Gazprom will be charged interest for Nord Stream—2

The Ministry of Finance of Russia has proposed to change the tax legislation so that Gazprom does not bear an additional tax burden due to the non-functioning Nord Stream—2.

"The Ministry of Finance has prepared amendments to the tax legislation, the adoption of which will help Gazprom avoid the additional tax burden associated with the debt of the Swiss subsidiary of the company — Nord Stream 2 AG (operator of the Nord Stream-2 gas pipeline)," RBC reports with reference to the text that is planned to be amended in the first reading Draft law "On Amendments to Articles 164 and 165 of the Tax Code of the Russian Federation".

According to the agency, the Ministry of Finance proposes to expand the definition of "bad debt", which can also be recognized as "debt on interest on debt obligations of a foreign organization that are recognized as part of income."

"It is additionally established that the payment of taxes on income paid to foreign organizations is not made by the tax agent of these organizations if such income is a forgiven interest debt," RBC continues. The Agency cites a number of necessary conditions under which the amendment will be effective: debt forgiveness takes place on the basis of an agreement approved by a court in a foreign country as part of the financial rehabilitation of such a foreign organization; the entry of the lender and the borrower into one international group of companies and the presence of prohibitive and restrictive measures imposed by foreign states since 2022.

According to RBC, the draft amendments were approved at a meeting of the government commission on legislative activity.

Nord Stream 2 was built at the end of 2021, but never launched. In 2022, the German government stopped the procedure for the last stage of preparing the gas pipeline for operation — operator certification. And on September 26, a sabotage occurred, as a result of which one of the two lines of the gas pipeline was damaged.

Nord Stream 2 is wholly owned by Gazprom. However, he received a loan from Austrian OMV, German Wintershall Dea and Uniper, Dutch-British Shell and French Engie — up to 50% of the costs or 4.5−5 billion euros.

In 2022, the bankruptcy procedure of the operator Nord Stream 2 AG began, which ended in May this year with a settlement agreement. Its details are unknown.

Mikhail Yumaev, professor of the Department of Taxes and Tax Administration at the Financial University under the Government of Russia, told RBC that the interest debt of Nord Stream 2 AG should be taken into account in Gazprom's revenues. And amendments to the Tax Code will allow Gazprom not to pay income tax on bad debts of Nord Stream 2 AG, if the agreed conditions are met, added Alexey Kostin, Associate Professor of the Department of Taxes and Tax Administration at the Financial University.

"If the debt is recognized as uncollectible, but was previously recorded in income, this leads to tax liabilities. The amendments of the Ministry of Finance in this case are aimed at eliminating double taxation in such situations, since they optimize the tax base for international groups of companies, allowing them not to pay income tax on written—off debts if certain conditions are met — judicial restructuring, sanctions, and so on," Mikhail Yumaev told the agency.