Tax Digest: Key Changes and Disputes in July

July 2025 brought significant tax legislation updates and contentious court battles. Lawmakers expanded the Federal Tax Service’s (FTS) powers, introduced new collection mechanisms and tax breaks, while courts grappled with complex VAT and personal income tax (PIT) issues.

1. Expanded FTS Powers: Business Assessments & Out-of-Court Collections

• Business Activity Assessment (Effective Jan 1, 2026): The FTS gained authority to assess the reliability of financial and tax reporting by legal entities and individual entrepreneurs based on established criteria. Assessment results (“extracts”) will be available to the entity itself and interested third parties. Disagreements can be challenged within 5 days, though the FTS is not obligated to revise its assessment. Legal experts warn this could become a mandatory element in counterparty due diligence, increasing pressure on businesses.
• Out-of-Court Debt Collection from Individuals (Effective Nov 1, 2025): The FTS can now collect tax debts, fees, insurance contributions, penalties, and fines from individuals without a court order, but only if the taxpayer raises no objections. If the taxpayer disagrees, they can file a request for recalculation or a complaint (before or after the payment deadline), forcing the FTS to pursue collection exclusively through the courts. The law guarantees the preservation of a subsistence-level income and requires the FTS to provide advance notice of collection.

2. Tax Breaks: Extensions and New Initiatives

• The zero VAT rate for the hotel industry was extended until December 31, 2030, and expanded to include high-speed rail transport on the Moscow-St. Petersburg line.
• The revenue threshold for VAT exemption for catering businesses was increased from 2 billion to 3 billion rubles.
• The rule allowing Russian companies under sanctions to recognize interest income only upon actual receipt (rather than accrual) was extended.
• The tax-free limit (for PIT and insurance contributions) for employer-provided childbirth financial assistance was raised from 50,000 to 1 million rubles.
• Under Consideration: Exempting PIT on income from long-term (3+ years) investments in securities; aligning the tax treatment of Digital Financial Assets (DFAs) with that of securities.

3. Tightening Rules in Special Zones & New Levies

• Limiting SEZ Benefits (Draft Law): For residents of Special Economic Zones (SEZs like Advanced Development Territories, Vladivostok Free Port, Arctic Zone, etc.), starting in 2026, the value of corporate profit tax benefits cannot exceed investments in fixed assets or R&D. New rules will apply only to residents registered after the law takes effect, starting from their 3rd year of operation. Experts view this as part of a trend towards stricter fiscal policy and enhancing the efficiency of incentives.
• “Industrial Levy”: The Ministry of Industry and Trade announced plans for a quasi-tax (levy) to support key industries (microelectronics, radio-electronics). Modeled after the recycling fee but with broader objectives. Details (rates, base, administration) are being developed; it may be a temporary measure.

4. Key Court Rulings & Pending Cases

• VAT Impact on Contract Price (Constitutional Court): Russia’s Constitutional Court is reviewing a complaint by VTB regarding a software supplier adding VAT to invoices after a tax exemption was revoked. The core dispute: Can changes to tax law after a fixed-price contract (initially VAT-exempt) is signed justify increasing the price by the VAT amount? Lower courts lack a consistent approach. The Constitutional Court’s decision could set a precedent.
• PIT for Payments to Self-Employed (Supreme Court): The Supreme Court’s Economic Board resumed hearing a case on whether companies paying self-employed contractors can reduce the PIT they withhold by the amount of Professional Income Tax (PIT-SE) paid by the contractor. Lower courts allowed this reduction, citing a single income source and avoiding double taxation. The FTS insists the company’s duty to withhold and remit PIT remains unaffected by the contractor paying PIT-SE. The Supreme Court’s decision is expected in August.
• FTS Asset Seizure ≠ Secured Creditor Status in Bankruptcy (Supreme Court): The Supreme Court ruled definitively: Seizing a debtor’s assets to secure tax debts does not grant the FTS secured creditor status in the debtor’s bankruptcy proceedings. The FTS’s claims are satisfied through the bankruptcy estate alongside other unsecured creditors of the same priority. This ruling upholds the principle of creditor equality in bankruptcy and prevents the FTS from gaining undue priority through its own enforcement actions.

July reinforced trends of expanding the FTS’s oversight capabilities and exploring new budget revenue sources (via levies), alongside targeted support measures. Significant uncertainty and disputes persist regarding core taxes (VAT, PIT), requiring ongoing clarification by the highest courts.