What is the statute of limitations for accounts receivable?

Home / Bankruptcy / Bankruptcy of legal entities

Back

Published: 05/27/2020

Reading time: 4 min

0

93

In financial relations between various types of legal entities and individual entrepreneurs, there are mutual obligations of debtors and creditors. They all boil down to the emergence of receivables and payables.

• Limitation period for accounts receivable Moment of occurrence, taking into account weekends and holidays
• Determining the beginning of the limitation period for late obligations
• How to determine the beginning of the statute of limitations if the deadline for fulfilling the obligation is not determined

Dear readers! To solve your problem, call hotline 8 or ask a question on the website. It's free.

Ask a Question

Accounts receivable is a type of debt when a company does not receive payment for services provided to it or goods supplied. That is, in this case, the company acts as a creditor to whom its counterparties have debts.

Accounts payable are debts that a company has to its counterparties.

One company simultaneously has both receivables and payables. Repayment of these types of debts must occur in accordance with the conditions formulated in the concluded agreement. At the same time, the use of the word “debt” cannot always be interpreted as a delay in fulfilling a financial obligation - in financial and economic relations, this term is used to determine mutual settlements with counterparties. The use of the term “debt” lasts until all calculations are fully completed.

Reflection of expired debts in tax accounting

A receivable is an obligation not fulfilled by the counterparty on time. The debt is often of a monetary nature, and can also be expressed in violation of the delivery schedule for goods, failure to provide a prepaid service, etc. The opposite of accounts receivable is accounts payable (the debt of the entity itself to counterparties).

In other words, accounts payable are what we owe, and accounts receivable are what we are owed.

Important! Accounts receivable for which the period for collection through the court has expired is called a bad debt by the Tax Code of the Russian Federation (clause 2 of Article 266). Such debt by virtue of clause 2 of Art. 265 of the Tax Code of the Russian Federation is subject to inclusion in non-operating expenses that reduce the income tax base. Accordingly, as a result of a reduction in the tax base, the amount of income tax payable to the budget is reduced.

It should be noted that the considered rule is not applicable in cases where the organization exercised the right to file a claim in court within the statute of limitations, but, despite the court making a positive decision, the debt was never repaid. In this case, it is impossible to talk about the expiration of the limitation period for receivables, since such an expiration did not occur due to the timely filing of the claim. In this situation, the debt is considered hopeless and is included in expenses only after the bailiff issues an act of completion of the proceedings due to the impossibility of collection (clause 2 of Article 266 of the Tax Code of the Russian Federation).

You can find more complete information on the topic in ConsultantPlus. Full and free access to the system for 2 days.

As for accounting, by virtue of clause 77 of PBU (approved by order of the Ministry of Finance dated July 29, 1998 No. 34), after writing off expired debt as a loss, it should be reflected on an off-balance sheet account for 5 years in case the financial position of the counterparty improves and the emergence of collection possibilities.

Is it possible to sue after the statute of limitations has expired?

After the statute of limitations has passed, the creditor can sue, but to win the case, the help of professional lawyers is necessary. The receivable can be returned if the person acknowledges it or if the beginning and end of the collection period are contested.

Receivables collection is not always an easy procedure, so professional help is important. They will speed things up significantly. Creditor protection is carried out only by legal methods. The Center for Effective Collection Agency offers assistance to telecom operators, individuals, financial institutions, trade workers, credit institutions and other legal entities. Many years of practice allows us to successfully work with clients from any field of activity, solving their problems in a short time. Based on the submitted application, the center itself searches for the person and offers him options for paying the debt, observing all legal norms. Leave a request on our website or write by email, WhatsUpp, Viber. Request a call back and we will contact you ourselves.

13.05.19

Why is it so important to correctly determine the statute of limitations for accounts receivable?

