Russian Supreme Court made an overview of legal position on tax consequences of transactions under interdependence

Supreme Court
Supreme Court

Presidium of the Supreme Court approved the “Review of practice of consideration by courts of cases relating to the application of certain provisions of Chapter V. 1 and article 269 of the Tax Code of the Russian Federation” (from 16.02.2017). The review presents a number of legal positions without mentioning concrete cases.

The Supreme Court recalls that the tax control of compliance of prices to market levels applied by the taxpayeris is carried out by the Federal Tax service of Russia directly and, as a general rule, cannot be the subject to desk audits conducted by subordinate tax inspectorates .

Also, the tax authorities and the courts must never forget that if the use of market prices in the calculation of taxes on individual operations of the taxpayer provided by the chapters of the second part of Tax Code, for these purposes the tax inspection has the right to use methods of determining income (revenues, profits), as specified in Chapter 14.3 of the Tax Code.

The next position is that, as a general rule, in cases not provided in section V. 1 of the Tax Code, the tax authorities are not entitled to challenge the price of the goods (works, services), specified by the parties to the transaction and taken into account for taxation purposes, and the inconsistency of market prices applied by the taxpayer are not evidence of receipt of unjustified tax benefit. However, repeated deviation of transaction prices from the market level can be considered as one of the signs of getting unjustified tax benefit in aggregate and interrelations with other circumstances indicating a mismatch between the transaction and content of financial-economic operations.

Courts may recognize parties to be interdependent for taxation purposes in cases not specified in paragraph 2 of article 105.1 of the Tax Code if the counterparty of the taxpayer (related parties of the company) had the opportunity to influence the decision taken by the taxpayer.

Also, the Supreme Court has risen a number of questions about the controlled transactions, and the use of the appraisal report and expert analysis within the framework on the controlled transactions disputes.

Besides, the Supreme Court noted that the penalty size for failure to timely notifications on controlled transactions (providing false information) does not depend on the number of transactions that must be specified in the notice, and inaccurate filling in of certain details of the notification is the basis for a penalty for his failure, if mistakes could prevent identification of the controlled transaction. The penalty for failure to timely notice (the submission of false notification) is within the competence of tax inspection in which the taxpayer had to submit or submitted the notification.

The Supreme Court also lists its positions in respect of controlled debt. Thus, courts are entitled to accept controlled debt on debt obligations to a foreign company for the purposes of application of paragraph 2 of article 269 of the tax code, if a foreign company participating in the equity of the taxpayer, had the opportunity to influence decision-making on granting a loan associated with it. The Supreme Court also recalls that the emergence of controlled debt as a result of granting of the loan by Russian organization only leads to limitation of deduction of interest from the borrower when calculating the tax on profit (and not for dividends).

For the full text of the document in Russian language click here.

Be the first to comment

Leave a Reply

Your email address will not be published.