Free financial assistance: accounting entries

Reflection in legislation

Depending on the branch of legal regulation that controls the process of gratuitous transfer of assets, the meaning of the definition of “financial assistance” changes. The Civil Code considers it in the form of a transfer of property by third parties or founders as a gift.

Free financial assistance in accounting is understood as the result of charity or targeted financing. The Tax Code provides for a number of exceptions and additional comments on the taxation of gifted property.

Types of gratuitous assistance

Cash is the main way to provide financial support to an enterprise. They can be transferred from other legal entities and individuals, the state or founders for certain purposes.

Free financial assistance can be provided not only in monetary terms, but also through the transfer of property in the form of fixed assets or intangible assets. For example, the ownership of an enterprise can be transferred to:

• property rights;
• work or services without payment;
• intellectual property;
• securities.

Timely financial assistance on a free basis can bring an enterprise out of a difficult situation and even avoid bankruptcy.

Accounting for the provision of property support

An enterprise that has made an act of donating property to another legal entity must necessarily reflect the transaction in its accounting data. According to the instructions of the Ministry of Finance of the Russian Federation, expenses for charity are included in the category of other expenses.

To collect information about transferred donations, account 91 is used. Its structure is active-passive. The provision of gratuitous financial assistance is accompanied by correspondence with 91 debited accounts.

Postings carried out by the benefactor

The process of gratuitous transfer of property (including money) must be documented by both the receiving and the giving party.
Inaccuracies in accounting can lead to violations of tax laws, which entails liability. Typical account assignments reflecting the charity process

To account for the transfer of property, current account 76 is used, which is debited with accounts containing information about the assets donated. After which, the amounts of expenses are written off as a debit to account 91, and also, if necessary, reflect the amount of tax liabilities.

Monetary donations to “1C: Public Institution Accounting 8”

Let's look at the new procedure for reflecting monetary donations in the 1C: Public Institution Accounting 8 program, edition 1 (BGU1) and edition 2 (BGU2) using an example.

Example

A donation for major repairs is classified as current income, therefore, is reflected in KOSGU from group 150 “Gratuit cash receipts of a current nature.”

For the purpose of applying KOSGU in accordance with clause 9.5 of Procedure No. 209n, unitary enterprises are included in the group “Public Sector Organizations”.

According to clause 9.5.4 of Procedure No. 209n, from 01.01.2019, gratuitous receipts of a current nature - grants, donations, including monetary donations, and other gratuitous receipts from unitary enterprises - are included in subarticle 154 “Receipts of a current nature from public sector organizations” KOSGU.

In the case under consideration, the donation was received for a specific purpose - renovation of premises, that is, with a condition on the transfer of assets.

Accounting records for the reflection in 2021 of income from gratuitous receipts provided to an autonomous (budgetary) institution on the terms of the transfer of assets in accordance with the agreement, and the documents with which they are generated in the program “1C: Accounting of a public institution 8” edition 1 and edition 2, are given in the table.

Figure 1 shows a fragment of the document BSU2 “Accrual of income for future periods”.

Rice. 1

Tax accounting of gratuitous assistance

Providing financial support to other legal entities is regulated not only by accounting standards, but also by the instructions of the Tax Code of the Russian Federation. The main tax payments levied on amounts of property assistance are VAT and income tax.

Legislation in force in 2021 requires enterprises that provide gratuitous financial assistance to allocate funds from their net profits. According to the Tax Code of the Russian Federation, expenses associated with charity and targeted contributions are not included in the calculation of the taxable base.

Is a gratuitous contract possible outside the jurisdiction of the Civil Code of the Russian Federation?

Indeed, a gratuitous (as well as paid) agreement between legal entities may be concluded in a form not provided for by the Civil Code of the Russian Federation or other laws (clause 2 of Article 421 of the Civil Code of the Russian Federation). At the same time, the norms of the Civil Code of the Russian Federation and other laws can be applied to individual events within the framework of the legal relations of the parties on the principle of analogy of law.

In addition, a legal entity has the right to enter into gratuitous legal relations not only under an agreement (as a bilateral transaction), but also on other grounds, perhaps not provided for by law, but provided that they do not contradict it (subparagraph 1, paragraph 1, article 8 Civil Code of the Russian Federation).

Examples of gratuitous contracts, the drafting of which is not regulated by the Civil Code of the Russian Federation (but may be regulated by its provisions based on the principle of analogy of law):

• about sponsorship;
• voluntary compensation for damage;
• partnership;
• protection of confidential data;
• lending using bills of exchange.

Of course, it is possible to conclude various gratuitous agreements between Russian and foreign companies. Moreover, if such agreements are concluded in the jurisdiction of international agreements signed by Russia, then when considering the legal consequences of these agreements, first of all, international norms are applied (Clause 2 of Article 7 of the Civil Code of the Russian Federation).

