Burned Inventory and Tax Penalties in Russia

Why the Tax Authority Cares About Burned Goods

At first glance, a fire is an obvious force majeure event. The goods are gone, the loss is real — what is there to dispute? The Federal Tax Service (FNS) takes a different view: if inventory was recorded in accounting and reduced the VAT base at the time of purchase, its destruction on “non-market” grounds is a reason to restore VAT and disallow the loss.

Without proper documentation, the consequences can include:

VAT reassessment on the value of destroyed goods,
refusal to recognise the loss for corporate income tax purposes,
a penalty of 20% of the underpayment (40% if intent is established),
interest for the entire period.

What the FNS Requires to Accept a Write-Off

The tax authority will accept fire losses as legitimate when the following documents are available simultaneously.

Documents from Government Authorities

A certificate from the Ministry of Emergency Situations (MChS) or police confirming the fact of the fire (date, location, circumstances).
A damage report from the investigating authority or the insurance company.

Internal Company Documents

An order establishing an inventory commission — drawn up immediately after the fire.
An inventory act (form INV-3 or a company-designed form) listing destroyed assets and their value.
An asset write-off act signed by the commission and approved by the director.
An accounting memo on VAT restoration or the grounds for not restoring it.

What Courts Say About VAT

Court practice on VAT restoration in force majeure cases is mixed:

The Supreme Arbitration Court has held that destruction of property in a fire does not trigger VAT restoration — it is not “use in non-taxable operations.”
The FNS, however, systematically seeks restoration through field audits.
Courts generally side with taxpayers when a complete document package is available.

Conclusion: documents decide the outcome. Without them, losing is almost certain.

Special Considerations for Marketplace Sellers

If goods burned in a marketplace warehouse, additional complexities arise:

The goods were held by the marketplace (storage relationship), not in your possession at the time of loss — this must be reflected clearly in your accounting.
Any compensation from the marketplace (if received) is subject to corporate income tax.
If the marketplace offers a “logistics discount” instead of a cash payment — this is not an equivalent substitute: your loss remains uncompensated while your tax obligations do not disappear.

Why Speed Matters

The inventory must be conducted immediately — on the day of the fire or the next day. This is critical for two reasons:

Tax authorities may question records compiled weeks later.
Your insurer may deny a claim if the procedure was not followed.

If the FNS Has Already Filed Claims

If you have received a tax audit report with additional assessments:

Do not accept it without objection — you have 30 days to file written objections.
Gather all documentation (even if some documents were prepared after the fire — explain this in your objections).
Judicial practice in the majority of cases supports honest taxpayers with evidence of real loss.

Frequently Asked Questions

Why can the FNS reassess taxes after a warehouse fire? If inventory was recorded in accounting and reduced the VAT base at purchase, the tax authority can require VAT restoration on its destruction — unless proper documentation exists. Without it, penalties of 20–40% of the underpayment may apply.

Which documents are mandatory for a fire loss to be accepted? An MChS or police certificate, a damage report, an inventory commission order, an inventory act (form INV-3), an asset write-off act, and an accounting memo on VAT restoration or the grounds for not restoring it. All must be present simultaneously.

Must marketplace sellers restore VAT for burned goods? Not with proper documentation. The Supreme Arbitration Court held that fire destruction is not “use in non-taxable operations.” Courts generally side with taxpayers who have a complete document set.

What should sellers do if the FNS has already sent an audit report? File written objections within 30 days. Gather all available documentation — even documents prepared after the fire are admissible with a clear explanation. Courts in most cases support honest taxpayers with evidence of real loss.

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Received a tax audit act after a warehouse fire, or want to document a write-off correctly from the start? Contact us for a consultation — we will help you build a defence and prepare the documents the tax authority requires.