Whether contract payments can be increased by the amount of VAT has become especially pressing after the 2025 and 2026 amendments to the Tax Code, as a result of which many persons became VAT payers and began unilaterally raising prices under their contracts.

The Supreme Court's position in the Sitronics case

Earlier, the Federal Tax Service, citing the Supreme Court's position of 04.04.2024 in the Sitronics case, held that if transactions under a contract became subject to VAT because of a change in the law, a contract price that previously did not include VAT must be increased by the amount of the tax by operation of law, unless the contract prohibits such an increase (Ruling of the Judicial Chamber for Economic Disputes of the Supreme Court No. 305-ES23-26201 of 04.04.2024 in case No. A40-236292/2022).

As a result, persons obliged to calculate and pay VAT — for example, landlords, sellers, suppliers of goods and service providers ("VAT Payers") — began en masse to raise contract payments unilaterally, significantly worsening the position of the paying parties, such as tenants, buyers and customers ("Counterparties").

The Constitutional Court's position: a new direction in law enforcement

At the end of 2025, the approach reflected in case law changed: after the Sitronics case was concluded, one of its participants applied to the Constitutional Court, which on 25.11.2025 declared unlawful the approach allowing VAT Payers to recover additional VAT from Counterparties automatically and unconditionally (Resolution of the Constitutional Court No. 41-P of 25.11.2025). As a result, a temporary procedure for resolving such situations has been established, which applies until the law is amended.

A VAT Payer may now go to court to have the contract price increased by up to half of the VAT amount if all of the following conditions are met:

• The parties have concluded a long-term contract (for more than 1 year)
• The Counterparty is not entitled to a VAT deduction (i.e. is not on the general tax regime)
• The Counterparty has refused to amend or terminate the contract
• The VAT Payer proves that further performance of the contract deprives it of what it was entitled to expect when concluding the contract, including that it leads to financial losses

Note that the courts had previously confirmed that the contract price may not be increased unilaterally by the amount of VAT. As early as 2020, the Supreme Court held that the transaction price may be increased and additional VAT recovered only if this possibility has been expressly agreed by the parties or provided for in the contract (Ruling of the Supreme Court No. 303-ES20-10766 of 16.10.2020 in case No. A24-5838/2019). If the contract has a fixed price and does not provide for an increase because of changes in the VAT Payer's tax obligations, a claim to increase the contract price by the amount of VAT is not permissible.

Conclusion

A change in VAT legislation does not in itself give the right to increase the contract price automatically. The allocation of the tax burden under long-term contracts depends on the terms of the contract, the circumstances of its performance and the counterparty's status. For business, this means one thing: the content of the contract now largely determines who will bear the additional costs and how likely a dispute is.

At present, VAT Payers can only go to court to increase the price by up to half of the tax amount if the conditions set by the Constitutional Court are met.

Earlier court decisions and FTS letters allowing a different approach no longer reflect the current legal position following the publication of the Constitutional Court ruling discussed in this article.

Amendments to the Tax Code that will settle this issue once and for all are expected shortly.

Recommendations from the C Cases team

Given the courts' current approach, the main risks for the parties look as follows:

Risks for the VAT Payer:

• the risk that an increase of the contract price by the amount of VAT will be refused if the contract has a fixed price or no price review mechanism
• the risk that the court will dismiss the claim if it is not proven that performing the contract on the existing terms leads to significant financial losses
• the risk of a cash gap when the obligation to pay VAT has already arisen but the tax cannot be passed on to the Counterparty
• the risk of a protracted dispute and additional legal costs

What the VAT Payer should do:

• include a clear tax clause in new contracts: whether VAT is included in the price, whether the price may be reviewed if the tax regime or rates change, and the procedure and timing for doing so
• review existing long-term contracts and single out those where a change in the tax burden could make performance unprofitable
• gather evidence of financial losses in advance: financial models, tax burden calculations, correspondence on revising the contract terms, confirmation that the counterparty refused to amend or terminate the contract
• where possible, settle the conflict through negotiations and a supplementary agreement before a court dispute arises

Risks for the Counterparty:

• the risk that the court will increase the contract price even if the contract does not expressly provide for automatic increases in payments
• the risk of a large one-off additional charge for the disputed period
• the risk of exceeding the budget allocated for a given period of a long-term contract, especially if the Counterparty is not entitled to a VAT deduction

What the Counterparty should do:

• when concluding new contracts, state expressly whether the price is fixed and whether it may be changed because of tax changes
• for existing contracts, assess whether there are grounds to object to a reallocation of VAT, taking into account the term of the contract, the right to a deduction and the actual consequences for the Counterparty
• document the negotiating position and economic arguments against changing the contract price
• review long-term contracts in advance for tax risks and possible price revision scenarios

If you need to adapt the terms of an existing contract to the changes in the Tax Code, or have questions about allocating the tax burden between the parties to a contract, the C Cases team is ready to help and provide legal recommendations tailored to your situation.

Sources

1. Resolution of the Constitutional Court of the Russian Federation No. 41-P of 25.11.2025
2. Ruling of the Judicial Chamber for Economic Disputes of the Supreme Court No. 305-ES23-26201 of 04.04.2024 in case No. A40-236292/2022
3. Ruling of the Supreme Court No. 303-ES20-10766 of 16.10.2020 in case No. A24-5838/2019
4. FTS Letter No. BV-4-7/8573@ of 29.07.2024