Is it possible to take into account the costs associated with the construction of an object of construction in progress when selling it, if the taxpayer switched from the object of taxation (income) to the object of income minus expenses
26 July 2023
10:00
Taxation issues are closely intertwined with various areas, including the field of construction. What to do in a situation where a taxpayer has moved from an object of taxation (income) to an object of income minus expenses, but wants to take into account the costs associated with the construction of an object of construction in progress when selling it ?
Member of the Association Yuri Mirzoev tried to understand this situation in his blog on Zakon.ru.
Simulated situation (real case).
The taxpayer (who has been on the simplified tax system since 2015 with the object of taxation in the form of income reduced by the amount of expenses) when selling an object of construction in progress declared in the expenses for the simplified tax system for 2019 (sale period) the costs of creating this object incurred in 2010-2014. (during this period, the taxpayer was on the simplified tax system with the object of taxation in the form of income). It should also be noted that the very fact of the actual implementation of these expenses by the company for the creation of an object of construction in progress in 2010-2014 is not disputed and confirmed by the tax authority. The tax authority denied the taxpayer accounting for these expenses solely on the basis of paragraph 4 of Art. 346.17 of the Tax Code of the Russian Federation (when a taxpayer transfers from an object of taxation in the form of income to an object of taxation in the form of income reduced by the amount of expenses, expenses relating to tax periods in which the object of taxation in the form of income was applied are not taken into account when calculating the tax base).
The position of the blog author (Yuri Mirzoev):
“In my opinion, the taxpayer has the opportunity to take into account these costs (although the correctness of this position will have to be defended in court), and the refusal of the tax authority is based on an incorrect interpretation of the legislation on tax collections and contradicts both the position of the Ministry of Finance of the Russian Federation and the position of the Supreme Court of the Russian Federation.
So, according to the Ministry of Finance of Russia, an object of construction in progress, not put into operation, but sold to the buyer, for tax purposes can be considered as a product in relation to paragraph 3 of Art. 38 of the Tax Code of the Russian Federation. At the same time, the expenses named in paragraph 1 of Art. 346.16 of the Tax Code of the Russian Federation related to the construction of such an object intended for sale can be taken into account when determining the tax base when applying the simplified tax system (Letter of the Ministry of Finance of Russia dated December 21, 2012 No. 03-11-06 / 2/148). A similar position is reflected in the Letter of the Ministry of Finance of Russia dated February 17, 2012 No. 03-04-05 / 3-191. Since for tax purposes an object of construction in progress can be considered as a commodity, the costs associated with the construction of this object are taken into account for tax purposes on the date of its sale to the buyer, provided that the corresponding costs are provided for in paragraph 1 of Art. 346.16 of the Tax Code of the Russian Federation and paid (clause 2 of article 346.17 of the Tax Code of the Russian Federation).
In addition, by letter of the Federal Tax Service dated July 28, 2020 No. BV-4-7 / 12120 (paragraph 7), Ruling of the Supreme Court of the Russian Federation dated May 18, 2020 No. 304-ES20-1243 was brought to the lower authorities for mandatory application.
In this Ruling, the Supreme Court made the following important conclusions for the correct resolution of this legal case:
- if a person applying the simplified tax system, who has chosen "income reduced by the amount of expenses" as an object of taxation, has sold an object of fixed assets, then, as a general rule, the tax base should be determined as a financial result (profit or loss) received from investments made by the taxpayer in the acquisition of fixed assets, while excluding the possibility of repeated (double) accounting for that part of the expenses that were previously accounted for for tax purposes under a different (general or special) taxation regime.
- in itself, the fact that during the period of operation of fixed assets the entrepreneur's income was taxed under a different special tax regime could not act as an obstacle to accounting for expenses incurred during the acquisition of these objects in the event of their sale.
- the will of the legislator is not aimed at depriving business entities that apply the simplified tax system of the right to take into account the costs of acquiring fixed assets, the income from the use of which was taxed under a different taxation regime, but at establishing an economically justified taxation, for which these costs are distributed among the tax bases formed in connection with the operation and alienation of fixed assets taxed under different tax regimes, respectively.
Meanwhile, in our case, the fixed asset was sold - an object of construction in progress, therefore, the costs of its construction (acquisition) could not be taken into account by the company as an expense until the moment it was put into operation, which excludes in our case the possibility of repeated (double) accounting expenses (under a different (general or special) taxation regime and during the sale period). Moreover, income from the use of an unfinished construction object before its commissioning could also not be received.
Therefore, the reference of the tax authority to the possibility of applying paragraph 4 of Art. 346.17 of the Tax Code of the Russian Federation is subject to rejection, as it contradicts the position of the Supreme Court of the Russian Federation, expressed in the Ruling of the Supreme Court of the Russian Federation of May 18, 2020 No. 304-ES20-1243.
In addition, the application of paragraph 4 of Article 346.17 of the Tax Code of the Russian Federation to this situation would be contrary to the basic principles of legislation on taxes and fees (Article 3 of the Tax Code of the Russian Federation) and Chapter 26.2. Since, if we are guided by the position of the tax authority, it will turn out that the taxpayer from the sale of an object in progress will pay tax not at the rate of 6% (as provided for the object of taxation: income), but at a rate of 15%, but in this case, income will actually be the object of taxation ( not income minus expenses).
