Controlled debt in 2021 - to a foreign organization, calculation

It is not uncommon for entrepreneurs to attract borrowed funds to develop their business and expand the scale of production. Before the onset of the crisis, Russian organizations very often took out loans and attracted investments from foreign manufacturers and sponsors. Today, the situation of cooperation with foreigners is aggravated and requires special control and accounting. In this regard, it is important to understand what controlled debt to a foreign organization is, when it arises and how it is accounted for.

Recognition of controlled debt

The following facts fall under the concept of “controlled debt”:

any debt obligation to a foreign company that owns 20% of the authorized capital of a Russian company;
loan obligation to a Russian organization, which is recognized by the legislation of the Russian Federation as an affiliate in relation to this foreign company;
debt under a debt obligation, if the guarantor is an affiliate or a foreign organization that undertakes to fulfill all debt obligations of the Russian company;
debt on debt obligations provided by affiliated foreign organizations, which exceeds the organization's own capital by more than 3 times, and as for leasing organizations and banks - by more than 12.5 times.

It is believed that the scheme for accounting for expenses on controlled debt allows Russian organizations to evade taxes; therefore, when checking tax reporting, tax authorities pay especially close attention to organizations whose founders are foreign companies.

Definition

Controlled debt is the amount of obligations of a Russian company to a foreign lender. Debt arrears generated to foreign individuals and legal entities in 2021 are classified as special accounting objects for accounting and tax purposes.

The concept of controlled debts has appeared in the economy since the beginning of 2002. According to the Ministry of Finance, such transactions are recognized as insufficient capitalization. They imply preferential taxation and a reduction in the tax burden when receiving profits from dividends from the investment amount. That is, an investor does not directly invest money in a Russian company, but lends money and receives interest for it.

Arrears arise from an organization under microloan, lending, investment and other financial investments for the purpose of making a profit. It is important to distinguish between the amount of obligations and the likelihood of the lender exerting a certain influence and pressure on the borrower. If borrowed funds give the creditor the power to make important decisions in relation to the debtor, then the owner of the capital is recognized as an affiliate.

Calculation of interest on controlled debt

When calculating interest on controlled debt, certain tax accounting rules apply.

According to clause 2, article 2, 269 of the Tax Code of the Russian Federation, the calculation of the maximum amount of interest that is recognized as an expense is the ratio of the accrued amount of interest to the capitalization ratio.

The calculation of the amount of interest and the capitalization ratio is carried out on the last day of the reporting date of the corresponding reporting (tax) period. Calculation formula:

Spred = Sfact% x Kcap

Spred – the maximum amount of interest that is recognized as an expense and reduces the tax base;
Sfact% – accrued amount of interest;
Kcap – capitalization ratio.

Capitalization rate calculation:

Kcap = 3 x (Scap / Duff) / Nkz

Nkz – the amount of outstanding controlled debt;
Skap – the amount of equity capital of the borrowing organization;
Duff – a share of a foreign person in the authorized capital of the borrowing organization.

Taking into account the clarification of the Ministry of Finance of the Russian Federation, when calculating controlled liabilities, it is necessary to take into account the debt on the debt obligation without taking into account accrued interest. According to the Tax Code of the Russian Federation, there is no provision for the consolidation of debt under different contracts in relation to one lending organization - the debt must be summed up, including debt on interest-free loans.

How Interest is Calculated

Before you begin to study the calculation rules, you should understand what is included in controlled debt. It consists of interest accrued on controlled obligations, the amount of which does not exceed the total cost of interest included in the calculation.

To calculate the marginal interest rate, the following rules must be followed:

At the end of each reporting period, the payer must transfer the maximum possible amount of interest charges. This value represents the ratio of the amount of interest calculated on the controlled debt at the end of the period to the capitalization ratio.
This coefficient is also taken at the final date of the period and is obtained by dividing the total amount of outstanding controlled obligations by the size of the authorized capital and by 3 or 12.5 for leasing companies.
In this case, arrears on fees and loans, deferred and overdue payments are not included in the authorized capital.

