What is property repayment?
Modern lending makes it possible to get a loan secured by property: in this case, the borrower has the opportunity to get a loan for a larger amount than without collateral. But, if the client suddenly stops paying the loan, the collateral will be transferred to the lender against the loan. Paying off the debt will essentially turn into an assignment of property. When the property is transferred to the lender, the borrower's obligation is released if the value of the property equals or exceeds the loan amount. A few things need to be clarified right away:
- if the loan was taken out with interest, they are usually accrued in full before payments begin;
- after the transfer of property, the obligations are completed, the debt is considered repaid;
- if the collateral has a greater value than the amount of debt, the loan is repaid in full with its help, and the remaining funds are returned to the borrower;
- the value of the property must correspond to the real or market price.
Taxation of property transfers
The transfer of property to pay off a loan, according to paragraph 1 of Article 39 of the Tax Code, is considered a sale of property and, like any sale, is subject to taxes. It may be necessary to draw up relevant documents and submit them to the fiscal authorities. It is worth considering that if the value of the property differs from the amount of debt, tax risks may arise. You need to be careful when drafting documents. Competent and responsible lenders will not allow such a risk for the borrower and will tell you how to avoid it.
Taxes and Law
The loan is repaid by returning funds to the lender. But on the repayment date, the borrower may not have the required amount, as a result of which the parties may enter into a compensation agreement, according to which the loan debt will be repaid by the transfer of some property. However, before embarking on such a transaction, you need to familiarize yourself with the possible tax consequences.
Legal nuances
According to Article 409 of the Civil Code, by agreement of the parties, an obligation, including a loan, can be terminated by providing compensation in return for execution. In other words, instead of money, the borrower can transfer goods, fixed assets or other property to the lender.
In this case, the amount, terms and procedure for providing compensation are established by the parties. Within the meaning of Article 409 of the Civil Code of the Russian Federation, unless otherwise follows from the compensation agreement, with the provision of compensation, all obligations under the contract are terminated, including the obligation to pay a penalty (clause 3 of the information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 21, 2005 No. 102).
The compensation value specified in the agreement may be higher or lower than the obligation being terminated. In such a situation, it is extremely important to clearly indicate in the agreement whether the obligation is repaid in full or in part (and in what part). In the absence of this information, the courts proceed from the fact that the obligation is terminated completely (clause 4 of the information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 21, 2005 No. 102).
When indicating in the compensation agreement the value of the transferred property, it is not at all necessary to focus on the value at which the transferred property was listed in the borrower’s books. It may well be that the residual value of the transferred fixed asset is less than the value specified in the agreement, and the parties decide that the transfer of this property completely terminates the obligation. The opposite option is also possible - the residual value is higher than the value specified in the compensation agreement.
However, if the value of the property specified in the compensation differs from the amount of the terminated obligation, the parties face certain tax risks. We'll talk about them a little later.
Upon transmission, an implementation occurs
When repaying a loan debt by transferring property, it should be understood that such transfer is regarded as a sale. Indeed, according to paragraph 1 of Article 39 of the Tax Code, the sale of goods by an organization or individual entrepreneur is recognized as the transfer of ownership of goods to another person on a compensated basis. In this case, when transferring property, a transfer of ownership occurs, which means there is a sale. And sales, as you know, are subject to taxes. If the borrower works for OSNO, then the obligation to pay VAT and income tax arises. Accordingly, when transferring the compensation, the borrower will have to draw up an invoice.
Here you should determine what amount should be included in the tax base for taxes. So, the tax base for VAT on sales is determined based on market prices, that is, the price specified by the parties to the transaction (clause 1 of Article 154 of the Tax Code of the Russian Federation, clause 1 of Article 40 of the Tax Code of the Russian Federation), without including tax. This means that when calculating VAT, you need to focus on the value of the property specified in the compensation agreement. This opinion is also supported by officials (letter of the Ministry of Finance of Russia dated July 27, 2005 No. 03-11-04/2/34).
