, inventory, crops and animals, as well as other property used by the taxpayer in the implementation of activities aimed at generating income (subclauses 1-7, clause 1, article 263 of the Tax Code of the Russian Federation). However, it is not always possible to clearly determine which property insurance expenses reduce the tax base for income tax. Let us consider some controversial issues arising in connection with taking into account these expenses.

Costs of insuring risks from business interruption under a property insurance contract Property insurance contracts may provide, among other things, insurance against the risk of production interruption and losses arising from the interruption of production due to damage to insured objects. Such expenses may reduce the income tax base based on the following. From Art. 929 of the Civil Code of the Russian Federation, applicable to all types of property insurance, it follows that under a property insurance contract, one party undertakes, for a fee, upon the occurrence of a certain event, to compensate the other party or other person for losses caused as a result of this event in the insured property or losses in connection with other property interests the policyholder within the limits of the amount specified in the contract. In other words, a property insurance contract may provide for both compensation for losses in the insured property, and for losses in connection with other property interests. Clause 2 of Art. 929 of the Civil Code of the Russian Federation provides for the following types of property insurance: 1) risk of loss (destruction), shortage or damage to certain property; 2) the risk of liability for obligations arising from causing harm to the life, health or property of other persons, and in cases provided for by law, also liability under contracts - the risk of civil liability; 3) the risk of losses from business activities due to violation of their obligations by the entrepreneur’s counterparties or changes in the conditions of this activity due to circumstances beyond the control of the entrepreneur, including the risk of not receiving expected income - business risk. The object of the property insurance contract is property interests associated with the ownership, use and disposal of property (subclause 1, clause 2, article 4 of the Law of the Russian Federation of November 27, 1992 No. 4015-1 “On the organization of insurance business in the Russian Federation”). Therefore, taking into account the norms of Art. 929 Civil Code of the Russian Federation, sub. 1 item 2 art. 4 of the Law of the Russian Federation dated November 27, 1992 No. 4015-1 “On the organization of insurance business in the Russian Federation”, the following provision is true: under a property insurance contract, both losses in the insured property and losses in connection with other property interests of the insured can be insured. Losses are understood as expenses that a person whose right has been violated has made or will have to make to restore the violated right, the loss or confirmation of his property as real damage, as well as lost income that a person would have received project work under normal civil conditions, if his right was not violated, i.e. lost profit. (Clause 2 of Article 15 of the Civil Code of the Russian Federation) From the definition of loss it follows that it consists of two parts: actual damage and lost profits. The risk of losses is directly and inextricably linked with the loss or damage to the insured property, and the losses themselves represent lost profits of the insured in the event of damage to this property. Insurance of loss from business interruption due to damage to insured property can be assessed as compensation for lost profits, loss from business interruption is directly and inextricably linked with property damage, and does not represent an independent object of insurance, but is only an additional condition of the property insurance contract. In the decisions of the Federal Antimonopoly Service of the Central District dated September 20, 2011 in case No. A68-1047/08-47/12; FAS Moscow District dated April 28, 2011 No. KA-A40/3255-11 in case No. A40-44756/10-4-24; FAS Northwestern District dated August 24, 2007 in case No. A56-19805/2006; FAS Moscow District dated December 13, 2007 No. KA-A41/12754-07 in case No. A41-K2-1169/07, the courts come to the conclusion that the costs of insuring the risk of business interruption due to property damage under a property insurance contract can be taken into account when tax calculation. In the decision of the Federal Antimonopoly Service of the Central District dated August 28, 2007 in case No. A-62-3649/2005, the court indirectly confirmed the possibility of taking into account such expenses. In the resolution of the Ninth Arbitration Court of Appeal dated December 9, 2010 No. 09AP-28754/2010-AK in case No. A40-69607/10-111-342, the court indicated that from the literal interpretation of paragraph 1 of Art. 263 of the Tax Code of the Russian Federation it follows that the legislator did not indicate a list of specific property insurance contracts, the costs of which are subject to accounting when calculating income tax. In particular, in sub. 3, 5, 7 p. 1 art. 263 of the Tax Code of the Russian Federation does not contain any indication that this norm provides for the exclusion from the tax base only of expenses for voluntary insurance of the risk of loss (damage) of property. In the case under consideration, the company entered into an insurance agreement for the risk of harm to the rented property with a similar purpose - to protect itself from possible financial losses in the event of damage or destruction of this property. The court concluded that the company rightfully included as expenses that reduce the taxable base for income tax the costs of insuring the risk of liability for causing damage to the property of third parties. Thus, these expenses can be included in income tax expenses. However, the risk of a tax dispute with the tax authorities cannot be completely excluded.

