Translated material
Everything is fine
Fiscal authorities were given the right to assess the cost of rent
Tax officials have the right to check the “market value” of rental rates. And if the rental price deviates in any direction by more than 20% from the market price of identical services, this will become the basis for additional taxes and penalties. This position is set out in a letter from the Ministry of Finance published recently. Although the Ministry of Finance’s clarifications are focused on lease agreements between legal entities, current legislation does not prevent fiscal authorities from extending this interpretation to lease agreements concluded by citizens when renting out housing.Article 40 of Part I of the Tax Code on the principles for determining the price of goods, works or services for tax purposes was originally written as part of the fight against transfer transactions of large corporations. In practice, its provisions were used, as a rule, precisely for these purposes - to control barter transactions, transactions of interdependent persons, including in foreign trade. Although, according to the Civil Code, the parties have the right to independently determine the transaction price when concluding contracts, underestimating the cost of goods in practice is the most primitive way of minimizing taxes. Therefore, the main meaning of Art. 40 of the Tax Code is to monitor transactions where “within a short period of time” the price deviates by more than 20% upward or downward from the price level applied for identical (homogeneous) goods, works and services.
Theoretically, the principles of determining the transaction price for tax purposes can be applied not only to transactions between subsidiaries of holding companies for income tax purposes, but also to all other transactions - the Tax Code does not identify any separate industries where the principles of determining the market price can be applied. However, in fact, the fiscal authorities monitored only individual transactions - only in cases where there were grounds to recognize their interdependence: all transactions in a row cannot be assessed by any tax structure. But if earlier we turned a blind eye to some omissions, then during a crisis the screws are tightened more and more.
The letter of the Ministry of Finance dated January 11, 2009 No. 03-02-07/1-2 on the application of the principles of determining prices for tax purposes to a lease agreement states that the tax authorities have the right to check the compliance of the prices applied under the lease agreement with market prices and in the case when the applied transaction prices deviate upward or downward by more than 20%. And taking into account the actual circumstances, make a decision on additional tax assessment. Thus, any rental transaction may come under suspicion.
The taxpayer is not required to prove that the price of his contract is market price, unless the tax authority proves the opposite. But if the fiscal authorities make a comparison with transactions with identical goods carried out under comparable conditions, then they will have legal grounds to accuse the owner of the rental property of non-payment of taxes.
It is not always easy to prove that prices are “anti-market” - market prices for goods and services cannot be established in all cases, and during a crisis, rental prices vary greatly. On the other hand, the clause in the code regarding the deviation of prices “for a short time” makes it possible to call any contract non-market if the monthly rental price fell by half during the crisis.
The new approach of the Ministry of Finance, which has extended the concept of determining the market price to rental transactions, may force out of the legal field those few citizen-landlords who enter into formal contracts with tenants and pay taxes on rented real estate. Fiscal officials' too close attention to market rent rates is unlikely to contribute to replenishing the ranks of honest landlords.