Which of the parties to the agreement will “pay” for the new VAT rates?

The issue of the possibility of increasing VAT payments under contracts became especially relevant after amendments to the Tax Code of the Russian Federation in 2025 and 2026, as a result of which many individuals became VAT payers and began to increase prices in contract unilaterally.

The position of the Supreme Court of the Russian Federation in the Sitronics case

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Earlier, the Federal Tax Service of Russia, referring to the position of the Supreme Court of the Russian Federation dated April 4, 2024 in the Sitronics case, recognized that if transactions under a contract became subject to VAT as a result of changes in legislation, the contract price, which previously did not include VAT, should be increased by the amount of tax by law if the agreement did not provide for the inadmissibility of such an increase (Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation dated April 4, 2024 No. 30,2024 5-ES23-26201 in case No. A40-236292/2022).

As a result, persons who are obliged to pay and calculate VAT, for example, landlords, sellers, suppliers of goods, service providers (hereinafter referred to as the “VAT Payer (s)”), massively began to increase payments under contract, which significantly began to increase payments under contract, which significantly ly worried the situation of persons paying under the agreement, for example, the tenant, the buyer, the customer of services (hereinafter referred to as the “Counterparty (s)”).

The position of the Constitutional Court of the Russian Federation: a new vector of law enforcement

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At the end of 2025, the approach reflected in judicial practice changed: after the completion of the Sitronics case, one of its participants appealed to the Constitutional Court of the Russian Federation, which on November 25, 2025 declared illegal the approach that allows VAT Payers to automatically and unconditionally collect additional VAT from Counterparties (Resolution of the Constitutional Court of the Russian Federation No. 41-P dated November 25, 2025). As a result, a temporary procedure for resolving such situations has been established, which is valid until amendments to legislation are made.

Now the VAT Payer has the right to apply to the court to increase the contract price by half of the VAT amount, provided that the following conditions are met:

• The parties have concluded a continuing agreement (for a period of more than 1 year)
• The counterparty does not have the right to receive a VAT deduction (i.e. is not subject to the general taxation system)
• The counterparty refused to change or terminate the contract
• The VAT payer will prove that further execution of the agreement deprives him of what he was entitled to expect when concluding the agreement, including property losses

It should be noted that the approach that it is unacceptable to unilaterally increase the price of a VAT agreement has been confirmed by courts before. Back in 2020 The Supreme Court of the Russian Federation indicated that an increase in the transaction price and an additional VAT collection is possible only if such a possibility is directly agreed by the parties to the agreement or provided for by an agreement (Ruling of the Supreme Court of the Russian Federation dated October 16, 2020 No. 303-ES20-1077 66 in case No. A24-5838/2019). If the contract contains a fixed price and does not provide for the possibility of increasing it due to changes in the VAT Payer's tax obligations, the requirement to increase the VAT contract price is unacceptable.

Conclusion

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A change in VAT legislation does not in itself give the right to automatically increase the contract price. The distribution of the tax burden under continuing contracts depends on the terms of the agreement, the circumstances of its execution and the status of the counterparty. This means one thing for business: the content of the contract now largely determines who will incur the additional costs and how likely the dispute is.

Currently, VAT payers can only apply to the court to increase the price by half of the tax amount if the conditions specified by the Constitutional Court of the Russian Federation are met.

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

In the near future, amendments to the Tax Code of the Russian Federation are expected, which will finally put an end to this issue.

C Cases team recommendations

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Taking into account the courts' current approach, the main risks for the parties to the contract are as follows:

For the VAT Payer, the following risks are:

• the risk of refusal to increase the price of the VAT contract if the agreement contains a fixed price or does not provide for a mechanism for its review
• the risk of the court not satisfying the claims if it is not proved that the performance of the contract under the previous terms leads to significant property losses
• the risk of a cash gap when the obligation to pay VAT has already arisen, and it is not possible to compensate the tax at the Counterparty's expense
• risk of a protracted dispute and additional legal costs

What should the VAT Payer do:

• include a clear tax clause in new contracts: is VAT included in the price, is it possible to revise the price when the tax regime or rates change, in what order and within what time frame
• audit existing long-term contracts and separately identify those where a change in the tax burden may make execution economically unprofitable
• collect evidence of property losses in advance: financial models, tax burden calculations, correspondence to revise the terms of the contract, confirmation of the counterparty's refusal to change or terminate the agreement
• if possible, resolve the conflict through negotiations and the signing of an additional agreement before a legal dispute arises

For the Counterparty, the following risks are:

• the risk of an increase in the contract price by the court, even if the agreement does not directly provide for an automatic increase in payments
• the risk of a large one-time additional charge during the disputed period
• the risk of non-compliance with the budget allocated for a certain period of the long-term contract, especially if the Counterparty is not entitled to a VAT deduction

What should the Counterparty do:

• when concluding new agreements, directly record whether the price is fixed and whether it is possible to change it due to tax changes
• for existing agreements, assess whether there are grounds to object to the redistribution of VAT, taking into account the term of the contract, the right to deduction and the actual consequences for the Counterparty
• document the negotiating position and economic arguments against changing the contract price
• check pending contracts in advance for tax risks and possible price revision scenarios

If you are faced with the need to adapt the terms of the current agreement to changes in the Tax Code of the Russian Federation, or you have questions about the distribution of the tax burden between the parties to the agreement, the C Cases team is ready to help and provide legal advice taking into account your situation.

Sources

1. Resolution of the Constitutional Court of the Russian Federation No. 41-P dated November 25, 2025
2. Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation dated April 4, 2024 No. 305-ES23-26201 in case No. A40-236292/2022
3. Ruling of the Supreme Court of the Russian Federation No. 303-ES20-10766 dated October 16, 2020 in case No. A24-5838/2019
4. Letter from the Federal Tax Service of Russia dated July 29, 2024 NO.BV-4-7/8573