Insurance of property owned by third parties

For various reasons, a taxpayer may insure property that belongs to a third party and is not leased property. The legality of accounting for such expenses in the income tax base is quite often disputed by tax authorities. In accordance with paragraph 1 of Art. 930 of the Civil Code of the Russian Federation, property can be insured under an insurance contract in favor of a person (the policyholder or beneficiary) who has an interest in preserving this property based on law, another legal act or contract. In this case, a property insurance contract concluded when the policyholder or beneficiary has no interest in preserving the insured property is invalid (Clause 2 of Article 390 of the Civil Code of the Russian Federation). The Presidium of the Supreme Arbitration Court of the Russian Federation, in its resolution dated May 14, 2013 No. 16805/12 in case No. A40-18322/12-115-42, indicated that the conclusion of a property insurance contract is not made by the legislator dependent on the existence of ownership or other set of rights to the disputed property, but may be due to the insurer's interest in preserving this property, caused, in particular, by the possibility of incurring losses when compensating the owner for the value of lost property. It follows from this rule that it is possible to include in the tax base insurance premiums for the insurance of any property, where the only condition is the use of this property in activities aimed at generating income and the presence of an interest in its safety. Thus, Art. 263 of the Tax Code of the Russian Federation does not establish a ban on recording insurance premiums for insuring property that does not belong to the taxpayer. A common situation is when organizations, in order to obtain a loan, need to insure the collateral that belongs to a third party. According to sub. 1 clause 1 art. 343 of the Civil Code of the Russian Federation, the pledgor (or pledgee, depending on which of them has the pledged property) is obliged, unless otherwise provided by law or agreement, to insure the pledged property against the risks of loss and damage at the expense of the pledgor. Therefore, in general, the mortgagor must insure the property against the risks of loss and damage at his own expense. At the same time, this article provides for the possibility of establishing other conditions in the contract, for example, that insurance can be carried out at the expense of the borrower. In the latter case, if the loan agreement or other agreement stipulates that insurance is carried out at the expense of the borrower, such expenses for insurance premiums, in our opinion, can be taken into account when calculating income tax, since these expenses fully comply with the general criteria established by Art. 252 of the Tax Code of the Russian Federation, as well as sub. 7 clause 1 art. 263 Tax Code of the Russian Federation. The economic feasibility of these expenses is determined by the need to insure collateral in order to obtain a loan that is supposed to be used in production activities. Consequently, insurance of property owned by third parties is a condition for concluding a loan agreement, which determines the participation of these expenses in activities aimed at making a profit. This point of view is confirmed by arbitration practice. Thus, in the resolution of the Federal Antimonopoly Service of the Ural District dated July 23, 2009 No. F09-5120/09-S2 in case No. A76-24459/2008-44-621/26, the court found that the company used property belonging to another legal entity to carry out activities aimed at to receive income (obtaining a loan for the purpose of replenishing working capital and