One of the grounds for termination of contractual obligations between legal entities and individuals may be forgiveness of the resulting debt. This opportunity is rarely used in business practice, since the nature of the transaction raises many questions related to the legality of actions and documentation. When faced with the decision of such business operations, even specialists have difficulties with calculating and paying the necessary tax payments.
So what is debt forgiveness and how realistic is it to document such a situation in compliance with the established legislation?
When you need debt forgiveness
An operation to terminate a debt obligation is a cancellation of a debtor's obligation to a creditor. Such actions are possible only if they do not violate the rights of third parties.
Quite rarely, debt forgiveness between legal entities is called a deal at no cost. An example is a household tool such as discounts that a buyer receives for fulfilling certain conditions.
When considering the issue of debt forgiveness, it is necessary to separate the term “gratuitous transfer”, as these are completely different concepts. In the case of free transfer of funds or goods, the buyer greatly simplifies the calculations related to taxation of profits and reduces losses from VAT.
Forgiveness of debt on free terms
Gratuitous closing of the debt can be considered a situation where the creditor does not require the debtor money or property that he must give to repay the debt. It is worth noting that under the laws of the Civil Code, commercial companies cannot conclude a gift agreement in the amount of more than 500 rubles. In this regard, for a transaction to be valid, a gratuitous debt forgiveness by a legal entity must not violate this limit, or an individual, such as a founder, must be a creditor. Also, such transactions are possible with non-profit organizations.
Debt, which receives the status of gratuitously forgiven, is fully included in non-operating income. Moreover, the cost of such an injection is estimated by market indicators and regulated by article 40 of the Tax Code of the Russian Federation. If the income was received in connection with the acquisition of fixed assets, then it should not be less than the residual value, which is recorded in the account of the seller. Also, the minimum price of debt cannot be higher than the amount of expenses that were incurred in connection with the manufacture of the goods.
In which case closing a debt is not subject to income tax
Gratuitous debt forgiveness cannot be taxed on profit if tangible assets or funds are received from the founder of a company with 50% participation or from a company that has the same percentage. You can take advantage of this benefit provided that the property is not transferred to third parties during the year.
Tax authorities are ambiguous about such a privilege, since they believe that the forgiveness of debt by the founder is a transfer of property law, and not commodity values. For those who are ready to defend their point of view in court, it is recommended to use the judicial practice that has developed in such cases.
Forgiveness of debt with repayment
Consider a situation where the supplier is ready to forgive the debt in exchange for certain obligations on the part of the borrower. Such actions cannot be called gratuitous forgiveness. In accounting, accounts payable written off in connection with the expiration of the statute of limitations are reflected in non-operating income.
When generating revenue through forgiven debt, the tax base increases , so it is very important to make a correct assessment of the debt so that the amounts received do not cause complaints from the tax inspectorate. It would be most correct to deposit exactly the amount of debt that the creditor has forgiven to the revenue side. As a result of such an operation, the buyer has the right to take into account input VAT in his expenses.
When drawing up a debt forgiveness agreement, it is necessary to write down in this document all the conditions under which the seller forgives the debt to the buyer. Only in this case can a forgiven amount be included in income. All accountant actions are governed by article 250 of the Tax Code of the Russian Federation, paragraph 18.
Whether to recover VAT on debt forgiveness
Currently, the law establishes the right to deduct VAT on purchased goods even if it has not been paid. Considering the situation of debt forgiveness, one may encounter the question of what to do in this case with VAT.
On the one hand, in such a situation all the conditions for accepting a deduction are met. The seller issued an invoice and the goods received were used in business activities subject to VAT. Therefore, many do not have questions with a deduction. In turn, the seller also carried out the necessary procedures for calculating VAT for payment to the budget from that part of the sale for which the debt forgiveness was decided. As a result of underpayment to the state budget did not happen.
Nevertheless, regulatory authorities think differently. Tax officials, as before, believe that the buyer who has not paid for the goods has no right to deduction. They refer to the legislation, which states that VAT deduction is possible only if real costs are incurred. And since the contractual obligations were canceled, there can be no expenses on them. Consequently, the deduction of value added tax is not possible.