The basic rule for calculating controlled debts is that it is carried out on the final date of the tax period. And the estimated stages for determining income tax, according to the law, are 3, 6 and 9 months.

Interest on controlled liabilities taken into account in income tax expenses is calculated according to the following lines of the balance sheet:

column 300 - assets;
column 690 plus 590 - liabilities;
column 623 plus 624 - tax debts.

It is more convenient to write the calculation in the form of a formula that clearly reflects its essence:

Spread = Sact% x CoefCap, where:

Spread is a limit on the amount of interest that becomes an expense and helps reduce the tax base;
Sfact% – accrued interest amount;
CoefCap – capitalization ratio.

To find the latter, the following formula is used:

CoefCap = Skz/Sobcap/3, where:

Skz – the amount of outstanding controlled debt;
SobCap is the size of the borrower's own funds fund.

If the amount of equity is zero at the end of the period, interest on the controlled debt in this reporting period is not taken into account.

Controlled debt administration

When recognizing controlled debt, accrued interest, in accordance with taxation, is considered dividends. Control over the accrual and timely payment of taxes on interest-dividends differs from the rules for taxation of ordinary dividends in that for ordinary dividends it is necessary to fill out sheet 03 of the income tax return, in the case of interest-dividends - reporting form KND 1151056. When taxing interest-dividends conditionally There are 3 groups of difficulties:

According to Chapter 25 Tax Code of the Russian Federation, the formation of the tax base is carried out using the accrual method (the exception is enterprises whose revenue is less than 1 million rubles). At the same time, recognition of controlled debt and payment of taxes on interest and dividends must be made on the last day of the tax period, taking into account the entire amount of outstanding debt. As for the reporting form, it is filled out taking into account the amounts paid to foreign companies.
The second group of difficulties includes the application of agreements to avoid double taxation. As part of the taxation, interest-dividends paid by a foreign company to which there is a controlled debt are taxed at the specified rate, taking into account the provisions of international agreements. There are a number of cases when the tax authorities believe that the provision on controlled debt is also applicable in cases where, according to international agreements on the avoidance of double taxation, an absolute deduction from the tax base for interest on loans is determined (this can be understood from the letters of the Ministry of Finance dated December 20, 2006 No. 03-08-05, dated March 11, 2003, No. 04-06-05/1/14).
In the case where controlled debt arises due to indirect affiliation (when a Russian company is a borrower of a Russian company affiliated with it and this company is affiliated with a foreign lender). In such cases, the borrower is not required to calculate and withhold tax. Based on the opinion of the Ministry of Finance of Russia, which is reflected in the relevant letters, the creditor is obliged to take into account interest income and include it in non-operating income. The borrower is required to include interest on the loan as an expense. The positive difference that has formed between the accrued interest and the maximum interest is equated to dividends and is not taken into account by the borrower as expenses.
The last group of difficulties is the transfer and submission of reports on accrued but unpaid interest. By analyzing the submitted report, the supervisory authority can reclassify the payment as interest-dividends, or vice versa. Based on the letters of the Ministry of Finance (dated June 28, 2007 No. 03-03-06/1/434), when paying and calculating at-source tax on interest income from a foreign organization by a Russian company, the norm of clause 4 of Art. 269 of the Tax Code of the Russian Federation, starting from the amount of controlled debt to a foreign organization and from the maximum amount of interest recognized as expenses and calculated on the last day of the previous reporting period. At the end of it, the tax amount is not recalculated.

Legal regulation

The basic definition of controlled debt, the criteria for its calculation, the procedure for calculating interest and recognizing expenses is regulated by Art. 269 of the Tax Code of the Russian Federation. The amendments made to this article are in force according to Law No. 25-FZ of February 15, 2016.