using these funds for the purposes of the taxpayer’s activities), and, guided by clause 7 of Art. 3 of the Tax Code of the Russian Federation, concluded that these expenses were lawfully taken into account by the company when determining the tax base for corporate income tax. In the decision of the First Arbitration Court of Appeal dated 04/07/2014 in case No. A11-2913/2012 (by the decision of the Federal Antimonopoly Service of the East Siberian District dated 06/24/2014 in case No. A33-16111/2013 this decision was left unchanged) the court came to the conclusion that the inclusion insurance premiums for insuring property owned by third parties, since the company’s obligation to insure the collateral is conditioned solely by the execution of the agreement to provide a loan to replenish working capital. At the same time, the receipt of a loan by the company is associated with the production activities of the taxpayer and is aimed at generating income. However, arbitration practice on this issue is not clear-cut. The Federal Antimonopoly Service of the North Caucasus District, in a resolution dated August 23, 2011 No. A32-29438/2010, refused to recognize the validity of accounting for the costs of insuring collateral that did not belong to the taxpayer, precisely on the basis of the lack of proprietary rights to the property. In addition, there are court decisions in which the courts recognize as unlawful the inclusion of expenses for the payment of insurance premiums in relation to collateral that did not belong to the borrower, unless the agreement provides for the implementation of these expenses at the expense of the borrower or such an obligation is directly assigned to the mortgagor. The resolution of the Federal Antimonopoly Service of the Volga District dated May 17, 2007 in case No. A12-16837/06-C36 states that the costs of insuring real estate owned by third parties are unlawful, since the taxpayer did not have proprietary rights to the insured property, and also his use in activities aimed at generating income. FAS Povolzhsky District dated 02.08.2011 in case No. A12-17486/2010 considered a situation where the taxpayer entered into a loan agreement with the bank, according to which, as collateral for the loan, equipment that belonged to another organization was pledged to the bank. The bank demanded to insure this property. At the written request of the mortgagor, the borrower organization assumed the costs of insurance and also included these costs when calculating income tax. The court came to the conclusion that since it was not the borrower, but the mortgagor, who was obliged to insure the property, and the contract did not provide for the possibility of transferring the responsibility for insurance to a third party, such expenses cannot be considered economically justified for the borrower. A similar legal position was set out in the resolution of the Federal Antimonopoly Service of the North Caucasus District dated December 6, 2010 No. A32-28733/2009-1/380. Thus, taking into account the provisions of Art. 252, 263 of the Tax Code of the Russian Federation, 343, 930 of the Civil Code of the Russian Federation and the position of the Presidium of the Supreme Arbitration Court of the Russian Federation, we believe that the taxpayer’s expenses for insuring collateral property that does not belong to him by right of ownership may reduce the tax base for income tax if the obligation to bear such expenses imposed on the borrower by the terms of the loan agreement or other agreements. For example, a guarantee agreement between the borrower and the mortgagor can provide for a condition that the borrowers reimburse the mortgagor’s expenses for insuring the collateral.