VAT

In 2021, enterprises can count on benefits when paying VAT. The transfer of property rights, services, works or goods free of charge is not subject to VAT. It is worth considering that the list does not include excisable products.

To obtain rights to the benefit, you must comply with the requirements of Law No. 135 Federal Law, which details the list of charitable activities that fall under VAT exemption. If an enterprise is engaged in financial support of a legal entity using transactions, both subject to VAT and non-taxable, they should be kept separately.

Free representation agreement (with an attorney)

A representation agreement involves the delegation of powers from one legal entity to another in order to perform certain legal actions on behalf of the first (and at the expense of the first) (clause 1 of Article 971 of the Civil Code of the Russian Federation).

By default, such an agreement is supposed to be drawn up on a reimbursable basis, unless its provisions (or the law) provide otherwise (clause 1 of Article 972 of the Civil Code of the Russian Federation). But if the provisions of the law require the principal to pay remuneration to the attorney in certain cases, then the parties will not be able to enter into a gratuitous agreement (clause 4 of article 421, clause 1 of article 422 of the Civil Code of the Russian Federation).

If the condition on remuneration or non-provision of remuneration is not reflected in the contract in principle (and is not regulated by law), then the work of the attorney in any case must be paid at the market price of similar work (clause 2 of article 972, clause 3 of article 424 Civil Code of the Russian Federation).

Documentation of donation of property

The provision of gratuitous financial assistance must be recorded in documents. The exception is cases of transfer of funds to non-profit organizations that do not pursue the goal of using the funds for business activities. In other cases, the company must have the following documents on hand:

• agreement with the party receiving financial assistance;
• copies of accounting registers on the acceptance by beneficiaries of amounts for accounting;
• confirmation of the intended use of the funds received.

The list contains the main papers that are necessary to formalize the act of charity. In some cases, additional documents may be required.

Where to look for people who help everyone?

Treat advertisements for free assistance with caution.

You should not directly search for philanthropists - there is a risk of running into scammers.

It would be more appropriate to submit a request describing the financial difficulties. In practice, philanthropists themselves find people to whom they are subsequently willing to provide financial support.

Advertisements from individuals

Today, almost everyone at least once in their life has seen an advertisement with the following text: “I’ll give you money just like that,” “I’ll help you with money for free,” “I’ll transfer money to your card,” and others located on various information platforms (thematic forums, media, leaflets on bulletin boards and mailboxes).

The authors of such advertisements, as a rule, are scammers. Philanthropists usually find those in need of help themselves.

Announcements of financial support are submitted for the subsequent execution of a loan agreement with unfavorable conditions.

Free help sites

Before turning to sites that provide financial assistance, you should decide whether it is urgently needed.

If you cannot do without support, then you can search for thematic sites. To do this, enter the appropriate query in the search bar of your browser, for example, “I will help those in need financially free of charge” and view the search results.

Many sites have a form to fill out that includes the following information:

• life situation;
• what will the funds received from the benefactor be used for?
• amount of support required;
• timing of assistance;
• details for transferring money.

The more detailed the request, the greater the chance of attracting the attention of the benefactor.

Social media

Today, a large amount of information is concentrated in social networks. Donating money to those in need and charity are no exception.

You shouldn’t rush to spam and write to the authors of advertisements “I’ll help you with money for free.” Most likely, scammers are hiding behind such advertising. It is more advisable to spend time and find thematic groups created by philanthropists yourself.

Accounting for receiving financial assistance

According to the instructions for using the standard chart of accounts, passive account 98 (subaccount 2) is used to reflect information on the amounts of gratuitous receipts. In this case, the accounts of the property transferred into possession are debited.

As the allocated funds are used, the amounts are recognized as non-operating income, partially written off to account 91.1. This is necessary according to PBU: assets received free of charge as a result of charity are considered non-operating income and must be reflected in account 91. A decrease in the amount of assistance received occurs when:

• release into production of MPZ;
• calculation of depreciation charges;
• repayment of accounts payable;
• carrying out other operations using targeted financing.

Accounting data must fully reflect the sources of non-operating income and the conditions for their application.

Tax accounting for amounts received free of charge

Enterprise finances received as a gift are subject to special taxation. VAT is required to be paid only in cases where:

• the organization uses the received goods for further sale;
• donated products are excisable;
• assistance is provided in the form of goods, services or works, as well as fixed assets and intangible assets, which will then be transferred to third parties.

Donated amounts, as a rule, are included only in the calculation of the beneficiary’s income tax, and VAT is not paid on the funds. The enterprise receiving assistance is obliged to take it into account when calculating income tax if at least one of the conditions is violated:

• its initial capital consists of 50% or more of the contribution of the benefactor;
• The authorized capital of the organization providing assistance consists of 50% or more of the contribution of the beneficiary.

