Which of the contract parties will bear the cost of the new VAT rates?

The question of whether contract payments can be increased by the amount of VAT became particularly relevant after amendments to the Tax Code of the Russian Federation in 2025 and 2026, which resulted in many entities becoming VAT payers and unilaterally increasing contract prices.

Position of the Supreme Court of the Russian Federation in the Sitronics case

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Previously, the Federal Tax Service of Russia, citing the position of the Supreme Court of the Russian Federation dated 04.04.2024 in the Sitronics case, recognized that if contract operations became subject to VAT due to changes in legislation, the contract price, which previously did not include VAT, should be increased by the amount of the tax by law, provided the contract does not contain provisions prohibiting such an increase (Ruling of the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation dated 04.04.2024 No. 305-ЭС23-26201 in case No. A40-236292/2022).

As a result, entities responsible for paying and calculating VAT, such as landlords, sellers, suppliers of goods, and service providers (hereinafter referred to as "VAT Payer(s)"), began unilaterally increasing contract payments en masse, which significantly worsened the position of entities making payments under the contract, such as tenants, buyers, and service customers (hereinafter referred to as "Counterparty(ies)").

Position of the Constitutional Court of the Russian Federation: a new vector for legal enforcement

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In late 2025, the approach reflected in judicial practice changed: after the Sitronics case was concluded, one of its participants appealed to the Constitutional Court of the Russian Federation, which on 25.11.2025 declared unlawful the approach allowing VAT Payers to automatically and unconditionally collect an additional VAT amount from Counterparties (Resolution of the Constitutional Court of the Russian Federation dated 25.11.2025 No. 41-P). As a result, a temporary procedure for resolving such situations has been established, effective until legislative amendments are introduced.

Now, a VAT Payer may apply to the court with a claim to increase the contract price by up to half the VAT amount, provided the following conditions are met simultaneously:

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

It should be noted that the approach regarding the inadmissibility of unilaterally increasing the contract price by the amount of VAT was confirmed by courts even earlier. As early as 2020, the Supreme Court of the Russian Federation indicated that an increase in the transaction price and additional collection of VAT is possible only if such a possibility is explicitly agreed upon by the parties to the contract or stipulated in the contract (Ruling of the Supreme Court of the Russian Federation dated 16.10.2020 No. 303-ЭС20-10766 in case No. A24-5838/2019). If a contract contains a fixed price and does not provide for its increase due to changes in the VAT Payer's tax obligations, a claim to increase the contract price by the amount of VAT is inadmissible.

Conclusion

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Changes in VAT legislation do not, by themselves, grant the right to automatically increase the contract price. The distribution of the tax burden for long-term contracts depends on the contract terms, the circumstances of its performance, and the counterparty's status. For businesses, this means one thing: the contract's content now largely determines who will bear additional costs and how likely a dispute is.

Currently, VAT Payers can only petition the court to increase the price by up to half of the tax amount, provided the conditions set by the Constitutional Court of the Russian Federation are met.

Previously issued court acts and letters from the Federal Tax Service of Russia, which allowed for a different approach, do not reflect the current legal position following the publication of the Constitutional Court of the Russian Federation's act discussed in this article.

Amendments to the Tax Code of the Russian Federation are expected soon, which will definitively resolve this issue.

C Cases Team Recommendations

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

For the VAT Payer — risks:

• risk of refusal to increase the contract price by the VAT amount if the contract specifies a fixed price or does not provide for a mechanism for its revision
• risk of the court rejecting claims if it is not proven that performing the contract under the original terms leads to significant financial losses
• risk of cash flow gap when the obligation to pay VAT has already arisen, but there is no possibility to recover the tax from the Counterparty
• risk of prolonged 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 price revision is allowed if the tax regime or rates change, and in what manner and timeframe
• review existing long-term contracts and specifically identify those where a change in tax burden could make performance economically unprofitable
• proactively gather evidence of financial losses: financial models, tax burden calculations, correspondence regarding contract term revisions, confirmation of the counterparty's refusal to amend or terminate the contract
• if possible, resolve the conflict through negotiations and signing an additional agreement before a legal dispute arises

For the Counterparty — risks:

• risk of the court increasing the contract price, even if the contract does not explicitly provide for automatic payment increases
• risk of a large, one-time additional assessment for the disputed period
• the risk of exceeding the budget allocated for a specific period of a long-term contract, especially if the Counterparty is not entitled to VAT deduction

What the Counterparty should do:

• when entering into new contracts, explicitly state whether the price is fixed and if it can be changed due to tax amendments
• for existing contracts, assess whether there are grounds to object to VAT redistribution, considering the contract term, the right to deduction, and the actual consequences for the Counterparty
• document the negotiation position and economic arguments against changing the contract price
• proactively review ongoing contracts for tax risks and potential price revision scenarios

If you are facing the need to adapt the terms of an existing contract to changes in the Tax Code of the Russian Federation, or if you have questions about the distribution of the tax burden between the parties to the contract, the C Cases team is ready to assist and provide legal advice tailored to your situation.

Sources

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