Costs of insurance premiums in case of early termination of the contract

A property insurance contract may be terminated early in respect of all or a number of objects due to their sale or other disposal from the taxpayer’s property, provided that insurance premiums were paid in full upon conclusion of the contract. If the contract does not provide for the possibility of returning the insurance premium in the event of the sale of property and other disposal, we believe that such expenses can be taken into account in full; there is no need to recalculate insurance premiums in proportion to the period determined from the moment the contract is concluded until the disposal of the insured property. According to paragraph 3 of Art. 263 of the Tax Code of the Russian Federation, expenses for the voluntary types of property insurance specified in this article are included in other expenses in the amount of actual expenses. In accordance with paragraph 1 of Art. 958 of the Civil Code of the Russian Federation, an insurance contract is terminated before the expiration of the period for which it was concluded, if after its entry into force the possibility of the occurrence of an insured event has disappeared and the existence of the insurance risk has ceased due to circumstances other than the insured event. Such circumstances, in particular, include: destruction of the insured property for reasons other than the occurrence of an insured event; termination of business activity in accordance with the established procedure by a person who has insured the business risk or the risk of civil liability associated with this activity. In the event of early termination of the insurance contract due to the above circumstances, the insurer has the right to a portion of the insurance premium in proportion to the time during which the insurance was in force. (clause 3 of Article 958 of the Civil Code of the Russian Federation. At the same time, if the policyholder cancels the insurance contract early, the insurance premium paid to the insurer will not be refunded unless otherwise provided by the contract. Thus, if the property insurance contract does not provide grounds for the return of the insurance premium, then part of the insurance premium is not returned to the policyholder in the event of the sale of the insured property or its liquidation, with the exception of the loss of the insured property for reasons other than the insured event. These expenses meet the criterion of economic feasibility, since at the time of concluding the property insurance contract, the insured property is owned by the taxpayer, participate in activities aimed at generating income. In addition, the taxpayer cannot know in advance what property will be sold or written off in the future. Considering that the insurance paid is taken into account in income tax expenses in the amount of actual costs, the norms of legislation on taxes and fees do not provide for the obligation to recalculate insurance premiums actually paid, therefore, the insurance premium can be recognized in the income tax base in full. In the decision of the Arbitration Court of the Tula Region dated April 25, 2013 in case No. A68-11912/2012 (by the decision of the Federal Antimonopoly Service of the Central District dated November 26, 2013 in case No. A68-11912/2012 this decision was left unchanged) the court on the basis that the agreements insurance, no grounds were provided for the return of the insurance premium in relation to the sold property, and the taxpayer did not make any attempts to return it, I came to the conclusion that it was legal for the taxpayer to account for the insurance premium in full. According to the court, at the time of concluding property insurance contracts, the expenses were economically justified and were incurred to carry out activities aimed at generating income.

Bibliography

1.Tax Code of the Russian Federation (Part One) dated July 31, 1998 No. 146-FZ [Electron. resource]. – Access mode: https://www.consultant.ru. 2. Tax Code of the Russian Federation (part two) dated 05.08.2000 No. 117-FZ (as amended on 05.05.2014 [Electronic resource]. – Access mode: https://www.consultant.ru. 3. Civil Code of the Russian Federation [Electronic resource]. – Access mode: https://www.consultant.ru 4. Law of the Russian Federation of November 27, 1992 No. 4015-1 “On the organization of insurance business in the Russian Federation” [Electronic resource]. – Access mode: https ://www.consultant.ru 5. Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated May 14, 2013 No. 16805/12 in case No. A40-18322/12-115-42 [Electronic resource]. – Access mode: https://www. .consultant.ru 6. Resolutions of the Federal Antimonopoly Service of the Central District dated September 20, 2011 in case No. A68-1047/08-47/12; FAS Moscow District dated April 28, 2011 No. KA-A40/3255-11 in case No. A40-44756/10 -4-24; FAS North-Western District dated 08/24/2007 in case No. A56-19805/2006; FAS Moscow District dated 12/13/2007 No. KA-A41/12754-07 in case No. A41-K2-1169/07; FAS Central District dated 08/28/2007 in case No. A-62-3649/2005; Ninth Arbitration Court of Appeal dated 12/09/2010 No. 09AP-28754/2010-AK in case No. A40-69607/10-111-342; FAS Moscow District dated 04.04.2011 No. KA-A40/2124-11); FAS of the Ural District dated 07.23.2009 No. F09-5120/09-S2 in case No. A76-24459/2008-44-621/26; First Arbitration Court of Appeal dated 04/07/2014 in case No. A11-2913/2012; FAS of the East Siberian District dated 06/24/2014 in case No. A33-16111/2013; FAS of the North Caucasus District in resolution dated 08/23/2011 No. A32-29438 /2010;FAS Volga District dated May 17, 2007 in case No. A12-16837/06-C36;08/02/2011 in case No. A12-17486/2010 FAS North Caucasus District dated December 6, 2010 No. A32-28733/2009-1/ 380; FAS Central District dated November 26, 2013 in case No. A68-11912/2012 [Electron. resource]. – Access mode: https://www.consultant.ru 7. Decision of the Arbitration Court of the Tula Region dated April 25, 2013 in case No. A68-11912/2012 [Electron. resource]. – Access mode: https://www.consultant.ru

Orlova V.S. , tax specialist, Tax and Legal Consulting Department of JSC United Consultants FDP

Taxes on related payments

In some cases, the insurance company, in addition to paying coverage as a result of an insured event, may make additional payments to the policyholder.