Example 1
The debt under the loan agreement, taking into account accrued interest, amounted to 630,000 rubles. The borrower transfers a car, the cost of which is indicated in the agreement in the amount of 540,000 rubles, as payment for the repayable obligation. (VAT included). The compensation agreement provides for full repayment of the obligation.
When transferring a car as compensation, the borrower has a sale subject to VAT. The tax base for VAT will be 457,627 rubles. (540,000 rub. – (540,000 rub. x 18/118%)). The tax amount is RUB 82,373. (RUB 457,627 x 18%).
Also, the borrower will have to reflect the income in tax accounting, that is, for the purpose of calculating income tax. According to paragraph 1 of Article 249 of the Tax Code of the Russian Federation, sales income is revenue from the sale of goods. And sales revenue is determined based on all receipts associated with payments for goods sold (clause 2 of Article 249 of the Tax Code of the Russian Federation). In this case, the income included in taxable profit will be 457,627 rubles. (540,000 rubles – 82,373 rubles (this is the amount of VAT)). But at the same time, the borrower has the right to include the residual value of the car as an expense item (subclause 1, clause 1, article 268 of the Tax Code of the Russian Federation).
The party that received the compensation (the lender) will be able to deduct the amount of VAT included in the cost of the compensation based on the received invoice.
Compensation to “cover” the advance
It is worth remembering that with the method of terminating the obligation described above, the parties may face tax risks. There is a high probability that the tax authorities will regard the loan received as cover for an advance payment for the upcoming supply of goods. Then, naturally, they will try to collect tax, penalties and fines from the borrower for not paying VAT on the advance payment at the time. It should be noted that some organizations actually use such a scheme to avoid charging VAT on advances received.
To minimize risks, you should not resort to this method of repaying the loan too often. An additional argument in favor of the taxpayer will be the fact that the lender, who agreed to this method of repaying the obligation, was not previously (and subsequently became) the buyer of the borrower company. If this condition is met, it will be difficult for the tax inspectorate to prove the existence of the scheme.
The situation under consideration is fraught with other risks. Thus, the FAS of the Central District considered a similar situation, however, it was not about compensation, but about novation (with novation, the original obligation that existed between the parties is replaced by another obligation, providing for a different subject or a different method of fulfillment). In this case, the judges qualified the amount of the loan novated into the supply agreement as an advance payment. Moreover, the moment of determining the tax base in the case under consideration, the arbitrators recognized not even the date of concluding the novation agreement, but the date of receipt of borrowed funds (resolution of the Federal Antimonopoly Service of the Central District dated January 22, 2009 in case No. A64-7270/07-13). But, perhaps, if we were talking about compensation, the situation would have been resolved in court in favor of the taxpayer.
If we talk about the explanations of officials, they inspire some optimism. For example, previously officials took the following position. When concluding an agreement on the novation of a borrowed obligation into an obligation to supply goods, the borrowed funds received are considered as advance payments towards the upcoming supply of goods, and are subject to inclusion in the VAT tax base in the tax period in which they were received (letter from the Ministry of Finance of Russia dated 07.09 .05 No. 03-04-11/221).
Subsequently, the Federal Tax Service, in coordination with the Ministry of Finance, issued a letter dated November 28, 2008 No. ШС-6-3/ [email protected] In it, officials noted that when an agreement is concluded between the borrower and the lender on the repayment by the borrower of its obligations under the loan agreement by shipping goods to the lender, funds received by the borrower in accordance with the loan agreement should be considered on the date of conclusion of the specified agreement as an advance payment for the upcoming delivery of goods. That is, now the official position of the tax and financial departments is that the obligation to calculate VAT arises not at the moment when the money was received as a loan, but at the moment when the parties entered into an agreement on compensation or novation. It’s good if the drawing up of this agreement and the transfer of property takes place in the same quarter. If the transfer of property occurs in another quarter, then the borrower faces new tax risks.