In conclusion, I want to note that my legal position is still risky and will most likely lead to a litigation with the tax authority. Meanwhile, I consider the result of resolving this dispute in favor of the taxpayer to be more probable.
Member of the Association Yuri Mirzoev tried to understand this situation in his blog on Zakon.ru.
Simulated situation (real case).
The taxpayer (who has been on the simplified tax system since 2015 with the object of taxation in the form of income reduced by the amount of expenses) when selling an object of construction in progress declared in the expenses for the simplified tax system for 2019 (sale period) the costs of creating this object incurred in 2010-2014. (during this period, the taxpayer was on the simplified tax system with the object of taxation in the form of income). It should also be noted that the very fact of the actual implementation of these expenses by the company for the creation of an object of construction in progress in 2010-2014 is not disputed and confirmed by the tax authority. The tax authority denied the taxpayer accounting for these expenses solely on the basis of paragraph 4 of Art. 346.17 of the Tax Code of the Russian Federation (when a taxpayer transfers from an object of taxation in the form of income to an object of taxation in the form of income reduced by the amount of expenses, expenses relating to tax periods in which the object of taxation in the form of income was applied are not taken into account when calculating the tax base).
The position of the blog author (Yuri Mirzoev):
“In my opinion, the taxpayer has the opportunity to take into account these costs (although the correctness of this position will have to be defended in court), and the refusal of the tax authority is based on an incorrect interpretation of the legislation on tax collections and contradicts both the position of the Ministry of Finance of the Russian Federation and the position of the Supreme Court of the Russian Federation.
So, according to the Ministry of Finance of Russia, an object of construction in progress, not put into operation, but sold to the buyer, for tax purposes can be considered as a product in relation to paragraph 3 of Art. 38 of the Tax Code of the Russian Federation. At the same time, the expenses named in paragraph 1 of Art. 346.16 of the Tax Code of the Russian Federation related to the construction of such an object intended for sale can be taken into account when determining the tax base when applying the simplified tax system (Letter of the Ministry of Finance of Russia dated December 21, 2012 No. 03-11-06 / 2/148). A similar position is reflected in the Letter of the Ministry of Finance of Russia dated February 17, 2012 No. 03-04-05 / 3-191. Since for tax purposes an object of construction in progress can be considered as a commodity, the costs associated with the construction of this object are taken into account for tax purposes on the date of its sale to the buyer, provided that the corresponding costs are provided for in paragraph 1 of Art. 346.16 of the Tax Code of the Russian Federation and paid (clause 2 of article 346.17 of the Tax Code of the Russian Federation).
In addition, by letter of the Federal Tax Service dated July 28, 2020 No. BV-4-7 / 12120 (paragraph 7), Ruling of the Supreme Court of the Russian Federation dated May 18, 2020 No. 304-ES20-1243 was brought to the lower authorities for mandatory application.
In this Ruling, the Supreme Court made the following important conclusions for the correct resolution of this legal case:
- if a person applying the simplified tax system, who has chosen "income reduced by the amount of expenses" as an object of taxation, has sold an object of fixed assets, then, as a general rule, the tax base should be determined as a financial result (profit or loss) received from investments made by the taxpayer in the acquisition of fixed assets, while excluding the possibility of repeated (double) accounting for that part of the expenses that were previously accounted for for tax purposes under a different (general or special) taxation regime.
- in itself, the fact that during the period of operation of fixed assets the entrepreneur's income was taxed under a different special tax regime could not act as an obstacle to accounting for expenses incurred during the acquisition of these objects in the event of their sale.
- the will of the legislator is not aimed at depriving business entities that apply the simplified tax system of the right to take into account the costs of acquiring fixed assets, the income from the use of which was taxed under a different taxation regime, but at establishing an economically justified taxation, for which these costs are distributed among the tax bases formed in connection with the operation and alienation of fixed assets taxed under different tax regimes, respectively.
Meanwhile, in our case, the fixed asset was sold - an object of construction in progress, therefore, the costs of its construction (acquisition) could not be taken into account by the company as an expense until the moment it was put into operation, which excludes in our case the possibility of repeated (double) accounting expenses (under a different (general or special) taxation regime and during the sale period). Moreover, income from the use of an unfinished construction object before its commissioning could also not be received.
Therefore, the reference of the tax authority to the possibility of applying paragraph 4 of Art. 346.17 of the Tax Code of the Russian Federation is subject to rejection, as it contradicts the position of the Supreme Court of the Russian Federation, expressed in the Ruling of the Supreme Court of the Russian Federation of May 18, 2020 No. 304-ES20-1243.
In addition, the application of paragraph 4 of Article 346.17 of the Tax Code of the Russian Federation to this situation would be contrary to the basic principles of legislation on taxes and fees (Article 3 of the Tax Code of the Russian Federation) and Chapter 26.2. Since, if we are guided by the position of the tax authority, it will turn out that the taxpayer from the sale of an object in progress will pay tax not at the rate of 6% (as provided for the object of taxation: income), but at a rate of 15%, but in this case, income will actually be the object of taxation ( not income minus expenses).
In conclusion, I want to note that my legal position is still risky and will most likely lead to a litigation with the tax authority. Meanwhile, I consider the result of resolving this dispute in favor of the taxpayer to be more probable.