These include:

• fines;
• penalties;
• payments for compensation for moral damage.

They can arise if the insurer does not fulfill its obligations to cover the damage that has occurred. In this case, the policyholder may file a claim in court, and the insurance company will be obliged to reimburse not only the amount of damage coverage, but also to pay fines and penalties for late compensation.

Some types of such income will be subject to personal income tax.

Penalties and fines

All types of penalties and penalties that are assessed for late insurance compensation must be taxed.

Moral injury

If the payment from the insurance company is made in the form of moral damages or to reimburse costs incurred during the trial, then such payment will not be subject to personal income tax.

Is insurance payment for an insured event taxable?

As noted above, the question of whether insurance payments are taxable has a negative answer. But only if the client does not have excess funds left. Regardless of whether the repairs were carried out at the expense of the insurance company or a sum of money was paid, the restoration of the car is paid for without deductions to the tax treasury.

The same applies to MTPL insurance payments for compensation for damage to health. Also excluded from the taxable amounts are payments under life insurance contracts and other types of voluntary insurance protection.

Related article: How to terminate an MTPL insurance policy and return funds

Payments under compulsory motor liability insurance and when the insurance company pays monetary compensation can be found out in more detail here.

What insurance payments are not subject to

It is important to understand whether only the compensation payment under compulsory motor liability insurance is included in the amount of funds received by the client from the insurance company - another important issue in terms of calculating taxes. In the event of a successful trial, the car owner may receive funds from the insurer as penalties, penalties and other compensation. Therefore, it is important to understand whether you will need to pay contributions to the state budget from this money and for what positions of the Tax Code.

Insurance used to restore a vehicle is not subject to taxation. But it is important to understand whether you need to pay a fee on other amounts.

Below we discuss various types of additional payments within the framework of compulsory motor liability insurance payments, taking into account the need for taxation.

Loss of marketable value

The car owner can receive this compensation if, after repairs as a result of an accident, along with restoring the functionality of the car, there is a deterioration in appearance, leading to a reduction in price.

The appointment of this insurance compensation is possible if the following conditions are met:

• the age of the car is within three years for a domestic model and seven for a foreign brand;
• not exceeding the initial wear and tear of the car up to 30 percent;
• the owner of the car was not found to be at fault for the accident;
• this accident was the first in the history of the car;
• the amount of insurance contributions does not exceed the maximum permitted limits of payments under compulsory motor liability insurance.

In accordance with Art. 213 of the Tax Code of the Russian Federation, tax is not withheld from the specified insurance compensation, so the car owner will not need to worry about whether it is necessary to pay deductions to the state.

But with other payments the situation is somewhat different and the question of whether it is necessary to pay tax deductions on payments other than those accrued directly for insurance remains relevant.

Penalty

If the insurer violates its obligations, regardless of whether this is due to objective or subjective factors, a penalty may be imposed in court. These funds paid do not relate directly to insurance payments under compulsory motor liability insurance, so the answer to the question of whether it is necessary to pay personal income tax on them is clearly positive - the tax is withheld in full.

Similar requirements apply to compensation received by the client for moral damage and other payments not directly included in insurance premiums.

Article on the topic: Actions in case of loss of the MTPL policy and how to restore it

More information about MTPL insurance coverage can be found here.

Payment Features

To determine whether an insurance payment will be taxed, you need to understand what features you may encounter when determining the tax base.

There may be several nuances:

1. Taxpayers can be both individuals and legal entities.
2. All proceeds from insurance companies can be recognized as income of an individual or legal entity.
3. Agreements with insurance companies can be concluded by individuals and legal entities.