But here you can put forward the following argument. Until the compensation is granted, the obligation to repay the loan actually continues to exist. The Presidium of the Supreme Arbitration Court of the Russian Federation drew attention to this in paragraph 1 of the information No. 102 mentioned above, indicating that the obligation (to repay the loan) terminates from the moment the compensation is provided in return for performance, and not from the moment the parties reach an agreement on compensation. Therefore, loan debt cannot be considered an advance payment. However, this point of view will most likely have to be defended in court.
Unequal "exchange"
The following tax risks arise in a situation where the value of the property specified in the agreement does not coincide with the amount of the loan obligation being repaid, and in this case the obligation is terminated completely.
If the value of the property exceeds the terminated obligation, then the risks arise with the receiving party (the lender). Officials believe that in this situation the organization must reflect non-operating income on which it is necessary to pay income tax. This conclusion can be seen, for example, in letters from the Ministry of Finance of Russia dated 02/03/10 No. 03-03-06/1/42, Federal Tax Service of Russia for Moscow dated 12/05/07 No. 19-11/116142.
In the opposite situation (the value of the property is less than the amount of the terminating obligation), risks arise with the transferring party, that is, with the borrower. Inspectors may consider that he has generated non-operating income in the amount of the excess. At the same time, the loss that the other party (the lender) receives, according to officials, cannot be taken into account for tax purposes. This is precisely the picture observed in the above example, when a car worth less than the amount of the obligation is transferred to terminate a loan obligation.
Example 2
Let's use the conditions of example 1. To avoid tax risks, the borrower must reflect non-operating income in the amount of 90,000 rubles. (630,000 – 540,000). And the lender has a loss in the amount of 90,000 rubles. will not be taken into account for tax purposes.
Thus, to minimize these risks, when setting the compensation price, it is best to focus on the amount of the terminated obligation. That is, draw up an agreement so that it follows from it that the parties agree on an equivalent “exchange”.
However, if the amount specified in the agreement differs significantly from the value of the property according to the accounting data of the transferring party, then the tax authorities may make claims against the receiving party. Such claims, in particular, were considered in the resolution of the Federal Antimonopoly Service of the North Caucasus District dated September 24, 2009 No. A32-14927/2008-51/113. In this dispute, the residual value of the transferred object was several times greater than the amount of the repaid obligation, and therefore the inspectorate assessed additional income tax on the company that received the compensation. The tax authorities considered that the excess cost was considered to be received free of charge. But the courts did not agree with this, since a gratuitous agreement is an agreement under which one party undertakes to provide something to the other party without receiving payment or other consideration from it. But in the dispute under consideration, the property was not transferred free of charge.
In addition, in addition to income tax, the inspectorate also assessed property tax, considering that the organization that received the compensation should have included the residual value of the property (formed, by the way, by the transferring party) in the property tax base. But the court also rejected this conclusion (www.buhonline.ru).
Types of payment with property
A banking organization or other creditor can accept property as debt payment using several algorithms.
Voluntary repayment.
The situation arises if the borrower himself wants to repay the debt and terminate obligations on account of any property, and the creditor is not against this outcome. If both parties reach an agreement, the loan will be repaid. As property that can be transferred as debt, the recipient may accept:
- real estate (residential and non-residential premises, land and underground plots, parking spaces, enterprises, unfinished construction objects with a foundation);
- vehicle or equipment;
- raw materials or finished product;
- securities, shares, bonds.
If the borrower is a legal entity, it may issue additional shares to transfer to the lender.
Pledge and sale.
Since, when drawing up an agreement, the borrower pledges some property (usually a car or an apartment), if he stops paying his obligations, the lender will have the opportunity to put the pledged property up for auction. True, things don’t come to such a turn very often, since it is more profitable for both the lender and the borrower to agree on restructuring. For those experiencing temporary financial difficulties, individual repayment terms may be provided: even for a bank, this is a more optimal solution than alternative options.
