When VAT exemption is unprofitable
In some cases, it is not profitable to use the VAT exemption. One of the reasons is that input VAT on goods (work, services) used for activities exempt from tax is not deductible (subclause 1, clause 2, article 170, subclause 1, clause 2, article 171 of the Tax Code of the Russian Federation ). If the taxpayer has declared an exemption from tax and then issues invoices, VAT is still not deductible (letter of the Ministry of Finance of Russia dated September 19, 2013 No. 03-07-07/38909).
Therefore, the question of the advisability of using tax exemption should be decided based on comparative analysis. If the effect of applying the exemption established by paragraph 3 of Art. 149 of the Tax Code of the Russian Federation turns out to be unprofitable for the main activity, then the taxpayer may refuse to use the VAT exemption (clause 5 of Article 149 of the Tax Code of the Russian Federation).
Refusal period
You can refuse exemption for at least a year (paragraph 3, paragraph 5, article 149 of the Tax Code of the Russian Federation). For example, if an organization refuses the exemption from the first quarter of 2021, then it will be able to start using it again only from the first quarter of 2021. After the period for refusal of exemption expires, do not charge VAT on the transactions provided for in paragraph 3 of Article 149 of the Tax Code of the Russian Federation and do not issue invoices to buyers (subclause 1, paragraph 3, Article 169 of the Tax Code of the Russian Federation). In this case, it will be necessary to restore the input VAT accepted for deduction during the period of refusal of exemption on goods (works, services) that will be used in transactions exempt from taxation (i.e. after the expiration of the period for refusal of exemption) (clause 3 of Art. 170 of the Tax Code of the Russian Federation).
The tax office should be notified that the organization is resuming the application of the exemption. This can be done using a free-form application. Such an application must be submitted no later than the 1st day of the first month of the quarter, starting from which the organization will again apply the VAT exemption. Such clarifications are contained in the letter of the Ministry of Finance of Russia dated August 7, 2014 No. 03-07-RZ/39083.
Situation: what happens if an organization stops using the VAT exemption without first renouncing it? When selling tax-exempt goods (work, services), the organization will issue invoices with allocated VAT and transfer them to customers.
For transactions for which the organization has ceased to apply the exemption, it will be recognized as a VAT payer. The amount of tax allocated in invoices for the sale of goods (work, services) without exemption must be transferred to the budget (subclause 2, clause 5, article 173 of the Tax Code of the Russian Federation). In this case, the organization will be able to deduct input VAT on goods (works, services) that were purchased for these operations on a general basis. If an organization previously included input VAT in the cost of goods (work, services), it should adjust the tax base for income tax and submit an updated return.
This position is reflected in paragraph 6 of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated May 30, 2014 No. 33. Despite the fact that this document is mandatory only for arbitration courts (clause 2 of Article 13 of the Law of April 28, 1995 No. 1-FKZ, p. 1 Article 3 of the Law of June 4, 2014 No. 8-FKZ), taxpayers can also follow it. Explanations from regulatory agencies, which reflect a different point of view, are not applied in practice (letters from the Ministry of Finance of Russia dated November 7, 2013 No. 03-01-13/01/47571 and the Federal Tax Service of Russia dated November 26, 2013 No. GD-4-3 /21097).
For which transactions can you refuse VAT exemption?
Refusal of tax exemption is possible for transactions specified in paragraph 3 of Art. 149 of the Tax Code of the Russian Federation. pp. 1 and 2 tbsp. 149 of the Tax Code of the Russian Federation does not give such a right, and it is impossible to refuse exemption for the operations listed in these paragraphs.
More details about what operations are listed in Art. 149 of the Tax Code of the Russian Federation, read the material “Operations not subject to VAT: types and features.”
If a taxpayer has several types of transactions that are suitable for exemption, then a waiver can be made for all or several types of transactions. That is, refusal is allowed as for all subparagraphs of clause 3 of Art. 149 of the Tax Code of the Russian Federation, and according to one of them.
Example
Initial data:
The real estate company sells residential buildings, residential premises and shares in them (subclause 22, clause 3, article 149 of the Tax Code of the Russian Federation), and in addition carries out charitable activities (subclause 12, clause 3, article 149 of the Tax Code of the Russian Federation).
Solution:
A legal entity carries out 2 types of operations provided for by different subparagraphs of clause 3 of Art. 149 of the Tax Code of the Russian Federation. The company has the right to write a statement of refusal to exemption for one of the transactions or both. That is, she can, for example, refuse the exemption for charitable activities and continue to use the exemption for real estate activities and vice versa.
If the exemption is waived, all contracts and transactions concluded by the taxpayer in connection with the exempt activity will be subject to it. The waiver should not apply based on who the buyer is.
