Restoration of VAT in bankruptcy: doomsday of creditors

When the debtor’s property is solding at auction, registered creditors are looking forward to at least some repayment of their claims. However, if in pre-bankruptcy times the debtor could use the right to deduct VAT, then in a bankruptcy case, on the contrary, the same VAT is restored. The tax authority requires (and receives) the payment of the restored VAT in priority over all creditors. Thus, the already small chances of satisfying the claims of other bankruptcy creditors and the deposit itself as collateral are destroyed. Why this is happening and how fair such a decision is, Musin Ramil, senior associate at ANP Zenit, argues in his article.