Debt forgiveness and tax consequences

One of the grounds for termination of contractual obligations between legal entities and individuals may be forgiveness of the debt that has arisen. Such an opportunity is rarely used in economic practice, since the nature of the transaction raises many questions related to the lawfulness of actions and documenting. When faced with the solution of such economic transactions, even specialists have difficulties in calculating and paying the necessary tax payments.

So what is forgiveness of debt and how much is it possible to document this situation in a documented manner in compliance with the established legislation?

When there is a need to forgive debt

The operation to terminate debt obligations is the cancellation of the debtor's duty to the creditor. Such actions are possible only if they do not violate the rights of third parties.

Quite often, the forgiveness of debt between legal entities is called a transaction on a gratuitous basis. As an example, one can mention such an economic tool as the discounts that a buyer receives for the fulfillment of certain conditions.

When considering the issue of debt forgiveness, it is necessary to separate the term "gratuitous transfer", since these are completely different concepts. In the case of gratuitous transfer of funds or goods, the buyer significantly simplifies the calculations associated with the taxation of profits and reduces the losses from VAT.

Forgiveness of Debt Obligations on Gratuitous Conditions

Gratuitous closing of a debt can be considered that situation when the creditor does not demand from the debtor money resources or property which it should give for repayment of debts. It is worth noting that according to the laws of the Civil Code, commercial companies can not conclude gift agreements in the amount of more than 500 rubles. In this regard, in order for the transaction to be valid, the free of charge debt forgiveness by a legal entity should not violate this limit, or the creditor must be an individual, for example, a founder. Also, such transactions are possible with non-profit organizations.

Debt, which receives the status of gratuitously forgiven, is fully included in the composition of non-operating income. And the cost of such an infusion is estimated by market indicators and is regulated by Article 40 of the Tax Code. If the income was received in connection with the acquisition of fixed assets, then it should not be less than the residual value, which is registered in the seller's account. Also, the minimum debt price can not be higher than the amount of costs that were incurred in connection with the manufacture of the goods.

In which case the debt is not subject to income tax

Gratuitous forgiveness of a debt can not be taxed on profit in the event that material values or money resources are received from the founder of the company with 50% participation or from a firm that has the same share of interest. Such a benefit can be used provided that the property was not transferred to third parties during the year.

The tax authorities are ambiguous about this privilege, since they believe that the forgiveness of the debt by the founder is a transfer of property right, and not of commodity values. For those who are ready to defend their point of view in court, it is recommended to take advantage of the judicial practice that has developed in similar cases.

Debt forgiveness with reimbursement

Let's consider such situation when the supplier is ready to forgive a debt in exchange for certain obligations from the borrower. Such actions can not be called gratuitous forgiveness. In accounting, accounts payable written off in connection with the expiry of the limitation period are reflected in the composition of non-operating income.

When the revenue part is formed due to a debt forgiven, the taxable base is increased , so it is very important to make a proper assessment of the debt so that the received amounts do not cause criticism from the tax inspectorate. It would be most correct to bring exactly the amount of debt that the creditor forgave to the revenue part. As a result of such an operation, the buyer has the right to take into account also the input VAT in his expenses.

Making out the contract of forgiveness of debt, it is necessary to prescribe in this document all the conditions on which the seller forgives the debt to the buyer. Only in this case it is possible to include a forgiven amount in the income. All actions of the accountant are regulated by Article 250 of the Tax Code of the Russian Federation by paragraph 18.

To restore VAT on debt forgiveness

Currently, the law establishes the right to deduct VAT on purchased goods even if it has not been paid. Considering the situation on the forgiveness of debt, you can face the question of how to proceed in such a case with VAT.

On the one hand, in such a situation, all the conditions for accepting a deduction are met. The seller issued an invoice, and the received goods were used in economic activities subject to VAT. Therefore, many do not have questions with a deduction. In turn, the seller also carried out the necessary procedures for calculating VAT for payment to the budget from the part of the sale whereby the debt was forgiven. As a result, there was no underpayment to the state budget.

Nevertheless, the controlling authorities think differently. Taxes, as before, believe that the buyer who has not paid for the goods, is not entitled to a deduction. They refer to legislation, which states that VAT deduction is possible only if real costs are incurred. And since the contractual obligations have been canceled, there can not be any expenses on them. Consequently, deduction of value added tax is impossible.

Due to the fact that the situation is ambiguous, each company makes a decision based on its knowledge of the laws.

