On March 27, 2017, the Supreme Court of the Russian Federation published the full text of the Definition in case No. A40-213762 / 2014. Within the framework of this litigation, the case of EuroChem MCC, where the taxpayer challenged the unlawful exclusion of expenses from the tax base for income tax in the form of cash payments to employees upon termination by agreement of the parties, was considered.
The circumstances of the case were as follows:
In 2011-2012. The taxpayer, upon the termination of employment contracts by agreement of the parties, paid compensation to employees who are dismissed in the amount of up to 5 average monthly earnings, provided for by the relevant agreements. When calculating the profit tax, such costs were attributed by the company to the composition of tax expenses. The tax authority during the on-site inspection excludes these expenses from the tax base as economically unjustified, which became the subject of a dispute.
After two rounds in the courts of various instances, the cassation failed to satisfy the taxpayer's statement, recognizing the position of the inspectorate as valid on the grounds that it was impossible to classify disputable expenses as part of labor costs (ie, non-compliance with the provisions of Article 255 of the RF Tax Code).
The final point in this matter was put by the Supreme Court, by repealing the decisions of the courts of three instances and adopting a new judicial act in the case. In the framework of the case, the Supreme Court of the Russian Federation recognized the position of the inspection as illegitimate. The main argument was that the size of the compensation payment (up to 5 average monthly earnings) is comparable to the expenses incurred in connection with the liquidation of the organization or the reduction in the number or staff (taking into account the provisions of Article 180 of the LC RF).
Taking into account the conclusions made in the Supreme Court Definition, as well as the latest trends in judicial practice, it is possible to assume a positive trend for resolving tax disputes on issues of cash compensation to employees upon termination of employment contracts by agreement of the parties and expansion of the safe limits of the amount of such compensation to 5 average monthly earnings.
Tex Definitions is available at http://kad.arbitr.ru/PdfDocument/a47d9445-a80c-43c4-830c-fa2f6dfe4eda/A40-213762-2014_20170327_Opredelenie.pdf