Recently, tax specialists were faced with two key issues pertaining to the performance of tax obligations, namely: (i) whether a third party can be held liable for the actions of others, including for payments of taxes and duties; and (ii) whether it is possible to pay taxes on behalf of third parties.
Russian tax laws require taxpayers to pay their taxes personally from their own funds. However, if the taxpayer fails to perform this obligation, the tax authorities are entitled to recover the unpaid taxes from the debtor’s related parties. At the same time, court practice gradually expands the list of persons who may be recognised as the taxpayer’s related parties in order to make them subsidiarily liable for tax debts. Russia’s Supreme Court has just validated this approach for the first time (see Case No. А40-77894/2015*).
Until recently, the tax authorities recovered taxes only from Russian related parties. Now, with the ongoing development of the relevant court practice, taxes may also be recovered from foreign third parties. Accordingly, in its decision in Bankruptcy Case No. A41-45286/14*, the Commercial Court of the Moscow Region held that the taxpayer’s controlling persons (individuals and the majority shareholder incorporated in Cyprus) were subsidiarily liable for the debtor’s tax obligations. Subsequently, in this case, the right of the Federal Tax Service to claim RUB 40m of unpaid taxes passed to the Cypriot company, which was the ultimate owner of the bankrupt company. Otherwise, the subsidiarily liable individuals would have had to execute the court’s decision at their own expense or face the threat of personal bankruptcy or even criminal liability.
The Federal Tax Service has drafted a bill allowing a voluntary payment of taxes for third parties. If the bill is passed, this will be a positive move, as in practice, a person (for example, a shareholder or CEO) is often willing to pay the outstanding taxes on behalf of their company. However, the Russian Tax Code currently prohibits such payments as taxpayers must pay their taxes personally from their own funds.
Thus, the law enforcement practice for the performance of tax obligations is becoming more result-oriented – boosting the state revenues. In this respect, businesses should take into account possible legislative developments, as well as the existing court practice and the risk of being held subsidiarily liable for third parties’ tax payment obligations.
* In Russian