Tax Flash Reports

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New TP rules: the first court case

On 27 January, a court of the first instance issued a decision on the first tax dispute pertaining to the application of the new transfer pricing rules. The decision is negative to a taxpayer. The tax audit was conducted by the Russian Federal Tax Service. It analysed sales of oil to an independent Hong Kong buyer and came to a conclusion that the taxpayer understated its revenue for tax purposes.

Russia has signed multilateral agreement to enable automatic exchange of country-by-country reports

On 26 January, Russian Federal Tax Service (FTS) signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (“Agreement”) that allows automatic exchange of country-by-country reports (“CbC reports” or “CbCR”) among signatories. This Agreement is a part of implementing Action 13 0f the Base Erosion and Profits Shifting (BEPS) Action Plan – an initiative led by OECD and endorsed by the G20. Signing the agreement is a prerequisite step for Russia’s joining the automatic exchange of CbC reports with other countries.

Concept of beneficial ownership: Application scope extends further

In recent months, we have observed at least two headline-making tax disputes connected with the application of the concept of beneficial ownership, where the tax authorities successfully challenged the application of DTT benefits upon payment of dividends to foreign companies. In this Flash Report, we would like to inform you of a case lost by a large energy service company at the first-instance court. Additionally charged amount was around RUB 250 million. It is worthy of note that that in this case the tax authorities for the first time ever applied the concept of beneficial ownership in relation to a set of transactions for a re-sale of a share in a Russian company via a Cyprus company (and not to dividends or interest paid from Russia, as they used to do in the past).

Court practice developments in applying “old” TP rules

The court practice in applying the “old” TP rules (Article 40 of the Russian Tax Code (RTC)) to periods until 2012 will soon cease to develop. So far, car distributors have failed to win (at least, at the court of last resort) disputes with tax authorities on justifying arm’s length prices for cars purchased from foreign related suppliers. But recently, the court has taken a taxpayer’s side. Moreover, it has done so in three consecutive instances. A company managed to justify prices for cars purchased from a foreign related party and subsequently sold at a gross loss to independent buyers.

CFC notification form is approved

A controlled foreign company (CFC) notification form and its completion instructions were approved on 10 January 2017. The corresponding Order of the Federal Tax Service of Russia (FTS) has been published on the official Internet website for legal information.