The moment of expiration of the statute of limitations for receivables must be established accurately. Any approximate calculations are unacceptable. This is due to the following reasons:

1. In case of premature recognition of the statute of limitations as completed (and, accordingly, inclusion of “receivables” as expenses), the entity violates tax laws and accounting rules. Unreasonably classifying accounts receivable as expenses will lead to an unlawful understatement of the income tax base and to its underpayment. For this, the organization faces penalties and fines under Art. 122 of the Tax Code of the Russian Federation. In addition, in case of repeated violation, it is possible to be held accountable under Art. 120 of the Tax Code of the Russian Federation (for untimely recording of expenses in accounting).
2. The inclusion of overdue debt in expenses not in the year in which the statute of limitations expired, but in a later period, also does not comply with the Tax Code. For example, if the statute of limitations on accounts receivable expired in December 2019, then it should be included in expenses specifically for 2020, and not for 2020 or subsequent tax periods. Including such debt as expenses for 2020 will result in the same tax penalties as if it were written off early as expenses.

It should be noted that arbitration practice on this issue has long recognized that later inclusion of debt in expenses is legitimate. However, the Presidium of the Supreme Arbitration Court of the Russian Federation, in resolution No. 1574/10 dated June 15, 2010, came to the conclusion that the law does not allow an entity to arbitrarily choose the period in which bad debts are included in expenses.

Therefore, the taxpayer must write off the debt in the period in which the period for its judicial collection has expired. After the adoption of this resolution, judicial practice adheres to the position stated in it (for example, the decision of the Supreme Court of the Russian Federation dated October 15, 2014 No. 302-KG14-2259, the decision of the Supreme Arbitration Court of the Russian Federation dated January 23, 2014 No. VAS-19980/13).

Conditions for writing off accounts receivable

The main provisions of the issue are regulated by the Tax Code and a number of orders of the Ministry of Finance of the Russian Federation. In order to write off accounts receivable, the head of the organization must prepare a document. The basis for preparation is an accounting certificate and an inventory report. Invoices, contracts with deadlines, certificates of completion of work, etc. are attached. Write-off of accounts receivable can be carried out in the following cases:

• recognition as hopeless - impossible to perform due to legal, social, economic reasons;
• repayment of debt by the debtor does not imply the emergence of additional rights and obligations in the field of taxation;
• forgiveness of obligations to the debtor, regardless of the timing.

The grounds for recognizing a debt as bad are as follows:

• expiration of the statute of limitations for judicial collection;
• cancellation due to inability to repay;
• liquidation of the debtor's legal entity;
• The bailiffs did not collect the debt through the debtor's property.

Exclusion from the Unified State Register of Legal Entities allows you not to wait for the established three years to collect the debt, but to be guided by the date of exclusion of the debtor from the register. Only organizations that calculate income tax using the calculation method can write off expenses. Individual entrepreneurs are not entitled to carry out the procedure.

At what point does the statute of limitations begin to run under the 2020 legislation?

As a general rule, the Civil Code of the Russian Federation establishes that the countdown of the statute of limitations begins from the moment when the subject became aware of:

• about violation of his rights;
• about the person who should become a defendant in the case.

The second condition has appeared in the Civil Code of the Russian Federation since 2013. Its introduction is due to the fact that in some cases (for example, compensation for damage caused as a result of an offense), the interested person may not know for a long time who the proper defendant is. As for the limitation period for accounts receivable, the person who will become the defendant in the event of failure to fulfill the obligation (most often this is the counterparty or guarantor himself) is known already at the time of the transaction.

With regard to the running of the limitation period for claims arising from contractual obligations, Art. 200 of the Civil Code of the Russian Federation establishes a number of rules:

1. The statute of limitations for an obligation that is not fulfilled by a specific date begins the next day after its occurrence.
2. If the agreement on the basis of which the obligation arose does not provide for the moment of its fulfillment, then the limitation period begins to count from the day on which the creditor demands the fulfillment of this obligation.
3. If the obligation is subject to execution from the moment of demand, then the statute of limitations begins after 7 days after the creditor presents the claim (Article 314 of the Civil Code of the Russian Federation). If the terms of the contract provide the debtor with a different period (either more or less than 7 days), then the statute of limitations is counted after the expiration of this period.
4. The limitation period for claims brought by way of subrogation begins after the fulfillment of the main obligation.