Accordingly, income received by both citizens and organizations, as well as institutions, will be taxed.

At the same time, the appearance of income as an object of taxation does not mean that the tax must necessarily be paid. This is due to the fact that there are a number of benefits, as well as features of recognizing income as an object of taxation.

For individuals

The payment of personal income tax by citizens of the Russian Federation is described in Chapter 23 of the Tax Code. It defines that:

• insurance coverage is income;
• insurance payments received as compensation for compulsory insurance will not be subject to tax payments, since they are not subject to taxation.

Important! Entrepreneurs do not belong to the category of legal entities, therefore, the payment of fiscal payments from insurance payments occurs in the manner approved for individuals.

For organizations

Enterprises and institutions are payers of income tax. It is calculated as the difference between all income received by companies and expenses that arose as a result of business and other activities.

The procedure for taxing income is specified in Article 25 of the Tax Code of the Russian Federation. In accordance with this article it is determined that:

• the enterprise must include in non-operating income payments for damage or loss incurred;
• non-operating expenses are losses incurred by the company as a result of an emergency or accident;
• Article 251 of the code defines the list of income that should not be taken into account when forming the tax base.

Taking into account the fact that the estimated amount of income tax is the difference between the income received and the expenses incurred, then:

• when the amount of loss exceeds or equals the amount of insurance coverage, income tax is not calculated;
• if the amount of losses is less than the amount of compensation received, only that part of the payment that exceeds the amount of damage will be subject to income tax.

Is it necessary to pay tax on insurance payments under compulsory motor liability insurance?

The current Tax Code of the Russian Federation divides tax payers into the following categories:

• citizens classified as individuals;
• organizations acting as legal entities.

In this regard, the taxation procedure differs in some ways. And the question of whether it is necessary to pay tax to the state on insurance payments under compulsory motor liability insurance is not as clear-cut as it might seem at first glance.

In accordance with the provisions of Part 1 of Art. 208 of the Tax Code of the Russian Federation, insurance payments are included in the taxable amount. But, according to Part 4 of Art. 213 of the specified standard, when asked whether it is necessary to pay income tax on this money, it is noted that it is necessary to pay only on the balance of funds exceeding the costs of the necessary repairs.

A car owner who has received a larger amount than is required to restore the car will need to deduct only a set percentage of the excess received as personal income tax.

The amount of insurance contributions for personal income tax is 13 percent of the taxable amount.

Personal income tax on insurance payments

If the MTPL insurance money was used solely to restore the car, you will not have to worry about whether this money is taxable. This amount is not included in the citizen’s income, since it is intended to compensate for the loss incurred.

Therefore, the question of whether payments are required to be transferred to the state treasury for individuals in this situation disappears.

For enterprises and organizations that have the status of a legal entity, it is necessary to pay taxes from the amount that constitutes the positive difference between income and expenses.

Article on the topic: Features of compensation for damage under compulsory motor liability insurance in case of mutual fault in an accident

If a company-owned vehicle is involved in an accident, the funds required for restoration will be included as an expense. The insurance received, whether it is listed under compulsory motor liability insurance or another type of insurance, will be classified as income.

If the income item predominates, you will have to pay personal income tax on the excess amount. And it doesn’t matter whether the money is received from insurance or from another source.

Where to pay tax

Often, clients receive letters from the insurer notifying them of the need to make tax deductions from insurance payments under compulsory motor liability insurance. Whether it is necessary to pay must be considered based on the above arguments. The car owner must return to the state only 13 percent of the amount remaining unused after repairing the car.

In addition to the actual repairs, it is important to consider other items, whether for restoration or other purposes. Compensation under MTPL must include all expenses incurred by the owner of the car:

• evacuation;
• payment for paid parking;
• delivery of the victim to a medical facility;
• compensation for damage to health, etc.

