Payment of dividends to a participant in a business entity can be made not only in cash, but also, for example, by transferring a title to real estate. The question of recognizing such a transfer as an object of value-added tax is of interest.

The Tax Code of the Russian Federation recognizes that in certain cases, the transfer of a title to the goods on a gratuitous basis is considered as the sale of goods by an organization. Thus, the Ministry of Finance of the Russian Federation, in its letters No. 03-05-05-01/7294 dated 07.02.2018 and No. 03-07-11/24816 dated 19.03.2024, refers to clause 1 of Article 146 of Chapter 21 of the Tax Code of the Russian Federation, according to which the transfer of titles on a gratuitous basis is recognized as the sale of goods for value-added tax purposes and is subject to VAT when property is transferred on the territory of the Russian Federation, concluding that whereas when dividends are paid with real estate, the title thereto comes to a company's participant, transfer of real estate by the company against dividend payment is subject to value-added tax. As expected, the Federal Tax Service of the Russian Federation adheres to the same position.

At the same time, if we refer to the definition of the concept of "dividends" (clause 1 of Article 43 of the Tax Code of the Russian Federation), any income received by a shareholder (participant) from an organization upon distribution of profit remaining after taxation, on shares (stakes) belonging to the shareholder (participant) in proportion to the shareholders' (participants') shares in the authorized (chartered) capital of this organization is recognized as a dividend.

From this, the logical conclusion is that dividend payment is, by definition, income received by a participant/shareholder and is not inherently sale. In this case, Article 146 of the Tax Code of the Russian Federation, which states that the operations of sale of goods, works, and services on the territory of Russia are the object of taxation, is not applicable. Also, the provisions of clause 1 of Article 39 of the Tax Code of the Russian Federation, which defines realization as the transfer of a title for consideration, and clause 3 of Article 38 of the Tax Code of the Russian Federation, which recognizes any property sold as goods, should not apply to dividends either.

To date, the Constitutional Court of the Russian Federation, in its Ruling No. 2-П dated January 21, 2025, recognized subclause 5 of clause 3 of Article 39, clause 1 of Article 41, clauses 1 and 2 of Article 248, clauses 1 and 2 of Article 249, and clause 1 of Article 346.15 of the Tax Code of the Russian Federation to be inconsistent with the Constitution of the Russian Federation, its Articles 19 (parts 1 and 2), 34 (part 1), 35 (part 2), 55 (part 3), and 57, to the extent that, due to their ambiguity, generating different interpretations in law enforcement practice, they, in their interrelation within the current legal regulation system, allow for arbitrary resolution of the issue of income arising for a limited liability company applying a simplified tax system in case of transferring property against payment of the actual cost of a share to a participant who has withdrawn from it, and, consequently, arbitrary determination of the taxable income amount in this case.

Consequently, in the foreseeable future, this related issue of dividend taxation will get updated regulation. At the same time, recognition of the taxation approach as unconstitutional by the Constitutional Court of the Russian Federation does not entail an unconditional revision of tax assessments for taxpayers. The exception applies to those among them who are in the process of contesting the respective obligation and taxpayers of future periods who are entitled to refer to the unconstitutional nature of the aforementioned set of norms until appropriate regulation is obtained.