Forced repayment.
This rarely happens, usually in cases where it comes to litigation. For both the lender and the borrower, a court case is less beneficial than an agreement on a voluntary basis, so the situation develops in this scenario infrequently. For the borrower, the best option is to contact your lender and agree on an individual debt repayment scheme or restructuring. Moreover, even if a transfer of property is required, on a voluntary basis it is more profitable and convenient for the client himself.
Legal basis
The parties entered into a loan agreement.
Its maturity date is coming. But the borrower does not have available funds to repay his debt. But there is property that he would like to transfer to pay off his debt. And if the lender is not against such “repayment,” then the parties draw up an agreement on compensation (Article 409 of the Civil Code of the Russian Federation). In this case, the borrower’s obligation to repay the loan ceases, but a new obligation appears - to transfer property. Let us recall that until June 1, 2015, compensation was provided not only by transfer of property, but also, in particular, in the form of performing work (rendering services), since the previous version of Article 409 of the Civil Code of the Russian Federation contained an open list of methods for providing compensation.
It is important to know that the obligation is considered extinguished at the moment the compensation is provided, and not at the moment the agreement on it is signed. This means that on the date of concluding the agreement on the provision of compensation, the borrower’s obligation does not terminate. To terminate the obligation, the actual provision of compensation, that is, the transfer of property, is necessary. Therefore, if the loan is interest-bearing, then interest accrues until the borrower transfers the property. And if real estate is provided as compensation, then the compensation agreement is considered executed only after state registration of the transfer of ownership of the real estate to the creditor. This conclusion follows from the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated June 17, 2014 No. 2826/14 in case No. A57-2430/2011.
And one more important point. Within the meaning of Article 409 of the Civil Code of the Russian Federation, unless otherwise follows from the compensation agreement, with the provision of compensation all obligations under the contract are terminated, including the obligation to pay a penalty (clause 3 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 21, 2005 No. 102). This means that if the loan was interest-bearing, then with the compensation agreement all obligations are repaid, including the payment of interest. Unless, of course, otherwise provided in the agreement. Therefore, if the lender wants to receive his interest in cash, and the body of the loan itself is ready to receive “in kind,” then the corresponding procedure must be specified in the agreement. Otherwise, with the provision of compensation, the entire debt will be repaid, that is, the loan itself and the interest on it.
The value of the property transferred as compensation does not have to be equivalent to the debt under the terminated obligation (clause 4 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 21, 2005 No. 102, Resolution of the Federal Antimonopoly Service of the North-Western District dated March 16, 2012 in case No. A56- 30457/2009). Therefore, the borrower can set the value of the transferred property either higher or lower than his debt. In this case, the parties must decide whether the transfer of “unequal” property will repay the loan obligation in full? Or will it “cover” the debt only partially (in terms of the value of the transferred property)? The fact is that if this point is not reflected in the compensation agreement, then by default it is considered that the obligation is terminated completely (clause 4 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 21, 2005 No. 102).
How to pay obligations with property voluntarily
An agreement on the transfer of property to pay off a debt can be drawn up if both parties agree to it. Often such developments are initiated by the borrower himself, wanting to quickly get rid of obligations. The general terms of the agreement are given in the Civil Code of the Russian Federation, and after it is signed, it is no longer possible to make changes to the document. The agreement usually contains the following information:
- type of compensation;
- procedure and deadlines for fulfilling obligations;
- the amount of debt that will be repaid against the property;
- whether the property will be completely transferred or whether it will be partially transferred to the creditor;
- Will you need to pay a penalty?
Information about VAT is also recorded in the contract. The debt will be repaid after the property is officially transferred to the creditor, and this will be documented. In the case of real estate, it is possible to sell it, in which it is put up for auction, and the proceeds from it go towards paying off the debt. The remaining amount is returned to the borrower.
