A bill on the priority of tax claims in bankruptcy cases has been introduced to the State Duma

The government has submitted to the State Duma a bill regulating the order of tax payment in cases of bankruptcy of companies. The document establishes the priority of mandatory payments over the claims of registered creditors, classifying them as current payments. At the same time, a priority procedure for repaying income tax when selling collateral at auction is provided. Experts, however, note that this will have a negative impact on the institution of collateral and may complicate lending to companies.

Last week, the White House submitted to the State Duma a bill regulating the priority of tax payments in cases of corporate bankruptcy – the document, as noted in the explanatory note, was prepared in pursuance of the ruling of the Constitutional Court (CC). Let us recall that the Constitutional Court was faced with the question of the fairness of levying tax on “paper” profits when selling company property during bankruptcy (citizen debtors in such cases are exempt from paying personal income tax) – the discussion on this matter went far beyond the boundaries of the court proceedings (see “Kommersant” ” dated June 4, 2023). The court ultimately indicated that the company must pay income tax, and before legislative changes were made, it ordered it to be paid as part of the third stage of register requirements.

The bill solves the question posed completely differently: all taxes arising during bankruptcy, including during the sale of the bankruptcy estate, are proposed to be classified as current obligations, which are paid off in priority order before register requirements. This also applies to the payment of restored VAT reimbursed to the debtor from the budget or accepted by him for offset before bankruptcy. If in a bankruptcy case there are claims of registered creditors of the first and second priority (we are talking about compensation for damage to the life and health of citizens, as well as payment of wages and severance pay), a “replacement mechanism” is introduced. Thus, at the expense of funds “intended” for paying income taxes, such debts to citizens will be repaid – the tax claims themselves will then “go to” the front of the queue for repaying the registered debts of bankruptcy creditors.

There is also a special procedure for repaying income tax when selling a pledged item at auction – it is given priority by being included in the costs of ensuring the safety of the pledged item, which are paid before settlement with the pledgee. This status will also be given to property taxes, land and transport taxes, as well as “restored” VAT accrued during the period of bankruptcy proceedings. Let us explain, according to the law, the pledgee receives 70% (the bank – 80%) upon the sale of the pledged item, and the remaining amount goes to pay off the claims of first and second priority creditors and legal expenses.

David Kononov, head of the bankruptcy practice of the law firm Lemchik, Krupsky and Partners, considers the project not controversial: on the one hand, “the benefit for the budget is obvious, since its interests are planned to be placed above the interests of other creditors,” but the bankruptcy procedure should first of all be aimed at balancing the interests of all “affected” participants. According to the lawyer, adding taxes to the list of claims that have priority over the secured creditor “does not comply with the constitutional principle of equality.” As the Chairman of the Bankruptcy Club Oleg Zaitsev notes, the bill “represents an attempt to return to the fundamentally incorrect decisions that were encountered in practice before the Constitutional Court’s decision. It is striking that the project ignores the approach of the Constitutional Court, which does not allow the payment of taxes from the proceeds from the sale of the collateral.” Enshrining this approach in law, he fears, could “virtually destroy” collateral as the most effective way to minimize the risk of bankruptcy, which is expected to lead to a sharp deterioration in the availability of loans for companies.

The head of the legal bureau “Olevinsky, Buyukyan and Partners” Eduard Olevinsky calls the “highlight” of the bill the provisions on the extraordinary payment of “reinstated” VAT, which in its economic essence differs from the rest of the current requirements: “the debtor has enriched himself by the amount of compensation or offset before bankruptcy.” In his opinion, the amendments “threaten the normal functioning of the institution of collateral” – pledge holders risk “not getting anything at all” due to the restored VAT. For this reason, Eduard Olevinsky believes, we should expect demands from banks to conduct a tax audit to identify the amounts of VAT offset when purchasing or creating property offered as collateral.

Evgenia Kryuchkova, Anna Zanina