The procedure for obtaining debt forgiveness for a loan between legal entities

Rules for formalizing debt forgiveness between legal entities

It is prohibited to donate company assets. This states article number 575 of the Civil Code of the Russian Federation. To ensure that the tax authorities do not have suspicions about the debt forgiveness transaction, it must be properly executed.

Article number 415 of the Civil Code of the Russian Federation allows creditors to write off or forgive the debts of debtor companies. But here it is important that the rights of debtor enterprises are not violated. If such an enterprise does not want its debts forgiven, then it must notify its creditor about this.

Let's consider options for obtaining debt forgiveness. There are only two of them:

• Sending a written notice to the debtor about the cancellation of debts. The date of forgiveness here begins precisely from the day the letter was received.
• Drawing up a bilateral debt cancellation agreement. Copies of contracts and any other certificates and papers that are specified in the text of the agreement must be attached to such a document.

What should be included in the agreement?

1. The total amount of debts eligible for forgiveness.
2. Subject of the transaction.
3. Participants' consent to the forgiveness procedure.
4. The name of the organizations entering into the agreement and their details.
5. Conditions and circumstances under which debt can be written off.
6. Details of the contract concluded between the participants, on the basis of which one of them incurred debts.
7. Documentary evidence of the debt incurred.
8. An economic explanation of why debt should be forgiven, without evidence of a gift.

Expert opinion
Evgeniy Sergeevich Makarov

Arbitration manager with more than 10 years of experience

For the agreement to have legal force, the transaction must be accompanied by the results of a reconciliation, which will show the fact that one of the participants has a debt.

Actions of the creditor:

• Draw up a reconciliation report with the debtor company.
• Send a message to the defaulter, the text of which will reflect that the creditor is ready to forgive part of the debt or write it off completely.
• Wait for a response letter about consent or possible objections.
• Confirm the transaction by documenting it separately, or as an additional agreement to the main contract.

agreement on debt write-off under a loan agreement with the founder can be found here

Basic terms of the document

There is no legally established form of agreement. The Civil Code of the Russian Federation indirectly establishes requirements regarding the determination of the subject of legal relations for which obligations are terminated. The agreement must be in writing. Among the conditions to be determined:

• the nature, size and type of obligation that is terminated (for example, debt arising under a supply contract as a result of late payment for goods);
• details of the contract or other document from which the obligation arises (number, date);
• information about the parties to the transaction (for legal entities: name, INN, OGRN, address, person authorized to sign documents, for individuals - full name, passport details, registration address).

Please note that the obligation under which the need for its fulfillment ceases is determined precisely and in relation to the contract. For example: “The debtor and the creditor have reached an agreement on the complete termination of obligations for the debtor. Terminated obligation: payment of funds in the amount of RUB 58,920. 04 kop. until 01.12.2020 for carrying out repair work on the roofing of a residential building located at the address: St. Petersburg, st. Ulichnaya, 1. Initial obligations are established by agreement No. 75A/1AR dated November 1, 2020, concluded between LLC “Party 1”, OGRN 0000000000001, and P.P. Petrov, passport series 0001 number 000001.”

This is an example of correct composition:

Sample:

Registration of the debt forgiveness procedure. Accounting

It is worth noting that debt forgiveness should not be taken into account when calculating the tax base. Because of this, differences with tax obligations constantly arise in accounting. Such a discrepancy must be reflected in DEBIT 99 and CREDIT 68.

If an agreement is concluded to forgive a debt to a legal entity, the following entries may be used.

Expert opinion

Makarov Evgeniy Sergeevich

Arbitration manager with more than 10 years of experience

A company may develop debt not only due to the fact that it did not pay on time for the supply of goods or services, but also as a result of a loan taken out. Then here the lender must keep separate records of the loan taken and the interest on it.

Note! The creditor can agree to forgive not only the principal debt, but also the interest on it.

In the case of debt forgiveness, the following must be considered:

• The forgiven debt along with interest is not considered an expense transaction. But in accounting, such an operation will entail costs.
• The following entry is made in the accounting entry: DEBIT 91.2 CREDIT 76 for the amount of interest on the loan written off.
• Due to the fact that loans are not subject to VAT, if interest debt is written off, there will be no tax consequences for this type.
• After writing off the debt, the accountant must make the following entries.

Debt concept

Debt under a loan or credit agreement can consist of several components, namely;

• from the body of the debt, that is, from the actual amount borrowed;
• from interest on the loan;
• from penalties accrued for failure to fulfill contractual terms.

Accordingly, debt forgiveness can be either complete or related to one or two of the above debt components. Forgiveness on all three components will be considered full forgiveness.

Legal justification for the agreement

This transaction is considered absolutely legal. It is permissible to conclude a contract unilaterally when the creditor sends notice of the procedure to the defaulter. You can also draw up a contract if all participants are present.