Thus, only financial assistance from the founder is not included in the calculation of income tax. If the funds were received from third-party legal entities or individuals, the beneficiary is required to include the amount in the calculation of income tax.

In cases where the party receiving assistance is an individual, personal income tax must be paid.

Getting ready for exams. Gratuitous transfer of funds: tax consequences

Question

Assol LLC is the sole founder of Brut LLC. Based on the owner’s decision, the Brut organization transfers property in the form of cash to its founder free of charge.

Are there tax and other risks associated with this transaction?

Answer

Legal basis

According to Art. 128 of the Civil Code of the Russian Federation (hereinafter referred to as the Civil Code of the Russian Federation), the objects of civil rights include things , including cash and certified securities, other property , including non-cash funds , uncertificated securities, property rights; results of work and provision of services; protected results of intellectual activity and means of individualization equivalent to them (intellectual property); intangible benefits.

Things not related to real estate, including money and securities, are recognized as movable property (Clause 2 of Article 130 of the Civil Code of the Russian Federation).

The right of ownership to property that has an owner can be acquired by another person on the basis of a contract of sale, exchange, donation or other transaction on the alienation of this property (Clause 2 of Article 128 of the Civil Code of the Russian Federation).

According to paragraph 1 of Art. 572 of the Civil Code of the Russian Federation, under a gift agreement, one party (the donor) gratuitously transfers or undertakes to transfer to the other party (the donee) an item of ownership or a property right (claim) to himself or to a third party, or releases or undertakes to release it from a property obligation to himself or to a third face.

The agreement for the donation of movable property must be concluded in writing in cases where the donor is a legal entity and the value of the gift exceeds three thousand rubles (Clause 2 of Article 574 of the Civil Code of the Russian Federation).

At the same time, donation is not allowed, with the exception of ordinary gifts, the value of which does not exceed three thousand rubles, in relations between commercial organizations (clause 4, clause 1, article 575 of the Civil Code of the Russian Federation).

According to paragraph 1 of Art. 105 of the Civil Code of the Russian Federation, a business company is recognized as a subsidiary if another (main) business company or partnership, due to a predominant participation in its authorized capital, or in accordance with an agreement concluded between them, or otherwise has the opportunity to determine the decisions made by such a company.

In accordance with paragraph 1 of Art. 6 of the Federal Law of 02/08/1998 No. 14-FZ “On Limited Liability Companies” (hereinafter referred to as Law No. 14-FZ), a limited liability company may have subsidiaries and dependent business companies with the rights of a legal entity, created on the territory of the Russian Federation in accordance with federal laws.

The parent company has the right to give instructions to its subsidiary that are binding on it. In this case, the main business company is jointly and severally liable with the subsidiary for transactions concluded by the latter in pursuance of such instructions (clause 2 of article 105 of the Civil Code of the Russian Federation, clause 3 of article 6 of Law No. 14-FZ).

In a company consisting of one participant, decisions on issues falling within the competence of the general meeting of company participants are made by the sole participant of the company individually and are documented in writing (Article 39 of Law No. 14-FZ).

The competence of the general meeting of company participants, in particular, includes resolving issues provided for by Law No. 14-FZ or the company’s charter (clause 2 of Article 22 of Law No. 14-FZ).

Management of the current activities of the company is carried out by the sole executive body of the company or the sole executive body of the company and the collegial executive body of the company. The executive bodies of the company are accountable to the general meeting of company participants (clause 4 of article 32 of Law No. 14-FZ).

Taxation

According to paragraphs. 11 clause 1 art. 251 of the Tax Code of the Russian Federation (hereinafter referred to as the Tax Code of the Russian Federation), when determining the tax base for income tax, income in the form of property received by a Russian organization free of charge from the organization is not taken into account if the authorized capital of the transferring party consists of more than 50 percent of the contribution (share) of the receiving organization . In this case, the received property is not recognized as income for tax purposes only if, within one year from the date of its receipt, the specified property ( except for cash ) is not transferred to third parties.

Arbitrage practice

A mandatory qualifying feature of a gift agreement, in addition to the gratuitousness of the transfer of property, is the obvious intention of the donor, arising from the agreement of the parties, to transfer the property as a gift (Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated April 25, 2006 No. 13952/05).

Consequently, a transaction aimed at achieving economic goals cannot be qualified as a gift transaction.

Based on the norm of paragraphs. 11 clause 1 art. 251 of the Tax Code of the Russian Federation, the legislator allows for the gratuitous transfer of property from the main organization to a subsidiary (and vice versa), providing for its exemption from income tax. Moreover, this transfer cannot be formalized by a gift agreement, since such a transaction in an amount exceeding 3 thousand rubles between commercial organizations is prohibited by law.

