Business asked the authorities not to levy tax on the conversion of foreign currency loans

Russian companies should be exempted from paying tax liabilities that they incurred due to the appearance of exchange income when converting foreign currency loans into rubles due to sanctions. This proposal was made by the Russian Council of Shopping Centers (RSTC). The association, which brings together Russian developers, owners of shopping centers, management companies in the commercial real estate market, on September 26 sent a letter to the Ministry of Finance, the Ministry of Economic Development, the Ministry of Industry and Trade and the State Duma, asking them to make appropriate amendments to the Tax Code. RBC has a copy of the letter, RSTC confirmed that it had been sent to the departments.

Key Russian banks (including Sberbank, VTB, Alfa-Bank, Otkritie) came under US and EU blocking sanctions and lost the opportunity to work with dollars and euros, explains Dmitry Moskalenko, president of the RSTC. Some corporate borrowers who took foreign currency loans from Russian banks also fell under the sanctions. According to the Central Bank, as of August 1, 2022, slightly more than 10% of the domestic debt of Russian legal entities and individual entrepreneurs (the equivalent of 4.57 trillion rubles) was denominated in foreign currency, compared to 6.5 trillion rubles. at the beginning of 2022. Since the end of February, the banks themselves have ceased to publish reports, including on the volume of the loan portfolio in rubles and foreign currency.

“In order to neutralize the currency risk, creditor banks and borrowing companies are actively working to convert foreign currency loans into rubles. At the same time, <...> borrowers receive income from the currency revaluation of the obligation, the value of which is expressed in foreign currency. <...> The resulting exchange rate differences are generally reflected as income (expenses) in tax accounting,” Moskalenko said.

Since such a conversion of foreign currency loans for sanctioned parties is not the result of “the free will of Russian companies”, the association proposes “to contribute to amending the Tax Code in terms of special rules for recognizing exchange rate differences as part of income and expenses when calculating income tax, namely: for sanctions banks and organizations controlled by persons included in the sanctions lists, when converting foreign currency liabilities into ruble ones, do not recognize exchange differences from these operations when calculating income tax as income.

When converting a foreign currency loan into rubles, those borrowers who borrowed at a rate higher than the current one at the time of conversion receive income in the form of a saved amount in rubles, explains Lyudmila, HEAD of the Structural and Tax Consulting practice at the law firm Lemchik, Krupsky and Partners Kruglov. For example, if a Russian company took out a loan of $1 million at the end of September 2021 at the rate of 73 rubles. per DOLLAR, and in September 2022 converted it into rubles at a rate of 58 rubles. per dollar, then the exchange rate gain for the borrower will be 15 million rubles.

“The current tax legislation provides that such a change in the exchange rate generates taxable income, from the amount of which it will be necessary to pay income tax (20%) or tax under the simplified taxation system (15 or 6% depending on the object of taxation)”, — says Kruglova. If the proposed changes are adopted, borrowers will be relieved of the obligation to pay tax on the resulting exchange rate difference, which can be considered an additional measure to support businesses, she emphasizes.

If in 2021 the average exchange rate of the dollar against the ruble was 73.7 rubles. per dollar, and the euro - 83.1 rubles, then as of September 26, 2022, the dollar fell in price by 21% (to 58.1 rubles), and the euro - by 32% (to 56.5 rubles), follows from data of the Bank of RUSSIA. The RSTC notes that with regard to positive exchange rate differences on currency claims or obligations arising in 2022–2024, the government has established special rules, but the procedure for calculating differences has not changed: they should be included in income only on the date of termination or fulfillment of these requirements ( monthly is not required).

The RSTC proposal in its current form, in fact, assumes that the recipients of Russian tax preferences will be determined by jurisdictions that impose sanctions against Russian banks or companies, says Alexander Erasov, partner in the IEF's tax practice. In his opinion, “it is better to harmonize approaches to accounting for exchange rate differences for the benefit of all taxpayers without their segregation (depending on whether a person is under sanctions or not. -)”. This approach is preferable "both from the point of view of the principle of equality and from the point of view of the effectiveness of tax administration," Yerasov notes.

“The Russian Ministry of Finance will consider this initiative when the RSTC letter reaches the ministry,” RBC was told in the press service of the Ministry of Finance. RBC also sent a request to the Ministry of Economic Development.