To give legal force to a document, it is necessary to include the following information:

• Personal data of all parties to the agreement.
• Certificates or papers indicating on what basis the debt arose.
• It is necessary to provide information about which specific obligation is subject to forgiveness.
• The amount of debt to be written off. It must be expressed in monetary terms.

In what cases is it compiled?

When transferring things, securities or funds from one person to another, a loan agreement must be drawn up.

According to this document, after a certain period of time, the debtor legal entity must return valuables or finances to the creditor. From the moment of its conclusion, the borrower assumes obligations.

If the debtor is unable to make payments, the parties may terminate the contractual relationship in another way.

The legislation allows entities to complete the loan agreement peacefully.

Such agreements are confirmed in writing. This is necessary so that in case of conflict situations the parties have official evidence, for example, in bringing the dispute to the courtroom.

Drawing up a document is possible only if the creditor has given voluntary consent to such a procedure.

Information about this is set out in the Civil Code of the Russian Federation, Art. 415. At the same time, the legislation explains that these manipulations are equivalent to a gift agreement.

These rules apply to individuals. What document formalizes relations between commercial organizations?

The law states that such a transaction is possible, but it cannot be free of charge.

This means that if a loan agreement is concluded between legal entities, it is possible to draw up a forgiveness agreement only on the principles of remuneration. Otherwise, the tax authorities will be interested in such a transaction.

Therefore, the document is drawn up in the form of an agreement, which must clearly state what the other party receives for debt forgiveness.

It could be:

• merger or acquisition of companies;
• the debtor taking upon himself to solve any problems of the creditor;
• payment of the lender's debts.

The form of forgiveness involves a complete refusal by the borrower to fulfill his obligations. Under this agreement, it is not possible to forgive part of the debt. In other words, you cannot change the size, volume or nature of the resulting debt.

There is information about the conditions for issuing microloans at the Union Finance company in the article: Union Finance microloans. For what purposes you can take out a loan secured by maternity capital, see here.

What does the process look like from a legal point of view?

It's quite easy to make such a deal. However, in order to avoid future problems with the law, it is necessary to formalize it correctly. Sometimes an agreement may be subject to challenge, since there are suspicions that its conclusion entailed the extraction of additional benefits. If during the investigation it turns out that the assets were donated, then other legislative acts will apply. And this, in turn, can cause serious problems if the case comes to trial. Writing off debts by donation between legal entities is prohibited by the laws of the Russian Federation.

Important! To avoid such situations, we recommend attaching evidence to the contract that can confirm the legality of the transaction.

How to compose?

Debt forgiveness is quite often used in business activities, since in this case you can also get additional benefits. As a rule, the transaction is concluded in a bilateral format. She looks like this:

• Separate agreement.
• An additional agreement to the main contract on the basis of which the debt arose.

Examples

Let's look at the situations that sometimes arise between legal entities:

• The transaction is concluded because the obligations to supply goods or provide services have not been fulfilled. The benefit is to conclude a more profitable agreement in the near future.
• A contract is signed with the financial institution where the company received the loan. Here, debt write-off occurs as a restructuring or is included in its program.
• Enterprises forgive each other's debts.
• Loan debt forgiveness.

Note! It is necessary to write off not only debts in monetary terms, but also obligations of a different nature.

Tax and VAT deduction options

According to existing legislative norms, gratuitous debt forgiveness is not subject to income tax. But this is only true if certain conditions are met:

• the founder providing material assets or financial resources must have a 50% participation;
• values ​​and funds can be obtained from a company with a similar percentage of participation;
• the property was not given to third parties for use during the year.

Tax payments calculations

There are two calculation options:

• accrual;
• cash.

Despite the difference in name, the methods do not require adjustments to the amount of revenue received from the sale of products. Experts classify the procedure for writing off accounts receivable as bad debt.

Tax deduction methods are made using two methods:

1. Write-off of unsecured debts on the company's balance sheet profit remaining after payment of mandatory contributions. Within the framework of the law, the event is called an unpaid transfer of property rights. Losses of a creditor deciding to forgive debt obligations do not affect the reduction in the amount of tax deductions.
2. Write-off of debts as non-operating expenses. To realize intentions, the existence of losses recorded in documents is required. Losses should not be included in the list of tax-deductible expenses. Such a write-off is allowed when transferring the case of uncovered obligations to the court that began the enforcement proceedings. A peaceful resolution of a conflict situation is allowed, provided the debtor provides evidence of the transaction being executed within the framework of his own commercial interest (settlement agreement on debt forgiveness, sample available for use).

VAT

Forgiveness of debt obligations does not affect the VAT calculation procedure. The pattern is obvious in light of the certainty of product taxes. A completed transaction does not create additional conditions for the transformation of the accrued amount.

How not to make the forgiveness procedure a process of giving?