Note! It is also necessary to take into account the resolution of the plenum of the Armed Forces of the Russian Federation dated September 29, 2015 No. 43, which states (clause 24) that the statute of limitations for payment obligations executed in installments is counted separately for each payment not made on time.

For information about those situations that are not subject to the statute of limitations, read the article Requirements to which the statute of limitations does not apply.

Suspension of the term

According to the general rule characteristic of the use of the instrument of limitation, the running of the period may be suspended in accordance with the provisions of Article 202 of the Civil Code of the Russian Federation. This rule also applies to the limitation periods applied to measures to collect receivables.

The limitation period is suspended in the following cases:

• the parties decided to resort to an out-of-court conflict resolution mechanism , for example, through the use of mediation. In this case, the limitation period will be suspended for the period of time provided for by current legislation. If there is no regulatory regulation for the period of suspension of the limitation period, then the rules of civil procedural legislation apply, according to which the suspension of the period is carried out for no more than six months from the date of the start of using such a procedure;
• Another case of interruption of the limitation period is the impact of force majeure circumstances . In this case, the suspension occurs for the period during which such circumstances were in effect, but not more than six months. However, suspension based on the use of this reason is possible only if it has been established that force majeure circumstances acted during the last six months of the limitation period.

After suspension, the limitation period is extended using the provisions of Article 202 of the Civil Code of the Russian Federation. If, after suspension, the usable portion of the limitation period is less than six months, it will be extended to six months.

If the remainder of the limitation period after the termination of the suspension is six months, then the limitation period will be counted again, that is, it will be equal to three years.

What is the length of the statute of limitations

Most unfulfilled obligations are subject to a statute of limitations, called a general statute of limitations. It is 3 years. At the same time, federal laws for certain cases may provide for other statutes of limitations (either less than 3 years or more). Thus, a statement of claim for improper performance of work on the basis of a contract agreement can be sent to court within 1 year. And for disputes related to property insurance, a 2-year statute of limitations is established.

It should be emphasized that counterparties cannot change the duration of the limitation periods by mutual agreement; these periods are determined solely by law.

Note! In the event of assignment of the right of claim to another creditor, as well as in the transfer of debt to a new debtor, the limitation period continues without any changes; it is not extended in such a situation. At the same time, in the presence of certain circumstances (directly listed in Article 202 of the Civil Code of the Russian Federation), the limitation period is suspended until they disappear. In this case, the remaining period is extended to six months.

The grounds for suspending the statute of limitations include, among other things, settling disputes out of court. At the same time, judicial practice recognizes that one of the ways to resolve a dispute out of court, entailing the suspension of the period for going to court, is for the debtor to consider the creditor’s claim (for example, the decision of the Supreme Arbitration Court of the Russian Federation dated January 13, 2014 No. VAS -15720/13).

As for other circumstances causing the suspension of the statute of limitations, in practice they occur infrequently. But a break in the statute of limitations is a common occurrence that can significantly affect the possibility of writing off receivables.

Types of limitation periods

Having carefully read the code, we can distinguish two types of limitation periods. The total is equal to 3 years from the date the period begins. It begins when a person learned or should have learned about a violation of his rights. In this case, it is necessary to determine exactly who the debtor is. If the time for fulfillment of obligations was not agreed upon in the receivable agreement in advance, then the beginning is considered to be the day of presentation of the demand for fulfillment of obligations. The same rule applies to transactions in which the fulfillment of the terms of the contract is determined by the moment of demand. In any case, the time interval should not exceed 10 years.

Special limitation periods can be classified into:

• shortened statute of limitations periods - from six months to two years, are applied under contract agreements, transportation, purchase of land for municipal or state needs;
• long periods of limitation - from five to ten years, for example, for claims for unfulfilled construction work and in cases of lack of domestic work, the consequences of the execution of void transactions;
• other terms established by law.

