Constitutional Court Case Law Update

By Marco Koschier and Olga Boltenko

As was reported in "Case Law Update", on April 8 2004 the Constitutional Court held in Ruling 169-O that a company is allowed to reclaim value added tax (VAT) from the government only if the purchased goods or services were paid for with the company's own funds, as opposed to borrowings. If the payment was made from borrowed funds, a VAT return/set-off will be available only once the loan has been fully repaid.

This position contradicts Articles 171 and 172 of the Tax Code, and Article 807 of the Civil Code. Nevertheless, in practice Ruling 169-O was swiftly implemented throughout Russia by the tax offices and the courts, which refused to offset or repay VAT if the VAT payment was made from borrowed funds.