To avoid doubt, consider the following information:

1. It is advisable to write off only part of the debt, and for the second part, ask the debtor to guarantee that it will be closed.
2. You can write off the entire debt, but then you must provide all the information confirming the impossibility of a partial return of obligations. Or repayment of the debt may entail losses or new costs for the creditor.
3. The agreement must state that the defaulter wishes to continue cooperation with the creditor in the future.
4. Other evidence that the transaction is not a gift.

Tax consequences of executing a debt forgiveness agreement

Regarding tax accounting, you need to pay attention to the type of taxation at the enterprise:

• If the accrual method is used, then revenue must be recognized without reference to the date of receipt of income.
• If the cash method is used, then the day the revenue is received must coincide with the date the income is accepted.

Important! The debt to be written off must not be overdue.

Two ways to write off debt under tax law:

1. By paying off debt from net profit.
2. Write-off for non-operating expenses to reduce the tax base.

Note! After the debt is forgiven, the defaulter must reflect it in non-operating expenses for tax accounting.

Income received from companies whose founders own more than 50% of the authorized capital of the debtor enterprise is not subject to income tax in the event of debt forgiveness.

UTII

The object of UTII taxation is imputed income (clause 1 of Article 346.29 of the Tax Code of the Russian Federation). Therefore, the amount of forgiven debt will not affect the tax base for UTII.

Payment of a single tax provides for exemption, in particular, from the obligation to pay income tax (clause 4 of Article 346.26 of the Tax Code of the Russian Federation). If the debtor carries out only one type of business activity that is subject to UTII taxation, the amount of the forgiven debt is considered received within the framework of this taxation regime. Consequently, such income is exempt from income tax (clause 4 of Article 346.26 of the Tax Code of the Russian Federation). A similar conclusion was made in letters of the Ministry of Finance of Russia dated September 22, 2006 No. 03-11-04/3/419, dated July 7, 2006 No. 03-11-04/3/338. They express an opinion regarding the accounting of other non-operating income of the organization on UTII (for example, the amount of overdue accounts payable).

Features of debt write-off by its founder

In this case, debt forgiveness is issued on the basis of general requirements. Taxation also does not have any nuances, everything happens according to the general scheme. But the calculation of taxes for a defaulting company will depend on what share in its authorized capital the creditor has:

1. If he owns 50 percent or less, the business's written-off debt is included in his income as received property on a free basis. This amount must be taken into account when calculating tax.
2. If he owns more than 50 percent of the authorized capital, then the written off amount of debt is not included in the tax base.

Note! The amount of interest written off is always included in the enterprise’s income, and, as a result, increases the tax base.

debt forgiveness agreements can be found at this link

Special circumstances that result in debt write-off

In the Civil Code, there are special circumstances as a result of which loan debts are closed. Such situations include the death of a client, the disappearance of a debtor, and the absence of contractual obligations for the succession of debt in the form of an inheritance.

A debt forgiveness agreement may contain various termination conditions. For example, the debtor undertakes to return the principal amount in exchange for exemption from interest and penalties. This scheme is beneficial to the bank, since it receives the bulk of the money, which is of the greatest value compared to the accrued interest.

Main mistakes

Error: The creditor enters into a contract to forgive debt obligations in full.

Explanation: To avoid problems from the tax authorities, we recommend signing an agreement to forgive half of your debt obligations. Otherwise, tax authorities will be able to accept such a transaction as a gift. And this is prohibited by the legislation of the Russian Federation. It is important to note that if writing off debt leads to costs for the creditor, then this must also be indicated in the text of the document.

Error: The creditor executed a contract for forgiveness of debt obligations without notifying the debtor.

Explanation: The creditor must make sure that during the conclusion of the transaction, its terms will not infringe on the rights of the debtor and third parties.

Rules to consider when drawing up a debt forgiveness agreement

• The agreement is drawn up in writing.
• The debt forgiveness agreement by the founder must contain the amount of debt that is forgiven to the debtor and the details of the loan agreement on the basis of which it was formed. Monetary obligations may be terminated in full or in part.
• The text of the document must contain reliable information about the creditor and debtor, allowing them to be accurately identified.
• If the creditor previously sent the debtor a notice of debt forgiveness, the contract must specify the period during which the debtor can refuse the initiative taken by the creditor. If after this time the debtor has not taken any action, then this is considered as agreement with the decision of the creditor.
• Current legislation does not require that debt forgiveness by the founder under a loan agreement be notarized. But in practice, many organizations turn to a notary for services. Notarization is a guarantee that the agreement is drawn up correctly and the parties will not have any claims against each other in the future.
• The agreement is drawn up in two copies, one for each party.

To complete the document you will need:

• initial loan agreement;
• payment documents confirming the fact of transfer of funds to the organization’s current account by its founder;
• founder's passport.