However, the courts allow gratuitous transactions for the transfer of funds and property between commercial organizations in cases where:

• transactions are concluded for economic purposes (optimizing financial flows, increasing the efficiency of production activities, etc.);
• there is no fact of donation;
• the transaction is carried out between the parent and subsidiary companies.

See Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated July 24, 2007 No. 2304/07, Determination of the Supreme Arbitration Court of the Russian Federation dated June 18, 2007 No. 7092/07.

Conclusion

Brut LLC is a subsidiary of Assol LLC. Accordingly, the instructions of Assol LLC (the main company) are mandatory for Brut LLC.

Economic reasons that determine the need for a subsidiary to transfer funds to the parent company may be:

— lack of working capital at the main company for current activities;

— the need to finance the investment project;

— lack of funds to repay debt obligations (loans, credits) of the main company;

- other similar reasons.

Since the relationship between the main and subsidiary companies, including cash flows and the movement of property between them, relate to the current economic activities of these companies, it is advisable for the decision (agreement) on the transfer of funds by the subsidiary company to the main company to be formalized at the level of the executive bodies of these companies in accordance with the local a regulatory document regulating the relationship between the parent and subsidiary companies. At the same time, the said decision (agreement) must contain an economic justification for such a transfer.

Registration of the transfer of funds by a decision (minutes) of the sole participant is allowed if the charter of Brut LLC stipulates that such a decision falls within the competence of the general meeting of the company’s participants (sole participant).

Execution of a gift agreement between companies in the amount of more than 3 thousand rubles. is excluded because it is expressly prohibited by law.

Thus, if the transfer of funds between a subsidiary and the main company is of an economic nature and is carried out in accordance with a local regulatory document regulating the relationship between the main and subsidiary companies, then Assol LLC does not count the funds received as part of its income for the purposes of taxation.

In the absence of an economic justification for the transfer of funds, as well as a local document regulating the relationship between the main and subsidiary companies, such a transaction can be qualified as a sham, that is, as a transaction that was made to cover up another transaction, including a transaction on different terms. In particular, if Brut LLC has retained earnings, the transfer of funds to the sole participant can be considered as a payment of dividends.

Postings with gratuitous financing

Let's consider typical operations carried out by an enterprise accountant when receiving financial assistance.
Account assignments made when accepting a gift for accounting

After using financial assistance funds, they must be reflected in the item of non-operating income.

Accounting of founder's contributions

The finances of the enterprise are mainly formed from the authorized capital and subsequent investments of the founders. The legislation does not limit the frequency of contributions and their size. In addition, if the authorized capital of the recipient of financial assistance consists of 50% or more of the sender’s funds and vice versa, then the amount is not taken into account when calculating income tax.

In accounting, the assistance of the founder is reflected in the following entries:

1. Dt 51 Kt 98.2 - for the amount that was received from the depositor free of charge.
2. Dt 98.2 Kt 91.1 – the amount of financial assistance is included in other income.
3. Dt 68 Kt 99 – reflects the tax liability on the amount of assistance (carried out in cases where the conditions of Article 251 of the Tax Code of the Russian Federation are violated).

Thus, only 2–3 account assignments describe gratuitous financial assistance. Postings in 1C are identical to those described for accounting without using the program.

Contribution to the authorized capital

When contributing funds to the authorized capital, you should remember that, by virtue of subparagraph 3 of paragraph 1 of Article 251 of the Tax Code of the Russian Federation, the organization should not include the funds received in this way into the taxable base. Both an existing participant (citizen or organization) and a person intending to become a participant in this company by virtue of the provisions of paragraph 2 of Article 19 of Federal Law No. 14 can deposit money in this way.

The procedure for making a contribution is as follows:

1. A participant (or a third party) must submit an application for making an additional contribution to the authorized capital (or accepting him as a member of the organization), which should indicate:

• size and composition of the deposit;
• the procedure and deadline for its submission;
• the size of the share that the participant or third party plans to acquire during this transaction.

1. Other participants of the company at their meeting must approve the application with their decision to increase the authorized capital, and also decide to amend the company’s charter in connection with a change in the percentage of shares of other participants.

After the company makes the above decisions, the participant must pay in full the amount indicated in the application within 6 months. After making a share, by virtue of clause 2.1 of Article 19 of Federal Law No. 14, the director of the company is obliged, within 1 month, to submit an application to the body maintaining the Unified State Register of Legal Entities to make changes to the register, as well as documents confirming the fact of full payment of the share by the participant. The procedure for making a contribution will be considered completed after state registration of changes made to the charter.