Compensation for Delayed Payment of Wages and Other Employee Entitlements in the Context of Tax Disputes

   The paper provides the author’s analysis and assessment of the legal nature of monetary compensation for the delayed payment of wages and other payments due to an employee as a wage guarantee and as a means of ensuring the employer’s performance of its obligation. The author critically evaluates the legislator’s position regarding the application to this institution of the legal construct of the employer’s strict (nofault) liability. Particular attention is paid to the intersectoral links between the Tax Code of the Russian Federation and the Labor Code of the Russian Federation from the perspective of the terminological ambiguity of labor law terms and concepts (compensation, compensatory payments) used in the Tax Code of the Russian Federation for the purposes of taxing the monetary compensation in question. The paper also defines the areas of legal uncertainty. The problems are examined through the lens of subsidiary intersectoral regulation on the basis of a generalization of judicial practice and the official positions of the Ministry of Finance of Russia and the Federal Tax Service. The paper concludes that monetary compensation for delayed payment of wages does not constitute income (in the sense of an economic benefit) and should not be qualified as an object of personal income taxation. As a solution the author proposes to overcome and eliminate legal uncertainty and to optimize intersectoral links by introducing amendments to the Labor Code of the Russian Federation (Articles 164, 129, and 130) with regard to the definition of compensation and compensatory payments and wage guarantees, as well as to the Tax Code of the Russian Federation (paragraph 1 of Article 217; paragraph 1 of Article 422) concerning the procedure for exemption from personal income tax and insurance contributions of compensation for delayed payment of wages and other payments.

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