Controlled debt is debt that arises between Russian and foreign enterprises

Reflection of the financial crisis

In the context of the global financial crisis, many Russian companies have lost their solvency. The first ranks of insolvents were occupied by companies that made long-term investments of funds received by lending from foreign lenders in construction and production. Due to the fact that companies could not pay creditors on time, financial transactions turned into capital transactions. The lenders' policy is as follows: if the borrower is unable to repay the debt, you can:

restructure the debt by strengthening control over the activities of the debtor by becoming one of its shareholders;
cede a doubtful debt.

Each of these cases can cause regular debt to become manageable, or vice versa. In both cases, the tax status of the accrued interest changes.

How is debt controlled?

The amount of debt incurred by the enterprise and the timing of its repayment are fixed by an agreement drawn up by the parties to the transaction.

Payment of this amount is carried out under the control of the debtor organization itself, the lender (this can be done by a sales manager, a specially created collection department, etc.) and government bodies.

The tax authority pays special attention to enterprises that have a tax liability or foreign firms that influence various Russian companies.

Useful material : The bank sold the debt to collectors, what should I do?

Controlled Commitment

Let's give an example: an organization - a resident of the Russian Federation - has an outstanding debt obligation, as well as accrued but unpaid interest to a foreign creditor. The organizations are not affiliated. A Russian organization used funds borrowed to build a profitable facility. Due to a combination of circumstances, the borrower is unable to repay the loan. The foreign creditor decided to restructure the debt, that is, extend the loan agreement, but having secured it, he becomes a shareholder of this company, with a stake exceeding 20% (usually in such cases, creditors own a controlling stake).

Thus, the debt became controllable. In connection with this fact, a number of questions arise:

Are previously accrued but unpaid interest on a loan that was recognized for tax purposes excluded from expenses?
In this case, do I need to submit my income tax return again?

The answers to these questions are stated in paragraph 8 of Art. 272 of the Tax Code of the Russian Federation. According to this article, loan agreements, as well as similar debt obligations, including securities, the validity of which exceeds one reporting period, are considered realized for tax purposes and must be included in non-operating expenses at the end of the reporting (tax) period.

According to Article 274 of the Tax Code of the Russian Federation, profit that is taxed is determined by cumulative total from the beginning of the reporting period. According to Article 285 of the Tax Code, the reporting period is considered to be 3 months, 6 months and 9 months, and the tax period is a year.

Clause 8 art. 272 and paragraph 3 of Art. 328 of the Tax Code of the Russian Federation states that for taxpayers who determine their income and expenses using the accrual method, expenses in the form of interest on loans, the validity of which exceeds one reporting period, are recognized as realized and must be included in non-operating expenses that are taken into account when calculating income tax at the end of the reporting period.

It follows that, if a Russian company has no controllable debt at the end of the reporting period, in accordance with Article 269 of the Tax Code, accrued interest for this reporting period is not taken into account. Thus, interest that was accrued for the period before the creditor became a shareholder is subject to tax accounting.

If during the reporting periods that preceded the creditor's entry into the shareholders, the debt on debt obligations was not recognized as controllable, but was recognized in subsequent reporting periods, then accrued interest expenses for previous periods are not recalculated. As for the maximum interest, they are determined only in the amounts accrued in subsequent periods.

Legislation

Everything related to controlled debt is regulated by Article 269 of the Tax Code of the Russian Federation. Its title is “Features of accounting for interest on debt obligations.” The first innovations, which expanded the circle of creditors to include domestic firms, occurred in June 2005. Then Federal Law No. 58 was signed, which affected changes to the second part of the Tax Code.

In 2021, a new law No. 25 was issued, which also introduced changes to the second part of the code. The article is supplemented by conditions under which the debt will not be declared controlled, for example, in the event of debt arising when foreign companies place bonds and receive dividends from them.

Another exception to the non-recognition of uncontrollable liabilities to domestic affiliates occurs when two conditions are met simultaneously:

the debt was formed to an interdependent individual or legal entity who was a tax resident of the Russian Federation during the entire reporting period;
the individual or legal entity to whom the debt arose has no outstanding obligations to the affiliated foreign enterprise during the reporting period.