Taxation of transactions for the return of debt with property
When transferring property to a creditor to pay off a debt, the debtor incurs additional tax obligations, more about which below.
VAT
In accordance with paragraph 1 of Art. 39 of the Tax Code of the Russian Federation, the transfer of property to a creditor to pay off a debt is recognized as a sale, and therefore is subject to VAT in the general manner.
Based on the Tax Code of the Russian Federation, the object of VAT taxation is the transfer of ownership of property on a reimbursable basis. Based on the compensation agreement, one of the parties transfers ownership of the property to the other in exchange for repayment of the debt (that is, there is a compensation basis for the transaction being carried out).
The basis for calculating VAT is the value of the property specified in the compensation agreement. Please note that by signing the agreement, the parties approve the value of the property based on its market price, taking into account:
- expert opinions (based on an independent assessment);
- accounting data of the debtor (residual value of the property valid as of the date of signing the compensation agreement).
If the agreement is signed and the property is transferred to the creditor before 01/01/2022, the debtor charges VAT at a rate of 18%. When transferring property in 2022, VAT is calculated at a rate of 20%.
Operations to repay debt with property are reflected by the debtor in the VAT return.
As for documenting the transfer of property under a compensation agreement, the debtor provides the creditor with not only the transfer and acceptance certificate, but also an invoice, which is reflected by the debtor in the Sales Book.
Income tax
According to paragraph 1 of Art. 249 of the Tax Code of the Russian Federation, the transfer of property by the debtor to the creditor to repay the debt is accompanied by the emergence of income for the debtor. The amount of income from operations within the framework of the compensation agreement is determined on the basis of the value of the property specified in the agreement, excluding VAT.
In accordance with paragraph 2 of Art. 249 of the Tax Code of the Russian Federation, transactions involving the transfer of property are recognized as taxable revenue, because the source of its receipt can be, among other things, payments for non-sale goods.
The amount of proceeds equal to the value of the transferred property excluding VAT is the taxable base for the debtor’s calculation of income tax.
Based on paragraph 1 of Art. 268 of the Tax Code of the Russian Federation, the statistical value of property transferred as compensation is included in tax expenses.
Is it necessary to pay with property?
If we are talking about a voluntary transfer, then it is possible only on the initiative of both parties to the agreement. If the property is not pledged at the conclusion of the contract, no one has the right to oblige the borrower to use it to pay off the property. If a creditor names you as a debtor and tells you that they will demand property from you against your will, it is most likely fraud or misrepresentation. Forced collection is possible only by court decision, and competent creditors try not to initiate legal proceedings. For a conscientious organization, the priority is to relieve the client of the credit burden, so it will offer the widest possible range of options for solving the problem. If you do not want to pay off the debt with property, it is quite possible that you will be able to agree on a restructuring or an individual payment schedule.
Repayment of funds under a loan agreement - legal nuances
The main meaning of a cash loan agreement is the transfer of funds for a certain period of time by one party (the lender) to the other (the borrower). If the terms provide for the accrual of interest, the investment interest rate is specified separately. If the amount is issued without the borrower receiving additional profit, it is considered that the funds are transferred free of charge.
At the end of the transaction period, funds are returned under the loan agreement by bank transfer or in cash. The method and volume (one amount or several payments) are indicated in the conditions along with penalties for late payments. The borrowing company has the right to transfer the debt from the current account - for identification it is necessary to correctly fill out the “Purpose of payment” in the payment document. The number and date of the agreement must be provided. Or the funds can be returned to the cash desk of the lending party, taking into account the current cash circulation limit (RUB 100,000). In the latter case, a cash receipt order is drawn up.
Note! It does not matter how exactly the loan obligation is repaid. The main thing is the presence of documents confirming the fact of execution of the operation, recording who, to whom and in what amount returns the funds.
