Tax Implications of Bankruptcy in Russia

1) What taxes are due during bankruptcy proceedings?

During the bankruptcy procedure in Russia, the payment of taxes is affected by the stage and type of bankruptcy, as well as the legal status of the debtor (legal entity or individual). The company pays income tax, property tax, transport tax, etc. within the framework of current activities during bankruptcy.

But, for example, it is exempt from paying VAT when selling the company's property in order to satisfy creditors' claims (clause 15, clause 2, article 146 of the Tax Code of the Russian Federation).

2) What happens to outstanding tax liabilities during bankruptcy proceedings?

When a legal entity is declared bankrupt and the procedure is completed, the following outcomes are possible for outstanding tax liabilities:

• Termination of liabilities: The legal entity is excluded from the Unified State Register of Legal Entities (USRLE), and its debt obligations, including to tax authorities, cease to exist.
• Liability of controlling persons: If the tax debt arose due to the fault of controlling persons (for example, the director, founder or other persons involved in the management of the company), the tax authorities may try to hold them liable for subsidiary liability. In this case, they may be obliged to pay off the company's debts at the expense of their personal property.

3) Are the founders (shareholders) of the bankrupt enterprise liable for the tax debts on a subsidiary basis?

Yes, the founders (shareholders) of an enterprise may be held subsidiarily liable for tax debts under a combination of circumstances:

• the company is held liable for tax liability for non-payment or partial payment of the tax amount;
• the amount of additional tax accrued is more than 50% of the total register of creditors' claims.

4) What are the tax consequences of the sale of the bankrupt's assets?

When selling the property of a bankrupt company, a number of tax consequences arise for both the debtor company itself and for its creditors and buyers of the property.

First of all, this is VAT and income tax when selling the property of a bankrupt company.

In certain cases, there may also be an obligation to pay personal income tax arising from the acquisition of bankrupt property.

5) What tax risks do purchasers of the bankrupt's assets face?

Risks can be varied and their assessment depends on the specific situation. For example, these are the risks of challenging the transactions by which such property was acquired. And, consequently, the impossibility of returning previously paid taxes arising from such property or transactions with it.

Authors: Aleksandra Levenkova, Dmitry Samigullin