The updated version establishes a scheme for recognizing obligations as comparable, and also adjusts the rules for accounting for interest on such debts. The innovations came into force at the beginning of 2020.

A sample application for utility debt restructuring can be found in the article: utility debt restructuring. Read about the grounds for writing off accounts payable here.

Accounting for controlled debt

According to Accounting Regulation 15/2008, accrued interest is recognized as an expense, but there are no specific rules for recognizing loan debt as controlled. Regardless of the status of the debt obligation, the procedure for calculating interest in accounting will not change. If the recognition of accrued interest expenses depends on the amount of capitalization, there may be a difference between accounting and tax accounting.

For example, after purchasing 100% of the capital of an organization whose authorized capital is much lower than the amount of controlled debt, all accrued interest on the loan can no longer be recognized as expenses for tax purposes. Let us assume that the amount of accrued interest is 100 units. Taking into account paragraph 7 of PBU 15/2008 and section III of IPBU 18/02, such transactions must be reflected with the following entries:

Accrual of interest on controlled debt:

Debit 91.2…………………………………………………………….100

Credit 66………………………………………………………..100

PNO accrual:

Debit 99……………………………………………………..20

Credit 68……………………………………………………20

Accrual of PNA (in the case when the debt is no longer controllable):

Debit 68………………………………………………………..20

Credit 99………………………………………………………20

Accrual of interest on controlled debt in the part that relates to the creation of an investment asset:

Debit 08……………………………………………………………..100

Credit 66…………………………………………………………….100

Accrual of IT on accrued interest in the part that relates to the creation of an investment asset:

Debit 09…………………………………………………….20

Credit 68………………………………………………………20

Accrual of PNA on accrued interest in the part that relates to the creation of an investment asset:

Debit 68……………………………………………………20

Credit 99……………………………………………………….20

Useful information for lenders

The management of any organization that provides funds as part of lending to another enterprise thinks about its own safety. In particular, about how to control accounts receivable (AR). The concept itself is a set of debt obligations that are owed to an organization from other persons (both individuals and legal entities). Effective control is based on the following principles:

It is necessary to plan the permissible level of remote sensing. The calculation can be made both in monetary terms and in relative percentage terms. An important role is played by working out the terms of the deferment for the borrower. It is recommended to use an individual approach, depending on the importance of the client, the amount of his loan, and the duration of cooperation. There is no need to develop uniform conditions for all partners.
Reward system. The remuneration of an employee in contact with a partner should directly depend on the duration of the remote work. This will lead to the personal interest of not only management, but also the employee in the speedy repayment of the loan by the borrower.
Partner analysis. The most competent thing to do would be to conduct an inspection of the enterprise wishing to receive a loan. This will allow us to draw conclusions about the state of the business and the solvency of its owners. Additionally, it is worth making an inquiry about the company’s property. Effective remote control management. An important factor is the distribution of responsibilities for monitoring loans. Between departments. The division of areas of responsibility will allow us to obtain a clear, well-established system of control over each loan issued.

Controlled debt affects the taxation of the enterprise that received the loan. Please note that in some cases it results in payment of taxes on dividends. When calculating the value of the shortfall, you should be guided by the Tax Code in order to avoid negative consequences for the enterprise.

Conclusions and recommendations

In order to reduce a company’s tax risks, it is necessary to clearly define its position and its interpretation of the law. It is advisable to consolidate it with the provisions of the enterprise’s accounting policy and tax registers. When submitting a report to the tax authority, you can simultaneously submit an explanation to the report, which describes the situation in detail with references to regulatory documents.

Based on the situation considered, taxpayers should not adjust tax accounting for previous years, that is, before the controlled debt arose. Considering that the requirements of standards PBU 15/2008 and the Tax Code of the Russian Federation differ on certain issues, this significantly complicates accounting.

Determination of the tax base

To correctly calculate controlled debt, it is worth studying Article 285 of the Tax Code. It contains information about the periods used to calculate the taxable profit base. In particular, it determines advance payments based on the amount of income.

