Applying VAT to foreign software retroactively and transferring payment to buyer without compensation is illegal - Russian constitutional court

MOSCOW. Nov 25 (Interfax) - The Russian Constitutional Court has declared unconstitutional regulations which allowed VAT to be applied to foreign software while suppliers demand losses be compensated by buyers who cannot apply for a VAT deduction.

The court said in a published decree that the legislation required amendment. Before this can be done, the court proposed a temporary solution for situations when parties are unable to agree by themselves to change the price of an ongoing contract or terminate it due to the amendment to tax law. If the supplier, in continuing to fulfil his obligations, loses what the contract entitled him to when it was signed, he has the right to apply to the court to be given up to half of the tax from the buyer who does not have the option to use a tax deduction, the decree reads.

The decree does not permit changing the price of a contract with an individual on such grounds, except for individuals running a business.

The Constitutional Court also said that the issue of raising the price for state contracts "is being resolved, taking into account the specificities of the legislation on the contract system in the procurement of goods, work and services needed to cover state and municipal needs".

As a rule, the price of such contracts is fixed and not subject to change.

The court said that the court rulings in the dispute between the VTB bank and JSC Sitronics IT, part of AFK Sistema and formerly Envision Group, would be "subject to review" based on the proposed temporary legal regulation, if there are no other obstructions to this.