A strict limitation of the claim period is aimed at disciplining participants in civil transactions with receivables. Incentives are provided to fulfill obligations and protection of rights is guaranteed. Regulation can be carried out by specialized documents. The Labor Code sets out the opportunities and responsibilities of employees. If their rights are violated, the employee can file a lawsuit within 3 months. In case of dismissal, the period is reduced to one month. Employers have one year to recover damages caused.

In what cases is the period interrupted?

A break in the statute of limitations occurs if the debtor commits actions that indicate recognition of the debt. Unlike suspension, after a break the statute of limitations begins to count again. The period of time that has passed before the interruption is not taken into account when calculating the new period.

Important clarifications on the application of this rule of law are given in the previously mentioned resolution of the plenum of the RF Armed Forces No. 43 (clause 20). Thus, the court indicated that the debtor’s actions confirming his recognition of the debt, among others, may be:

• positive response to the complaint;
• partial repayment of debt;
• signing the act of reconciliation of mutual settlements;
• request for payment of debt in installments.

The inaction of the debtor, due to the literal interpretation of Art. 203 of the Civil Code of the Russian Federation cannot be a reason for a break.

In addition, the plenum noted that recognition of part of the debt in itself does not mean recognition of the debt as a whole.

When deciding on the possibility of classifying receivables as bad debts, you must make sure that there are no circumstances that interrupt the statute of limitations.

Thus, the AS MO in its resolution dated 07/03/2015 No. A40-100007/13 indicated that the write-off of receivables in 2010 was carried out unlawfully, since the debtor partially repaid the debt in June 2010, which means that the plaintiff had the opportunity to go to court until June 2013. In this regard, the court recognized that accounts receivable could not be included in expenses for 2010, and the tax inspectorate justifiably assessed additional income tax for this period and applied penalties.

Summary

Therefore, understanding the statute of limitations is important when going to court. This period is 3 years, but can be interrupted by recognition of the debtor (recognition must be provable). After the break, the countdown begins again. The courts accept claims with a missed deadline, but at the request of the debtor, filed at the stage of the preliminary court hearing, the claim is rejected.

Dear users! The information in the article complies with the legislation of the Republic of Kazakhstan in force at the time (date) of publication.

Is drawing up a reconciliation report a basis for interrupting the deadline?

For a long time, the question of whether the statute of limitations is interrupted when the creditor and debtor sign a debt reconciliation act has been controversial. The tax authorities insisted that the drawing up of such an act indicates the recognition of the debt by the obligated person and, accordingly, interrupts the period for going to court (letter of the Federal Tax Service dated December 6, 2010 No. ШС-37-3/16955). In arbitration practice, the approach was used according to which, when signing a reconciliation act, the debtor does not take actions confirming his recognition of the debt (Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated January 25, 2005 No. 10584/04).

Important! However, the position of the courts on this issue has changed. Recent judicial practice reflects the opinion that if the reconciliation act indicates the amount of debt and other information that makes it possible to clearly establish the obligations from which this debt arose, then such an act is the basis for interrupting the statute of limitations (for example, the ruling of the RF Armed Forces dated 03.03 .2015 No. 305-ES14-6803). If the reconciliation act has significant flaws in its execution, then it is not adequate evidence of the debtor’s recognition of the debt (Resolution of the Federal Antimonopoly Service of the Moscow Region dated May 30, 2013 No. A41-36041/12).

Therefore, if a debt reconciliation was carried out between the debtor and the creditor, writing off the debt as bad becomes possible only after 3 years have passed after drawing up an act based on its results. It is worth emphasizing that the number of possible breaks in the statute of limitations is not limited by law. Accordingly, after drawing up each subsequent reconciliation act, the limitation period is counted anew. At the same time, one should take into account the rule of paragraph 2 of Art. 200 of the Civil Code of the Russian Federation, by virtue of which the statute of limitations cannot be more than 10 years from the moment the obligation arose.

How is it determined?

