On Certain Development Trends of the Case Law in Russia

It is commonly known that technically the case law in the Russian legal system is not a source of law. Nevertheless, actual development trends in the resolution of certain legal issues are stipulated by the case law. Therefore, a thorough analysis of judicial acts coming from the court is a very valuable source of knowledge for a practicing lawyer allowing to understand the current position of courts on the issues under consideration (fortunately or unfortunately, only the current one, as the case law tends to change over time).

Under such circumstances, periodical Reviews of the Case Law of the Supreme Court of the Russian Federation approved by its Presidium are of particular interest. Thus, the Presidium of the Supreme Court of the Russian Federation issued the fourth review for 2018 close to the New Year1. The 157-page document covers the case law of the presidium and judicial boards of the Supreme Court, and provides explanations on issues arising in the case law.

In addition, amendments were made to the previous review of the Supreme Court. According to the Supreme Court, federal law No. 338-FZ dated August 3, 2018 “On Amendments to Certain Legislative Acts of the Russian Federation” made amendments to Article 22 of Notary Fundamentals of the Russian Federation No. 4462-I dated February 11, 1993. This article covers the most interesting aspects of the review.

The claim of the person that has created the fictitious debt of the bankrupt debtor is not deemed justified and is not subject to inclusion in the register of claims by the debtor’s creditors.

In accordance with the Bankruptcy Law from the date of passing the judgment by the arbitration court on declaring the debtor bankrupt and on initiating bankruptcy proceedings, the maturity date for the debtor’s liabilities arisen prior to bankruptcy proceedings shall be deemed due.

Creditors’ claims under liabilities (with the exception of current payments and claims stipulated by the law) may be submitted only in the course of bankruptcy proceedings.

The validity of claims shall be proved in accordance with the adversarial principle. The creditor claiming against the debtor, as well as persons that object to these claims, are obliged to prove the circumstances they refer to as the basis of their claims or objections. Only claims with sufficient submitted evidence of the debt existence and amount may be recognized as confirmed.

The performance by the guarantor related to the debtor of the latter’s debt obligations at its own expense is lawful behavior in itself and does not serve as an evidence of the corporate nature of these legal relations, as defined in the eighth paragraph of Article 2 of the Bankruptcy Law.

It was proved that the “creditor” simultaneously participated in the capitals of the debtor company and the creditor under the principal obligation. Being the beneficiary of both legal entities and the person affecting their decisions, it freely transferred assets from one person (debtor company) to another (creditor under the main obligation) for its own purposes without taking into account the interests of controlled organizations and their creditors. Through mutual loans to controlled legal entities the person artificially increased the company’s debt to the prejudice of independent creditors. The guarantee was used as an instrument allowing to take the position of a pledge creditor upon the bankruptcy of the company, and to claim a significant part of the cost of the debtor’s liquid assets by essentially retaining it.

The court is unable to dismiss the tenant’s objection on the reduction in accordance with the terms of the lease agreement of the charged rental by the cost of the inseparable improvements made by the tenant with the reference to a counterclaim required to be filed by the tenant. This claim may be executed in the form of an objection.

Any party to the agreement, which is not duly registered with the state registration authorities, is not entitled to refer to its non-conclusion on this basis.

If the creditor accepts cash in fulfillment of the obligation under the agreement, the corresponding obligation shall be deemed discharged, including in cases where the agreement provided for non-cash payment settlement.

In the agreement the parties agree that the sub-tenant’s expenses for the improvement of the leased property and repair works shall be reimbursed by reducing the rental established for the use of the premises by the amount of actually incurred costs.

Thus, the terms of this agreement expressly indicate that the cost of certain types of works and the amount specified in the agreement shall be reimbursed to the tenant by reducing the current rental, i.e. this deduction is expressly specified in the agreement as the procedure for rental calculation.

Under such terms of the agreement, the rental is calculated in accordance with the procedure established in the agreement, and thus, the tenant’s obligation to pay the specified rental is determined.

Upon offsetting counterclaims of the same kind, obligations of the parties shall terminate on the maturity date of the obligation with the later maturity date due, including in cases where the set-off claim is made by filing a counterclaim.

The provisions of the Civil Code of the Russian Federation determine that in order to offset under a unilateral claim, counterclaims have to be of the same kind, their maturity term has to be already due (except for the cases provided by the law, when offsetting the counterclaim of the same kind is allowed with the maturity date still undue).

Filing a set-off claim means an execution of will of the party to a unilateral transaction to terminate counter-obligations and also compliance with the law requirements for the set-off procedure. The date of such claim shall not affect the termination date of the obligation, which shall be determined by the maturity date of the obligation with the later due maturity date.

Filing a counterclaim aimed at the set-off of initial claims is actually the same execution of the party’s will, issued as a statement of claim and filed in accordance with the procedural law. Changes in the registration order of such expression of will – filing a statement of claim instead of filing a claim to the debtor/creditor – should not lead to any changes in the termination date of the obligation, since the reasons for set-off under Article 410 of the Civil Code of the Russian Federation (counterclaims of the same kind and their due maturity term) remain the same. In any other cases, the material moment of recognition of the obligation under the agreement as terminated depends on procedural features of the dispute settlement, over which this party has no influence.

There are no fundamental differences in legal consequences for the person who fulfilled the obligation under the agreement and the person whose obligation was discharged by the set-off. Therefore, charging a penalty for the claim discharged by the set-off for the period from the maturity date of the later obligation until the filing of a set-off claim, and even more so until the court judgment enforcing the set-off, does not correlate with charging the penalty as a liability for improper performance of the obligation.