Due to the fact that the situation is ambiguous, each company makes a decision based on its knowledge of the laws.
Can a bank forgive a loan debt
Forgiveness of contractual obligations associated with obtaining a loan always occurs at the initiative of the bank. If the creditor decided to unilaterally forgive the debtor, then an official notification of such intention is sent to him. This document is quite enough for the debtor to consider himself exempted from the obligation to pay the loan, but provided that he does not mind. If such a decision is adopted mutually, then the parties enter into a debt forgiveness agreement, which prescribes the terms of compensation or gratuitousness of such a decision. After the termination of obligations on the principal debt, the need to pay interest also disappears.
With the free release of the debtor from the loan obligation, such a procedure receives the status of a gift operation.
Who can count on forgiveness of credit obligations
Usually a debt forgiveness to a loan is initiated by the bank itself, and not at the personal request of the debtor.
A credit institution may well be able to forgive a small amount of debt due to the fact that the costs spent on collecting the main debt will be higher than the amount of the loan. Banks usually give small debts to collectors, but this method is not always considered beneficial for a credit institution. Many banks simply do not work with collection agencies, and debt collection departments are looking for larger debts.
Credit expiration
Another reason why a bank can forgive a debt to a creditor is the expiration of the limitation period. If three years have passed since the day of non-payment of the next payment, then the requirements of the credit institution are considered canceled. Together with the main debt, the need to pay interest and forfeit disappears. The surety is also exempted from the obligation to fulfill contractual obligations.
Special circumstances resulting in debt cancellation
There are special circumstances in the Civil Code, as a result of which loan debts are closed. Such situations include the death of the client, the disappearance of the debtor, the absence of contractual obligations for the continuity of debt in the form of an inheritance.
A debt forgiveness agreement may contain various termination conditions. For example, the debtor undertakes to return the principal in exchange for exemption from interest and penalty. Such a scheme is beneficial to the bank, since it receives the bulk of the money, which is of the greatest value in comparison with the accrued interest.
How to apply for forgiveness, sample agreement
In order not to wait for the expiration of the statute of limitations for bad debts, there is an official document with the help of which an agreement on termination of debt obligations is drawn up. Based on the signed papers, it is possible to write off the forgiven debt into expenses, and thereby save on taxation. In the form of an alternative option, the debtor may agree to return part of the money in exchange for writing off a certain amount of debt.
Whatever the terms of the agreement, such a document must be completed in accordance with the requirements of the tax authorities. In order to avoid unpleasant moments with regulatory authorities, a debt closure agreement must be paid for. The document must contain basic information about the debt, the reason for the non-return of the amount of money, the amount of interest and fines.
In the case of a partial refund, which is most preferable from a tax point of view, it is necessary to indicate the exact amount of the new obligation and the timing of its repayment.
If the parties nevertheless decided to forgive the debt free of charge, then the reason for such an agreement may have to be explained to the tax inspector. In this regard, it is recommended to properly draw up debt forgiveness. Tax consequences that may result from non-compliance with the rules can significantly affect the finances of the lender.
Partial or complete forgiveness of debt to an individual
Such a phenomenon as debt forgiveness to an employee or other individual is quite common. The organization carries out this procedure on the basis of the Civil Code. If the company closes the debt to its employee, then he, in turn, has an income that is subject to income tax. Legislation has established an exemption for gift giving and financial assistance. Gratuitous debt forgiveness may well receive gift status, therefore, income taxes are not subject to amounts not exceeding 4,000 rubles.
Controversial liability for assessing insurance premiums
In addition to personal income tax, insurance premiums are accrued on the amount of a non-repayable loan, since indirect income was received by an employee under an employment contract. If the company does not want to charge such contributions, justifying its decision by the fact that the employee’s income is not related to the fulfillment of labor obligations, then this point of view will have to be defended in a special way, referring to similar arbitration practice.
There are several official letters that express an unequivocal position on the need to accrue insurance premiums when canceling a debt of an individual. In turn, judicial practice suggests that closing a debt obligation cannot be considered a labor relationship unless it is verbatim in the contract. In this regard, it is easier for companies to draw up debt forgiveness in the form of a deed of gift. It is worth noting that such a wording does not have fundamental significance for the debtor himself.