VAT Received By STS Users Not Considered Income

In 2003, business owner “P” (who asked not to be identified) switched to the simplified taxation system (STS) in order to take advantage of the more straightforward “income minus expenses” model. However, he continued to give his customers invoices with the value-added tax (VAT) included in them. The business owner did not carry over the amount of VAT he received into his overall budget or include it in his reported income.

The tax authorities decided to charge the business owner for the VAT as well as the unified social tax, along with late payment charges and a fine. The business owner disagreed with the tax authorities’ decision and appealed against it. However, courts of the third instance stated that the decision was legal and that the business owner should have taken his case to Russia’s Supreme Arbitration Court (SAC.)

The Presidium of the SAC reversed the lower courts’ decisions, saying that the totals were calculated groundlessly and the amount the business owner received as VAT under STS is not part of his income to be taken into account when calculating the amount of tax he should pay (SAC Presidium Resolution #17472/08 from 9-1-2009.)