For example, a company providing banking services for granting loans (subclause 15, clause 3, article 149 of the Tax Code of the Russian Federation) does not have the right to refuse the exemption in relation to services provided to legal entities, and when providing the same services to individuals, continue to use the exemption from tax
Read about the existing types of VAT exemption in the article “How to obtain an exemption from VAT in 2014-2016?”
Benefit: apply or refuse?
Features for one category
General provisions regarding the establishment and use of tax and fee benefits are established in Article 56 of the Tax Code.
Benefits are advantages provided by law provided to certain categories of taxpayers compared to others (clause 1 of Article 56 of the Tax Code). Benefits for federal taxes are determined by the Tax Code, and benefits for paying regional taxes can also be provided or canceled by the laws of the constituent entities of the Federation (clause 3 of Article 56 of the Tax Code). The judges emphasize that benefits for regional payments can only be prescribed in laws that regulate relations regarding the establishment and collection of taxes and fees (Decision of the Supreme Court of May 3, 2006 No. 92-G06-4).
In one of the definitions, the Supreme Court clarified what general characteristics organizations can use to combine them into one category in order to establish a regional benefit. This is, for example, the industry of the enterprise, the number of its employees, the size of its capital investments. The amount of profit received in a certain period, as well as other economic characteristics of the tax base, cannot act as a general indicator. Otherwise, according to the judges, discrimination arises in relation to companies carrying out the same types of activities, in the same conditions, but with different financial capabilities (Definition of the Supreme Court of May 17, 2006 No. 44-G06-7).
The Supreme Court considered the application of an individual entrepreneur who applied for the following reason. The regional law establishes a 50 percent transport tax benefit for motor transport organizations engaged in passenger transportation. According to the applicant, this provision limits his rights as an individual entrepreneur. In this case, the judges dismissed the complaint and pointed out that benefits are always targeted and their establishment is the prerogative of the legislator. They also rejected the applicant's arguments that the disputed document contravened competition laws by creating an unequal playing field for market participants. After all, the benefit in this case is established not for an individual company, but for an entire category of taxpayers (Definition of the Supreme Court of August 16, 2006 No. 47-G06-295).
Never say never"
Sometimes the amount of “benefit” from using the benefit is insignificant. In this case, organizations prefer to refuse the benefit. The Tax Code gives them this right. Paragraph 2 of Article 56 states that an enterprise has the right to refuse to use the benefit or suspend its use for one or more tax periods.
If a company has officially refused the benefit, then it cannot subsequently demand a refund of the overpaid amount of tax. However, when there was no official refusal, then there is an opportunity to “change your mind” later. To do this, you need to submit an updated declaration and indicate that the benefit was not taken into account by mistake, without the intention to refuse it. This is confirmed by the resolution of the Plenum of the Supreme Court and the Supreme Arbitration Court of June 11, 1999 No. 41/9. Paragraph 16 states that if disputes arise about whether there was a refusal to use a benefit, one should proceed from the fact that the fact that a benefit was not taken into account when drawing up a declaration for a specific period does not in itself mean that the company has refused to use it.
Moscow judges relied on this document when making a decision in the case dated September 14, 2006 No. KA-A41/8586-06. The organization had the right to an income tax benefit, but did not take advantage of it in a specific period. Then the company filed an updated declaration, in which the base for this tax was reduced. The inspectorate decided that in this case a recalculation cannot be made. The court sided with the company in this situation.
The waiver of the benefit cannot apply, for example, only to the calculation of taxes on the sale of goods that are sold to certain customers. This conclusion follows from paragraph 1 of Article 56 of the Tax Code. It states that the norms of legislation on taxes and fees that determine the grounds, procedure and conditions for applying tax benefits and fees cannot be of an individual nature.
Unreasonable benefit is not covered by the benefit
Perhaps most often in court proceedings regarding the legality of applying benefits, income tax appears. Inspections often deny enterprises the opportunity to realize legitimate benefits.
Thus, one organization purchased equipment on the terms of a trade loan. These fixed assets were intended for production activities. According to the Law “On the Income Tax of Enterprises and Organizations” dated December 27, 1991 No. 2116-1, in force during the audited period, when calculating the tax, the base is reduced by amounts aimed at financing capital investments for production purposes. The company took advantage of this benefit. However, the financing was reflected as repayment of a trade loan, so the inspection decided that the benefit was used unlawfully. The arbitrators noted that in fact the funds were spent on purposes falling under the benefit. Thus, the company won the court (resolution of the Federal Antimonopoly Service of the Moscow District dated March 10, 2006 No. KA-A40/947-06).
Courts often take the side of companies, but there is one situation in which the decision of the arbitrators regarding the legality of using benefits will clearly not be in favor of the enterprises. We are talking about unjustified receipt of tax benefits. In this case, the company is definitely deprived of income tax benefits (Resolution of the Federal Antimonopoly Service of the Moscow District dated May 17, 2007 No. KA-A40/4194-07).
