The Constitutional Court will consider the cost of abandoned construction

The Supreme Court has already expressed a view on this question. The reference has now gone to the Constitutional Court.

The Commercial Court of the City of Moscow sent the reference to the Constitutional Court of the Russian Federation in the case of Gazpromneft-MNPZ.

In making the reference, the Commercial Court came to the conclusion that:

1. entrepreneurial activity is always risky in character, and an organisation is not insured in advance against its business plan not being carried through successfully;

2. if a taxpayer has no right to deduct, for profits tax, costs in the amount of the value of written-off assets of construction in progress, taxpayers will not be encouraged to invest in business projects that may later turn out to be loss-making;

3. the position of the tax authorities restricts the freedom of economic activity.

On 15 October 2024 the Constitutional Court accepted the reference for consideration.

"Not long ago we covered this subject, taking as an example the case of Lukoil, a public joint-stock company, in which the Supreme Court supported the taxpayer and recognised a right to deduct the cost of construction in progress. We expect the Constitutional Court to take a similar view. The position of the tax authorities undoubtedly infringes, in a substantial way, the rights of taxpayers, who cannot always foresee how their business plans will turn out, for objective reasons (for example a sharp change in the exchange rate under a foreign-trade contract for the technology, the resources and the components that have to be acquired). That should not deprive them of the right to deduct the costs they have incurred, so as to reduce the burden of profits tax, and all the more so where the tax authority disputes neither the fact that the costs were incurred nor the fact that they were aimed at producing income." Andrey Rymarev, head of the tax practice at Consul Group, comments.

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