Refusal to receive dividends
The company is not empowered to independently make decisions on payment or non-payment of profits to the founders. Such issues are discussed at general meetings of participants; the results must comply with the requirements of the law and the current version of the company’s charter. Members of the general meeting cannot deprive one or more owners of shares in the authorized capital of dividends - such decisions can be challenged in court.
Refusal of dividends can only be initiated by the recipient of the funds. There are several ways to implement this:
- redirection of funds in favor of the company;
- sending money to third party bank details.
In the first case, difficulties may arise at the stage of taxation of payments. The refusal of dividends in favor of the company raises disputes regarding the need to pay personal income tax on the amount of such income. The obligation to pay income tax on income amounts arises if an individual has the right to dispose of these funds (the inclusion of these amounts in the tax base is stipulated in clause 1 of Article 210 of the Tax Code of the Russian Federation). But tax withholding should occur on the date of payment of income, which in fact does not occur for the founder who refused dividends. As a result, there is a twofold situation:
- there was income, the right to dispose of it was fixed;
- due to voluntary refusal, there was no actual receipt of income.
In paragraphs 1 clause 1 art. 223 of the Tax Code of the Russian Federation focuses on the fact that the date of actual receipt of income by a citizen coincides with the date of transfer of funds to his bank account (or to the account of third parties). Since the founder has formalized a refusal to pay dividends, the money is not credited to him, which means that the tax base has not been formed. The Ministry of Finance in its explanations is of the opinion that it is necessary to withhold and pay personal income tax to the budget when redirecting dividends in favor of the company, and the date of receipt of income will be the day the refusal is issued (justification - Letter dated October 4, 2010 No. 03-04-06/ 2-233). At the same time, the taxpayer has the right to disagree with the Ministry of Finance; letters are not regulatory legal acts, their provisions are advisory in nature.
The founder's refusal to pay dividends may take the form of debt forgiveness. This option is regulated by the provisions of Art. 415 of the Civil Code of the Russian Federation. The participant's decision must be documented in a separate statement. It recommends specifying for what purpose the forgiven debts in the form of dividends should be spent. It would be a more profitable option for an enterprise if the transfer of dividends to the company is justified by the need to increase the company's net assets. This will make it possible not to increase the tax base on profits.
Refusal of dividends in favor of another participant can be made upon a written application from the founder. He can initiate the transfer of funds to third party bank accounts. But this method is possible under one condition - the company’s charter specifies an algorithm for actions in case of refusal of income in favor of third parties. If the charter does not contain any mention of such a non-standard situation in the distribution of company profits, it is impossible to transfer funds to another founder through refusal.
Read also: Payment of dividends to the founder
Waiver of dividend requirement
Refusal to demand a dividend is a responsible decision by a large shareholder due to the financial difficulties of the enterprise and the inability to make payments to shareholders.
Waiver of dividend requirements: essence, legislative framework
As soon as the company decides to distribute net income among shareholders, the latter have the right to receive their dividends (profits). In this case, the company undertakes to make the required amount of payments. As a consequence, the amount of profit distributed but not provided is classified as accounts payable.
According to the terms of Article 28 (clause three) of Federal Law No. 14, the specifics of dividend payments must be determined in the charter of the joint-stock company or adopted at a meeting of shareholders (participants) of the joint-stock company. The period for paying part of the distributed profit of the enterprise should not be more than 60 days from the date of the decision on dividend distribution between shareholders. If the term is not specified in the charter, then by default it is set equal to two months (60 days).
In a situation where payments are not made within the specified period, the shareholder within three years (from the date of expiration of this period) has the right to contact the JSC with a demand to make a payment. Otherwise, the unclaimed portion of the income will be restored to the organization's retained earnings. The 3-year period begins at the end of the 60-day period established by the company, and not from the day when dividends are reflected in the books.
There is no waiver of the dividend requirement under Law No. 14. On the other hand, the Civil Code (Article 415) stipulates the possibility of removing obligations if this does not conflict with the rights of other persons.
As a result, the shareholder has the right to refuse due dividend payments. Such a decision is usually formalized by drawing up a special document. In this case, the purposes for which unpaid payments will be spent can be specified at the request of the shareholder (based on his personal judgment and opinion). If we proceed from the position of tax benefits, then if dividend payments are waived, it is still better to specify the direction of the funds (for example, “to increase the volume of net assets of the issuing party”).
In essence, the waiver of the dividend requirement is the forgiveness of debt to the joint stock company in relation to mandatory cash payments. Upon written refusal by the shareholder, the company may write off the unclaimed part of the funds (profit) even before the expiration of the three-year period required by law.
Waiver of dividend and personal income tax requirements
One of the important questions is whether personal income tax is withheld in the event of a shareholder’s refusal to receive dividends. On the one hand, the answer is obvious - if there is no income, there is no tax. In fact, personal income tax withholding is mandatory. In this case, the day when the shareholder refused his dividends will be counted as the day when the dividend payments were received.
First, a decision is made on the payment of dividends, and the timing and order of payments are determined. As mentioned, in the absence of a clear indication of the timing of payments, they are two months (60 days). This period is measured to complete the necessary documents. In this case, the company undertakes to make appropriate payments taking into account a certain set of shares (type or categories). As a result, an entry is made in the accounting of the enterprise about the accrual of dividend payments.