Valeria Korbut
What form is used to refuse to use tax exemption?
Refusal to use the exemption due to the nature of the action is considered a notification.
In order for the taxpayer to exercise his legal right, he should send a refusal application to the tax authority at the place of registration no later than the 1st day of the period from which it is planned to issue a refusal of exemption. If this date coincides with a holiday or weekend, the application is submitted on the next working day (clause 7 of Article 6.1 of the Tax Code of the Russian Federation, letter of the Federal Tax Service of Russia dated August 26, 2010 No. ШС-37-3/10064).
The form of the application is not established by law, so it is drawn up in any form.
The statement states:
- a list of ongoing operations for which it is planned to issue a waiver of exemption,
- the period from which the taxpayer intends to refuse to use the exemption,
- validity period during which it is planned not to use the exemption (at least 1 year).
VAT: Refusal to apply benefits
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As mentioned earlier, according to paragraph 2 of Art. 56 of the Tax Code of the Russian Federation, the taxpayer has the right to refuse to use the benefit or suspend its use for one or more tax periods , unless otherwise provided. When refusing tax benefits, it is worth remembering the basic conditions prescribed in the Tax Code of the Russian Federation. Clause 5 of Art. 149 of the Tax Code of the Russian Federation provides for the possibility of refusal (suspension) of the application of benefits in relation to transactions exempt from taxation in accordance with paragraph 3 of Art. 149 of the Tax Code of the Russian Federation. In this case, the following conditions must be met: - You can refuse only the benefits listed in (the use of benefits provided for by the Tax Code of the Russian Federation cannot be refused). — Benefits are waived for a period of at least 1 year. The period during which the taxpayer will not use the benefit cannot be less than one year. Therefore, it is impossible to refuse the benefit for a shorter period, for example, six months. At the same time, the taxpayer has the right to refuse to apply the benefit for a longer period (for example, two years, etc.). — Waiver of benefits is carried out in relation to all counterparties. For example, an organization uses benefits in relation to operations (according to paragraph 22, paragraph 3, Article 149 of the Tax Code of the Russian Federation) for the sale of residential buildings, the sale of residential premises and the sale of shares in residential buildings and residential premises. If an enterprise refuses tax benefits, then this refusal will apply to all three types of transactions. Let us assume that the enterprise, in addition to these operations, transfers goods for advertising purposes, the cost of purchasing a unit of which does not exceed 100 rubles. (Clause 25, Clause 3, Article 149 of the Tax Code of the Russian Federation), which also belong to the category of benefits. In other words, the organization carries out two types of preferential transactions. In this case, the organization has the right to refuse benefits both in relation to all operations and in relation to certain types of transactions, for example, in relation to transactions for the transfer of goods for advertising purposes, refuse benefits, but use them in relation to transactions for the sale of residential premises. Thus, the refusal to use the benefit applies to all transactions, without exception, carried out by taxpayers within the framework of a preferential type of activity . It should not operate depending on who is the buyer (purchaser) of the relevant goods (works, services). — Refusal (suspension) is carried out by submitting an application to the tax authority at the place of registration no later than the 1st day of the tax period from which the taxpayer intends to refuse benefits. The application for refusal must be submitted before the end of the 1st day of the first month of the next quarter, starting from which the taxpayer wishes to refuse the benefit. The legislator has not established requirements for the form of such an application, so it is drawn up in any form. At the same time, the application must indicate a list of transactions exempt from taxation, in respect of which the taxpayer refuses to apply the VAT benefit, the tax period from which the taxpayer does not intend to apply the benefit, as well as the period during which the taxpayer will not apply the benefit.
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What benefits are provided for personal income tax?
What are the consequences of failure to submit an application for refusal?
If the deadline for submitting a notice of refusal to release is violated or the application is not submitted at all, then this will not entail any negative consequences. Moreover, a taxpayer who has in fact refused to apply the exemption (i.e., pays sales tax on sales), but has not submitted an application for this, also has the right to apply deductions when calculating the tax payable.
Read more about this in the article “We didn’t have time to notify the tax authorities about the refusal of VAT exemption.
What about deductions? You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.
Form of notification of the provision of benefits (notification of refusal)
Based on the results of consideration of the application for a benefit, the tax authority must send a notice of the provision of a benefit or a message of refusal to provide a benefit. In what form are these documents drawn up?
Forms for notification of benefits and notifications of refusal to provide benefits are approved by the Federal Tax Service. Currently, the corresponding order of the Federal Tax Service dated November 12, 2019 No. ММВ-7-21/ [email protected] is being registered with the Ministry of Justice.
[email protected] can be used as recommended ones.
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