Can a bank forgive a loan debt

Forgiveness of contractual obligations associated with obtaining a loan, always takes place on the initiative of the bank. If the creditor decides to unilaterally forgive the debtor, then he is sent an official notification of this intention. This document is sufficient to ensure that the debtor considers himself exempt from the obligation to pay the loan, but on condition that he himself does not mind. If such a decision is taken by mutual consent, the parties conclude a contract for the forgiveness of the debt, which prescribes the conditions for the compensation or gratuitousness of such a decision. After the termination of obligations on the main debt, the need to pay interest also disappears.

When a debtor is free of charge of a credit obligation, such procedure is given the status of a gift operation.

Who can count on forgiveness of credit obligations?

Usually the forgiveness of a debt to a loan is initiated by the bank itself, and not at the personal request of the debtor.

A credit institution can easily forgive a debt for a small amount due to the fact that the costs spent on recovering the principal debt will be higher than the loan amount. Typically, small banks give the banks collectors, but not always such a method is considered beneficial for the credit institution. Many banks simply do not work with collection agencies, and the debt collection departments are looking for a larger debt.

Expiration of the statute of limitations on the loan

Another reason why a bank can forgive a debt to a creditor is the expiry of the statute of limitations. If three years have passed since the date of the next payment, the claims of the credit institution are considered to be canceled. Together with the main debt, there is no need to pay interest and penalties. The guarantor is also exempt from the obligation to fulfill contractual obligations.

Special circumstances that result in the cancellation of a debt

In the Civil Code, there are special circumstances, as a result of which the debts on the loan are closed. Such situations include the death of the client, the disappearance of the debtor, the absence of contractual obligations for the continuity of debt in the form of inheritance.

The agreement on the forgiveness of a debt may contain various conditions for the termination of duties. For example, the debtor undertakes to return the principal amount in exchange for exemption from interest and forfeit. Such a scheme is beneficial to the bank, since it receives the bulk of the money, which is the most valuable in comparison with accrued interest.

How to apply for debt forgiveness, a sample agreement

In order not to wait for the expiry of the statute of limitations for bad debts, there is an official document, through which an agreement on termination of debt obligations is drawn up. On the basis of signed securities, forgiven debt can be written off into expenses, and thereby saving on taxation. In the form of an alternative option, the debtor can agree on the return of part of the money in exchange for writing off a certain amount of debt.

Whatever the terms of the agreement, such a document must be filled in accordance with the requirements of the tax authorities. In order to avoid unpleasant moments with the supervisory authorities, the contract on closing the debt must necessarily be paid. The document must contain basic information about the debt, the reason for the non-return of the monetary amount, the amount of interest and penalties.

In the case of a partial return of funds, which is most preferable from a tax point of view, it is necessary to indicate the exact amounts of the new obligation and the terms of its repayment.

If the parties nevertheless made a decision on gratuitous forgiveness of a debt, the reason for such an agreement may have to be explained to the tax inspector. In this regard, it is recommended that the forgiveness of a debt be properly drawn up. Tax consequences that may result from non-compliance with regulations can significantly affect the creditor's finances.

Partial or complete forgiveness of debt to an individual

Such a phenomenon, as forgiving a debt to an employee or another individual, is quite frequent. The organization carries out this procedure on the basis of the Civil Code. If a company closes a debt to its employee, then he, in turn, has income that is subject to income tax. Legislation establishes a non-taxable exemption with regard to donating gifts and providing material assistance. Gratuitous forgiveness of a debt may well receive a gift status, therefore the amount of income that does not exceed 4000 rubles is not subject to income tax.

Controversial duty for calculating insurance premiums

In addition to personal income tax, the amount of the non-repayable loan is subject to insurance premiums, since the indirect income was received by the employee within the framework of the employment contract. If the company does not want to accrue such contributions, motivating its decision by the fact that the employee's income is not connected with the performance of labor obligations, then this viewpoint will have to be defended in a special way, referring to a similar arbitration practice.

There are several official letters that express an unambiguous position on the need to calculate insurance premiums when canceling the debt of an individual. In turn, judicial practice suggests that the closure of a debt obligation can not be attributed to labor relations, unless this is word-for-word spelled out in the contract. In this regard, companies are easier to formalize the forgiveness of debt in the form of a gift agreement. It is worth noting that such a formulation is of no fundamental importance for the debtor himself.