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Valuing Property Received From Subsidiary Liquidations For Tax Purposes In Russia


The Ministry of Finance (MinFin) very unexpectedly decided to do a favor to owners liquidating LLCs in Russsia. In its opinion, if, in the process of dividing assets, shareholders receive property rather than funds, this property

  • is not recognized as uncompensated
  • may be included in tax accounting according to the market price of this property on the date it was received, even though the Tax Code does not contain norms for its valuation.

MinFin is apparently ready to also allow property to be similarly valued when received when shareholders opting out from an LLC and also in the process of liquidating an LLC. The Ministry even supported a proposal of the Federal Tax Service on introducing appropriate legislative amendments for these situations.

So, for example, after creditors have been settled with, a parent company will divide the remaining property from the liquidated company between the shareholders. If the company was able to sell all assets, there should be no problems with this. However, usually the company is not able to sell some of the assets at the best price, or, on the other hand, shareholders may want to keep and divide the assets themselves. How should this be reflected in thee shareholders’ tax accounting?

If the market value of the received property (proprietary rights) exceeds the actual price of shares paid by participating companies, this excess creates extraordinary revenue. In this case, since the Tax Code did not state otherwise, formerly MinFin allowed this to be recorded as excessive income. For example, if a shareholder purchased a share for 100 rubles, and at the time of liquidation of company received assets to the amount of 120 rubles, he must account for income of 20 rubles, and these 20 rubles will represent the base cost of his property for calculating depreciation.

MinFin used to argue that if the cost of the received property was less than the purchase price of the company share, then there was no profit, nor expenses for the received property. So, if you invested 120 rubles, but received goods for only 100 rubles, then the goods held zero value, and you would not be able to account for the loss, either.

But now the Ministry has showed mercy and allowed property received from an LLC liquidation to be recorded according to its market value, regardless of whether any profit was received.

  • If shareholder received assets, the base cost of the asset will be represented by market value and depreciation must be calculated based on this value.
  • If the shareholder received other types of property or proprietary rights, their taxable price is also determined based on market value. This price may be accounted as expense, for example, in a future sale of this property.

Comment. This issue has already received a court consideration. As would be expected, the court took a side of the taxpayer – a shareholder of a liquidated LLC. It ruled that the shareholder has a right to calculate the tax value of a received property based on its market value. 

Thus, when leaving a company (LLC) or upon it’s liquidation (LLC or JSC), shareholders now do not need to use “round-about” maneuvers, such as purchasing property from the company being liquidated and then returning the funds received in the process of final liquidation. Now, receiving such property in the process of company liquidation will not lead to tax-related losses.

However, this does not apply equally to all. Companies utilizing simplified taxation will not be able to include property received after liquidation without a dispute. On one hand, MinFin is ready to admit that the participant did not receive the property for free. On the other hand, there is no actual payment involved in the transaction. In the same manner MinFin does not allow companies with simplified taxation to report as expenses property included in charter capital.

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