The calculation of taxable income in each period is calculated by increasing the total amount of money spent (reflected as a percentage) for the previous period by the total amount of money spent in the current period. It should be understood that this calculation occurs discretely (that is, without adding the accrued % for the previous period).

Provided that in the current taxable period the ratio of the organization’s capital and corporate capital is subject to changes in comparison with previously obtained data, then the percentages of the previous reporting periods are not recalculated.

Nuances

In his desire to suppress crimes of an economic nature, the legislator is constantly working to improve standards. The practice of distributing financial flows in organizations that use controlled debt as an effective tool clearly shows an evasion of clarifying the tax base. It turns out that the overwhelming majority of transactions between enterprises with common beneficiaries were outside the legal framework of the tax regime. It was the latest changes in legislation that made it possible to equip the guardians of financial discipline with a new tool for monitoring negligent enterprises. After clarifying the parameters for bringing controlled transactions to the conditions, a certain part of international business contracts began to fall out of the preferential tax regime. That is, some transactions were no longer recognized as controlled.

The second issue, which has been brewing for years, required clarity on the definition of thin capitalization rules. Thus, starting from 2021, the conditions for issuing loans in a special tax regime have become possible only with the direct entry of capital owners into the business of the company being financed. This has come to mean only one thing: to recognize interdependence, a foreign investor must appear in an extract from the unified state register. Thus, the legislator actually admitted that the legal framework for recognizing international loan transactions as worthy of tax benefits was imperfect.

The tool was quickly adopted by companies as a tax evasion tool. The new version of the bill is based on the inviolable principle of fiscal policy: all doubts and contradictions must be interpreted in favor of the one who pays taxes.

Tax Code of the Russian Federation

A separate article of the Tax Code, number 269, is devoted to controlled debt to foreign companies. In order to limit the burden on business, the Tax Code of the Russian Federation provides for a system of restrictions that are imposed on the amount of interest on servicing controlled debt:

If obligations are formalized in Russian currency - rubles and are recognized as controlled in accordance with the rules, then the rate on such loans can be set in the range from 75 to 125 percent. The limits change annually. If the debt incurred is not a consequence of attracting foreign capital, a percentage of the refinancing rate should be applied.
For debts that are issued in the currency of the lender's country, for example, the euro, the EURIBOR value (offered rate for European banks) is applied, increased by 4 points. The maximum interest rate can reach EURIBOR, increased by seven points.
The Russian legislator has provided restrictions for transactions carried out in pounds sterling. Similar to the euro, the excess range from 4 to 7 points at the LIBOR rate applies.
For controlled obligations issued by Russian companies in yen and Swiss francs, a range of LIBOR rates is applied, exceeded by 2 and 5 points, respectively.

Article 269 of the Tax Code provides a precise definition of controlled debt. This is, first of all, the balance of an unpaid loan from an organization whose founders are a foreign company or citizen. An enterprise keeping records of such debts is allowed to include interest on controlled debts as its expenses at the end of the reporting period. Typically this is the last date of the month. The financial burden is calculated by dividing the amount of accrued interest by a pre-calculated capitalization ratio. The last parameter, in turn, is calculated as the ratio between the total amount of the remaining loan and the amount of equity capital (authorized capital).

Accounting in the absence of equity capital

The equity capital of Russian companies using the practice of controlled debt is necessarily used as the main parameter in the calculations. In cases where the difference between financial indicators becomes zero or goes negative, the following rules should be followed:

The limit for calculating interest, regardless of the currency of the attracted capital, becomes equal to zero.
The amount of all accrued income is equal to the dividends paid.
For purposes of determining expenses, interest on existing debt is not taken into account.

According to the explanation of the Ministry of Finance, the tendency of calculated indicators to zero or reaching negative values makes it impossible to accrue interest on obligations assumed. In this case, it is quite logical to use a zero rate to calculate expenses.