Approaches to the Legal Characterization of Transactions Involving the Acquisition and Sale of Treasury Shares (Equity Interests) for Corporate Income Tax Purposes

The relevance of this study stems from the fact that, under Russian legislation, treasury shares (interests) acquired by a business entity continue to be treated as property and as a corporate asset. In contrast, the legislation of certain foreign jurisdictions, including the United States, the United Kingdom, and Switzerland, prohibits the classification of treasury shares as assets, since their acquisition by a corporation results in a reduction of the corporation’s wealth, a position supported, inter alia , by the economic and accounting substance of such transactions. At the same time, the laws of these jurisdictions characterize transactions involving treasury shares as capital transactions, thereby excluding them from profit taxation. Particular attention is devoted to the theoretical approaches developed by U.S. scholars, as the United States has established over the past century a well‑developed practice of legally characterizing transactions involving treasury shares for tax purposes. The paper describes two principal approaches: (1) treasury shares are classified as assets, and therefore transactions involving them fall within the scope of taxation; and (2) treasury shares do not constitute assets, and transactions involving them are characterized as capital transactions, thereby falling outside the scope of profit taxation. The second approach currently predominates, yet it has not received sufficient attention within Russian legal scholarship. The prospects for further research lie in advancing the discussion regarding the classification of transactions involving treasury shares (interests) as capital transactions and in incorporating this principle into Russian corporate and tax legislation.

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