For further calculation of personal income tax, the date of actual receipt of profit is defined as the day of payment of income, namely the transfer of funds to the account of the taxpayer on his personal instructions. As a result, the Tax Code of the Russian Federation differs in such wording as “paid” or “accrued for payment”. In the future, the situation may develop in several ways:
1. In a situation where each of the shareholders personally applies to the JSC to receive dividend payments, the tax on the prescribed amounts will be charged on the day of the actual (actual) payment. This point is stated in one of the letters of the Ministry of Finance of the Russian Federation. In a situation where the shareholder does not apply for the payments due to him, the total amount of payments forms accounts payable on the balance sheet of the enterprise. As soon as the period of claim expires (according to Article 196 of the Civil Code, it is equal to three years), the amounts of unclaimed payments must be included in the category of non-operating profits.
In the situation discussed above, the shareholder does not refuse to receive dividend payments at the official level (he has the fact of ignoring them). At the same time, there is no need to charge personal income tax, withhold it, and subsequently transfer it to the budget.
2. Actions will develop differently if shareholders at the meeting decided on a different procedure for making dividend payments (for example, by mail). In such a situation, the day the transfer was sent will be considered the day when the actual income was received. It is on this date that personal income tax should be calculated, withheld from the amount accrued to the shareholder and transferred to the budget.
As a result, the shareholder does not receive all the dividends, but a smaller amount (taking into account withheld taxes). If the postal transfer was not received by the addressee, then the money will return to the joint-stock company and “settle” in the unrealized profit account. At the same time, the listed personal income tax cannot be classified as excessively stretched, and therefore a refund is also impossible.
The Tax Code assumes that after sending dividends by mail, the shareholder has no obstacles to go to the post office and pick up the funds he needs (the profit can be considered received). The issue is resolved in a similar way in cases where the employee does not apply for the salary already accrued from the depositor.
3. The shareholder waived the dividend requirements, that is, he officially notified the issuing company about the latter’s ability to use the funds to solve primary problems. In such a situation, the shareholder must draw up an application in the appropriate form. In this case, the day of refusal is considered by law to be the day when the individual received a profit and on which funds are accrued, transferred and withheld. The advantage for society is that it can use the available amount immediately, and not after a 3-year period.
Waiver of dividends: sample
The legislation on the functioning of LLCs and JSCs does not contain any clauses on the possibility of refusing dividends in favor of legal entities or individuals. The procedure for documenting such an operation is not prescribed in legal acts. In order for the refusal of income to be legal, such a possibility must be spelled out in the charter of the company. If this norm is not specified in the charter:
- before the date of registration of the application for refusal to pay dividends, a sample of such a document must be entered into the document flow by local acts;
- Before the application is drawn up, changes must be made to the charter to introduce a clause on the procedure for the founders to refuse income.
Structure of the application form:
- introductory header with information about the applicant and business entity;
- the main part, which contains the essence of the petition - a refusal to receive payments from the company or a desire to transfer funds to the bank accounts of third parties;
- conclusion – date of execution of the document, signature.
The founder refused dividends
Refusal of dividends by LLC participants for the organization will be considered as receipt of economic benefit, that is, income. But for profit tax purposes there will be no income.
The fact is that when determining the tax base for income tax, income in the form of property, property rights or non-property rights in the amount of their monetary value is not taken into account in the event that dividends not claimed by the company's participants are restored to the retained earnings of the organization. Basis - sub. 3.4 art. 251 Tax Code of the Russian Federation. Therefore, dividends refused by the founder are not subject to income tax. But this operation must be properly formalized. The company must have a corresponding statement from the founder, and the amounts of unclaimed dividends must be restored to the organization’s retained earnings. The Ministry of Finance of Russia adheres to a similar opinion (letter dated February 17, 2012 No. 03-03-06/1/91).
Please note: when using the mentioned norm of the Code, the size of the founder’s share in the authorized capital of the organization does not matter. The limitation of the founder's share to 50% of the authorized capital is provided only for exemption from taxation of income in the form of property received free of charge from a participant in the organization (subclause 11, clause 1, article 251 of the Tax Code of the Russian Federation).
As for personal income tax on dividends accrued to an individual, the organization will have to withhold the amount of tax, even if the founder renounces his dividends in favor of the organization. The norms of Chapter 23 “Income Tax for Individuals” of the Tax Code of the Russian Federation do not provide for exemption from taxation of the specified amounts.
The tax base for personal income tax includes all income of an individual, including those for which he has the right to dispose of (Clause 1, Article 210 of the Tax Code of the Russian Federation). Therefore, if the founder decided to leave the amounts due to him to the organization for business development, then this will indicate that he disposed of the income at his own discretion.
In letter dated October 4, 2010 No. 03-04-06/2-233, specialists from the Russian Ministry of Finance provided clarification on a similar situation. They noted that if the source of income of an individual received in the form of dividends is a Russian organization, then it is recognized as a tax agent (clause 2 of Article 214 of the Tax Code of the Russian Federation). Consequently, the company must determine the amount of personal income tax separately for each founder - an individual in relation to each payment of the specified amounts at a rate of 9%, taking into account the procedure provided for in Art. 275 Tax Code of the Russian Federation.
Tax agents are required to withhold the accrued amount of personal income tax directly from the taxpayer’s income upon actual payment (Clause 4 of Article 226 of the Tax Code of the Russian Federation). The date of actual receipt of income in cash is defined as the day of payment of income, including the transfer of income to the taxpayer’s bank accounts or, on his behalf, to the accounts of third parties (subclause 1, clause 1, article 223 of the Tax Code of the Russian Federation).
Financiers indicated that current legislation does not provide for the possibility of a taxpayer refusing to receive dividends. Therefore, in their opinion, the day the founder refuses the dividends due to him in favor of the organization will be the date of actual receipt of income, which is subject to personal income tax on a general basis.
