Natalia Vorobyeva comments on key aspects of Tax Burden in 2025, for Financial Director Magazine

Whether directly or indirectly, but the tax reform will inevitably affect everything that is happening in the company:cash flows, financial performance, budgeting, personal tax burden, owners’ income, and even the HR component of the business and human capital.CFOs are now busy analyzing, planning, and looking for optimal solutions to minimize the blow that the tax reform will inflict on the business.

How taxpayers under the simplified tax system can avoid risks of incurring VAT.

Firstly, it is necessary to analyze the existing contracts made with contractors that are under the simplified tax system as regards determining the contract price and whether there is a clause on its revision if there are any changes in the tax status of the parties or applicable tax laws. If the contract provides for a fixed price that does not cover taxes, and there is no tax clause referred to above, then in order to keep the same price, you will have to agree on a new price with your contractor, effective from the beginning of the next year. If you fail to reach an agreement, then, starting from 2025, the contractor will increase the price by 20, or 5, or 7 percent unilaterally. The judicial practice in such cases is on the seller’s side (Ruling No. 305-ЭС23-26210 of the Russian Supreme Court dated April 4, 2024 in Case No. А40-236292/2022).

 

It is advisable to immediately start including tax clauses in contracts with contractors under the simplified tax system regarding the inclusion of VAT in the price of the contract, regarding the invariability of the price when the contractor becomes a VAT payer at any rate. You may provide for the contractor’s obligation to notify in advance of any change in the tax status and revise prices in this case, and for the customer’s right to unilaterally withdraw from the contract, if no agreement on the price is reached.

Secondly, it is necessary to conduct a more thorough background check of contractors under the simplified tax system that will or may become a VAT payer from the beginning of the year. After all, now such contractors will be become payers of input VAT, the deduction of which may be denied, if Russian tax authorities doubt the counterparty’s good faith, and the customer will not be able to confirm the exercise of due diligence when choosing a counterparty,” said Natalia Vorobyeva, Senior Associate, Forte Tax & Law.

CFOs fear that the tax amnesty will be followed by a period of active fight against business splitting, and they are careful in assessing even minimal risks. The key questions are whether the business structure falls under the concept of splitting and how much the company risks remaining under the simplified tax system. To decide whether to take advantage of the tax amnesty, you need certainty in assessing the risk of further charges.

When assessing the amount of risks, you should not leave out fines and legal costs. It is necessary to assess the amount of possible additional tax assessments, fines, and court costs and, on the basis of this calculation, to consider the possibility of switching, from the beginning of 2025, to a structure that excludes the risk of splitting. The company can partially take advantage of the tax amnesty, if it transitions to the general taxation system at least some of the elements of the business structure that are most likely to cause questions on the part of Russian tax authorities,” recommended Natalia Vorobyeva.

To read this article, click here (in Russian).