The Supreme Arbitrazh Court has held that it was lawful for a taxpayer's representatives to recover nearly Rb3 million in expenses from the authorities. However, the court's comments on the reasonableness of costs suggest that companies may need to explain why they chose their legal representative ahead of similar candidates. The case could lead to a larger number of less complex tax disputes being resolved out of court.
The Federal Arbitrazh Court of the Urals District recently ruled in a case which demonstrates a potential alternative to lengthy and difficult information-gathering processes in support of tax dispute claims. The case is particularly significant in view of the new protocol to the double taxation agreement between Russia and Cyprus.
A position letter from the Ministry of Finance at the end of 2011, setting out its view on beneficial ownership and the taxation of interest on Eurobonds, cast doubt on the tax status of a commonly used structure for Russian companies. After much debate, a draft law appears to have addressed the immediate concerns of investors, but identifying beneficial ownership remains as big an issue for the authorities as for taxpayers.
The Supreme Arbitrazh Court is due to decide a case involving value added tax on trade bonuses. It has previously held that such bonuses are normal retail practice and are closely connected with the main business purpose. However, if the court agrees with the tax authorities' position that such bonuses are payments for separate services, retailers could face serious problems and an increase in their tax burden.
The recently signed tax treaty between Russia and the United Arab Emirates is unusual because it is not based on the Organisation for Economic Cooperation and Development's Model Tax Convention. Its tax benefits will apply only between public entities in the two countries. However, it may prove fiscally advantageous for private entities as well.
The Supreme Arbitration Court recently published a ruling that prohibits taxpayers with foreign capital from deducting the interest they pay on loans "with a foreign element". Apart from the prospect of reducing foreign investments, this ruling may already entail the additional assessment of considerable taxes on Russian borrowers when tax audits take place.
A new transfer pricing law significantly changes the existing transfer pricing regulations in Russia. Under the new law, the price applied by the taxpayer need no longer deviate by more than 20% from the fair market price in order to be subject to transfer pricing control; the tax may now be recalculated based on the fair market price, even if the actual price deviates from the fair market value by less than 20%.
The government has approved draft protocols to amend Russia's tax agreements with Switzerland and Luxembourg. Russian taxpayers that have business dealings with tax residents of those jurisdictions would be well advised to examine whether the amendments may affect the tax regime for transactions with those counterparties.
For the first time, the presidium of the Supreme Arbitrazh Court will consider the issue of how the non-discrimination provisions of international double tax treaties relate to Russian thin capitalisation rules, which in certain cases provide for interest accrued on a taxpayer's debt to be reclassified as dividends
A new law sets out extensive amendments to the Tax Code with regard to transfer pricing. Taxpayers doing business in Russia should be aware of the entities and transactions affected, as well as the new methods for determining market price and the changes to exchange of information procedures.
The situation for taxpayers has been described as the "last days of a tax romance". The trend towards reform, which began over 15 years ago, was reversed even before it was completed. The result has been the hidden growth of the tax burden in Russia and increased uncertainty for business and investment planning.
In a case in which additional value added tax (VAT) had been assessed, the taxpayer unsuccessfully challenged the amount before the Supreme Arbitrazh Court, submitting evidence of tax deductions that exceeded the additional VAT. In another case, the court held that if a violation of tax legislation is identified during a tax audit, a taxpayer cannot avoid a fine by filing adjusted statements and paying tax arrears.
Pharmaceutical companies that sell medicinal products rely on observational research. However, they may encounter problems in seeking to deduct related expenses from their taxable profit and should be aware of the objections that the tax authorities may seek to raise.
A Moscow State Commercial Court decision provides guidance on whether the activity of collecting information can make an office a permanent establishment under Russian law and the double tax treaty between Russia and the United States. Despite criticism of the decision from some tax practitioners, certain representative offices may now find themselves in a high-risk group.
The most significant development for many tax practitioners in 2010 involved something not happening: the fact that the Duma did not pass the proposed version of the transfer pricing bill has raised hopes that the legislature may yet provide a more practical proposal. However, a number of significant measures and court decisions - some welcome, some not - may indicate the future course of tax policy.
A new law has amended the Russian Tax Code with the aim of promoting and supporting investment in the Skolkovo Innovation Centre. The changes provide for unprecedented benefits, including exemptions from value-added tax, profit tax and property tax. However, potential investors should also consider the additional research and development tax benefits available under general legislation.
A protocol on amendments to the double taxation treaty between Russia and Cyprus clearly aims to combat aggressive tax planning. As a result, not all of the planning structures which are used at present and which rely in some way on a non-transparent element of Cyprus's tax regime will work in future.
Parliament's approval of the second reading of a draft law amending the Tax Code signalled significant changes to the Russian tax regime. Among other things, the amendments to Part I of the code affect taxpayer registration, the collection and write-off of tax arrears, liability for legislative violations and extensions of payment terms and instalment payments.
A new law has made significant amendments to legislation on the calculation and collection of taxes. Among other things, it alters the procedure for registering companies with the tax authorities when they operate through standalone subdivisions. It also makes changes to audits, electronic registration of business transactions and payment deadlines for arrears.
A panel of judges of the Supreme Arbitrazh Court recently referred to the presidium a tax case involving the contractors of Sakhalin Energy Investment Company Ltd, working under a production sharing agreement for the development of the Piltun-Astokhskoye and the Lunskoye oil and gas fields. The judges' arguments cast doubt on the profit tax and transport tax incentives under the agreement.