The Civil Code of the Russian Federation determines that the countdown of the period begins on the next day after the end of the payment period specified in the contract.
For example, the contract stipulates that obligations for supplied products must be repaid from February 1 to March 31. If payment is late, the debtor can demand a refund in court from April 1. If the parties have not agreed on a payment period in the agreement, then the limitation period begins 7 days after the debtor presents an official letter of claim to the debtor. That is, if an enterprise sent a written notification to a partner demanding payment for the delivered products, but the money was not received within 7 days, the debtor can go to court.

If there is no properly executed contract at all, and the delivery was made after an oral discussion, then primary documents serve as proof of the transaction.

In this case, it is recommended that when establishing the beginning of the limitation period, the maximum payment period is considered not approved.

The end of the period is confirmed by the following documents:

• primary documents indicating the fact of delivery by the debtor, that is, invoices, invoices, etc.;
• contract indicating the deadline for payment;
• payment documents indicating the repayment of part of the debt;
• an act of reconciliation of mutual settlements, duly executed and certified by both parties to the dispute, indicating the existence of a debt and its exact amount;
• the debtor's claims against the debtor, drawn up in writing, are necessary if the payment period has not been determined.

You can get information about this concept from the following video:

What documents are needed to confirm the existence of a bad debt?

Overdue accounts receivable, like any other expenses of the organization, must be supported by proper documents. Only in this case, amounts of expired debt reduce the tax base on the basis of which income tax is calculated.

Thus, the letter from the Federal Tax Service dated December 6, 2010 reflects that in order to include receivables as expenses, the following documents are required:

• proving the fact and date of debt occurrence (invoices for goods release, work acceptance certificates, other primary documents);
• confirming the end of the statute of limitations.

At the same time, the Federal Tax Service notes that a written agreement between counterparties, as a rule, does not prove the completion of a business transaction and the occurrence of debt.

Judicial practice does not have a clear opinion on the issue of what documents are sufficient to confirm bad debts.

The following documents are not considered supporting documents:

• formally executed, in the absence of real business transactions (the formality of document flow is confirmed, in particular, by the interdependence of counterparties, the signing of documents on behalf of the counterparty by an unidentified person, etc.) - this opinion is expressed in the ruling of the Supreme Arbitration Court of the Russian Federation dated November 15, 2012 No. VAS-14642/12 ;
• with defects in registration, resulting in the impossibility of establishing the grounds and date of occurrence of the debt, as well as the moment when the statute of limitations expired (determination of the Armed Forces of the Russian Federation dated April 29, 2015 No. 309-KG15-3698).

Note! At the same time, taking into account the specific circumstances of the case, payment orders and accounting registers can be considered sufficient evidence of accounts receivable, even in the absence of contracts and invoices (Resolution of the Moscow District Court No. A40-70551/14 dated May 24, 2015).

How is the statute of limitations applied?

Based on Art. 199 of the Civil Code of the Russian Federation, the court accepts the requirement to protect a violated right for consideration regardless of whether the receivables have expired.

Moreover, the court itself applies the rule of limitation only upon the application of a party to the dispute made before a decision is made on it.

If a party to a dispute claims a debt with an expired statute of limitations, the court will reject the claim.

Also see “Management and work with accounts receivable”.

When the last day of the period falls on a non-working day, the day of its end is considered to be the next working day (Article 193 of the Civil Code of the Russian Federation). This applies to both the deadline for fulfilling the obligation (repayment of the debt) and the expiration date.

Also see “How Accounts Receivables Are Sold.”

Basic normative concepts

Stat. 195 of the Civil Code of Russia interprets the essence of the limitation period as the period of time during which the injured person has the right to legally demand the return of funds from the debtor. After the expiration of the specified limitation period for debt collection, it is no longer legally possible to repay the debts. Prolongation is legally provided for certain types of obligations, which are discussed below.

Note! The countdown begins not from the date of signing the agreement, but from the moment the creditor discovers a violation of its rights. For example, when determining the term for loan agreements, you should focus not on the moment of signing, but on the deadline for payment of debts. If the debtor is in no hurry to settle with the creditor, the limitation period begins to apply from the next day after the designated day.