The receipt of a payment claim by the guarantor after the validity period of the bank guarantee shall not serve the reason for the guarantor’s refusal to make a payment, if the said claim was sent by the beneficiary to the guarantor during the validity period of the bank guarantee and nothing otherwise is specified in the guarantee itself.

In the case under consideration, the controversy was caused by the question of whether the payment claim was filed during the validity guarantee period.

Legal regulations for bank guarantees do not prevent banks from the participation in setting guarantee terms and including the provision on making payments upon the claim received before the expiration of the validity guarantee period.

However, the guarantee in question has no such provision, so bank’s objections regarding the payment contradict the law and the content of the guarantee.

The delivery of the letter with the required documents during the validity guarantee period by the company to the organization undertaken in order to receive payments indicates compliance with the procedure provided for by Article 194 of the Civil Code of the Russian Federation and the lack of bad faith in the implementation of the right to receive payments.

Regarding the guarantee provision on the payment claim to be filed, the court of the first instance reasonably extended the procedure prescribed thereby to include the company, and deemed the company’s actions based thereupon as the proper filing of the payment claim, so that the company bears no risks in connection with the delivery of the claim.

In legal relations under the bank guarantee in accordance with Article 165.1 of the Civil Code of the Russian Federation, the delivery of the beneficiary’s (company’s) letter determines the due payment date for the guarantor (bank) and the liability for its delay.

The terms allowing the guarantor to refuse meeting beneficiary’s claims are set in Article 376 of the Civil Code of the Russian Federation, and such regulation shall be applied when discussing the validity of a specific refusal to pay. Article 165.1 of the Civil Code of the Russian Federation does not cover the grounds for refusal of guarantee payments.

The passport confirming a high class of energy efficiency of the commercial property does not serve as the reason for the application of the tax benefit provided for in Clause 21 of Article 381 of the Tax Code of the Russian Federation.

The tax authority decided to hold the company liable for the tax offense, which additionally charged the corporate property tax and corresponding penalties and fines. The said resolution was based on the fact of incomplete corporate property tax payment due to unlawful application of tax benefits provided for in Clause 21 of Article 381 of the Tax Code of the Russian Federation, as well as not-disclosure of information on 24 commercial property objects in the tax returns.

In accordance with Clause 21 of Article 381 of the Tax Code of the Russian Federation organizations are exempt from the property tax in respect of newly introduced objects with a high class of energy efficiency, provided such objects, in accordance with the legislation of the Russian Federation, are subject to classification by energy efficiency.

Interconnected provisions of the Federal law “On energy saving and increase of energy efficiency, and on amendments to certain legislative acts of the Russian Federation” specify that the class of energy efficiency, as a specific feature reflecting the level of energy efficiency of products, is determined in respect of goods (equipment and other movable property), as well as in respect of apartment buildings.

At the same time, the Federal law has provided no definition of energy efficiency classes in respect of the said objects and contains no references to subordinate regulatory acts, which should define the rules for assigning energy efficiency classes to non-residential real estate.

Thus, the benefit provided for in Clause 21 of Article 381 of the Tax Code of the Russian Federation serves to stimulate the use of advanced energy-efficient equipment, increase energy efficiency of residential real estate, and does not apply to commercial real estate.

In view of the above, energy efficiency passports submitted by the taxpayer in respect of real estate objects gave no grounds for using the tax benefit provided for in Clause 21 of Article 381 of the Tax Code of the Russian Federation.

Application of energy passports issued by the taxpayer itself for the purposes of taxation, in case the legislation provides no criteria for determining energy efficiency classes of non-residential buildings, structures, and constructions, indicates the provision of individual tax benefits, which is unacceptable in accordance with the Tax Code of the Russian Federation.

Late submission of the primary income tax return by the taxpayer, as well as documents verifying the right to apply 0 percent tax rate, is not in itself a reason for deprivation of the tax benefit, which was applied by the taxpayer during the expired tax period.

In accordance with Clause 1 of Article 284.1 of the Tax Code of the Russian Federation, organizations engaged in medical activities in accordance with the legislation of the Russian Federation may apply 0 percent tax rate subject to the conditions set by this article.

As a general rule, taxpayers declare the exercise of their right to the tax benefit in tax returns (Clause 1 of Article 80 of the Tax Code of the Russian Federation), the filing thereof initiates tax control measures implemented by the tax authority in the form of an in-house tax audit.

Therefore, tax benefits are granted based on the results of a tax audit, during which all documents submitted by the taxpayer (available to the tax authority) verifying the conditions stipulated by the law for the use of the benefit, including those received after filing the tax return prior to the end of the tax audit, should be examined.

Missed deadline for filing the primary income tax return and information on meeting the conditions for the application of 0 percent tax rate is not in itself a reason for deprivation of the tax benefit, which was applied by the taxpayer during the expired tax period.

The courts established that the tax authority acted inconsistently by resolving on additional tax charges and application of tax liability measures to the company following the results of the in-house audit of the updated tax return submitted by the company, but without compliance with the rules of the in-house tax audit and review of its results, which are stipulated by the tax legislation, which cannot be recognized as lawful.


  1. Review of the Case Law of the Supreme Court of the Russian Federation No. 4 (2018) (approved by the Presidium of the Supreme Court of the Russian Federation on 26.12.2018).
Roman Moskovskikh

Lawyer

Tax and Legal Practice

Korpus Prava (Russia)

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