The insurance company is required to provide notice to the client because it acts as a tax agent. But the car owner, when determining whether to transfer money to the insurance company, must understand that deductions must be made directly to the tax department.

An exception may be penalties or other amounts, from which the insurer will withhold tax on its own, reflecting this in the relevant reporting documentation.

Note! The amount of personal income tax is 13 percent of the amount of profit received. This also applies to excess funds under compulsory motor liability insurance that remain unused after car repairs.

Payment procedure

The tax payment process includes the following steps:

• calculation of the amount to be paid;
• preparation of relevant documents;
• making a payment to the budget.

How to calculate tax

The personal income tax rate is 13%. Based on this value, individuals must make payments. The payment itself must be paid the following year, after receiving the insurance compensation. To calculate the tax base, it is necessary to subtract the costs of eliminating the consequences of the damage from the total amount of compensation received (the actual coverage of the amount of damage, as well as possible penalties and compensation for moral damage).

Legal entities are required to pay income tax at a rate of 20%. It is calculated as the difference between all income and expenses received by the company.

List of documents

When paying tax, an individual submits a declaration of income received for the previous year, completed in Form 3-NDFL. No additional documents are required.

For a legal entity, when filling out an income tax return, it is required to attach documents on the basis of which income and expenses were recorded.

If we talk about insurance costs, then to confirm them it is necessary to provide contracts for the repair of the company’s vehicle or real estate, and other documentation confirming the costs associated with eliminating the damage.

Step-by-step instruction

The procedure for paying tax on insurance payments is as follows:

• A citizen receives a notification from the insurer that he needs to pay tax on the insurance payment received.
• The declaration completed in Form 3-NDFL must be submitted to the relevant authorities no later than April 30 of the following year. In the “Insurance” section, you must indicate the amount of income from which the fiscal payment is made.
• The personal income tax payment itself must be completed before July 15 of the year in which the income tax return was filed.

Liability for non-payment

Current legislation presupposes the liability of a person who has not paid or has lately made a personal income tax payment. Thus, in accordance with Article 122 of the Tax Code, an unscrupulous taxpayer will be punished with a fine amounting to 20% of the amount of the tax liability.

Thus, the citizen will have to pay not only the tax arrears, but also a fine.

Insurance of company property - accounting of insurance costs

Insurance expenses are other expenses for ordinary activities. See clause 8 of the Accounting Regulations “Expenses of the Organization” PBU 10/99 (approved by Order of the Ministry of Finance of the Russian Federation dated May 6, 1999 No. 33n).

Such costs are recognized in the reporting period in which they actually occurred, regardless of the time of actual payment of money and other form of implementation (assuming the temporal certainty of the facts of economic activity).

To record calculations for personnel property insurance (with the exception of calculations for social insurance and compulsory medical insurance) of a company in which the company is the policyholder, account 76-1 “Calculations for property and personal insurance” is used (see Order of the Ministry of Finance of the Russian Federation dated October 31, 2000 No. 94n “On approval of the Chart of Accounts for accounting of financial and economic activities of organizations and Instructions for its application”).

Common mistakes

Error:

The company insured civil liability due to the operation of a hazardous facility in case of damage to the environment as a result of an accident at a hazardous facility. LLC considers it fair to include insurance costs as other expenses when calculating income tax.

A comment:

The company's expenses cannot be accepted for the purpose of calculating income tax, since this type of insurance is not mentioned in Art. 263 Tax Code of the Russian Federation. See Letter of the Ministry of Finance of the Russian Federation dated January 18, 2016 No. 03-03-06/1/1119.

Error:

The taxpayer does not reduce the tax base for income tax by the amount of expenses for compulsory insurance of leased property.

A comment:

The costs of compulsory property insurance can be taken into account when calculating income tax even if the property is not owned by the company, but is leased. See Letter of the Ministry of Finance of the Russian Federation dated July 10, 2003 No. 04-02-05/2/34, sub. 3 p. 1 art. 263 Tax Code of the Russian Federation.