All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

The further development of the Russian anti-abuse tax practice

Sponsored by

sponsored-firms-kpmg.png
This remains an area of uncertainty requiring clarification or amendments to the law.

Dmitry Garaev of KPMG Russia discusses how the understanding around tax anti-abuse provisions continues to evolve through contrasting approaches from the judiciary and the legislators.

Tax anti-abuse provisions initially appeared in Russian practice during October 2006 and were introduced by a ruling – rather than through a law - from the Supreme Arbitration Court (Ruling No. 53). Ruling No. 53 introduced the concept of unjustified tax benefit, which meant that if transactions and deals are driven merely by the intention to receive a tax benefit (e.g. tax deduction, reduced rate), then such a tax benefit should be ignored and the tax consequences should be assessed based on the parties’ true intentions.

In 2017, a legislator decided to introduce tax anti-abuse provisions into the Russian tax legislation. Thus, the Tax Code saw Article 54.1 “Limits on the exercise of rights relating to calculation of the tax base and (or) the amount of tax, a levy or insurance contributions” added to it. Quite surprisingly (in contrast to Ruling No. 53), Article 54.1 was silent on whether transactions aimed primarily at avoiding tax payments should be accounted for in light of the parties’ true intentions and their real economic substance. In other words, there were no provisions in Article 54.1 requiring the authorities to reconstruct the transactions’ real substance and tax consequences. 



At first glance this may appear excessive, since it is reasonable to expect that the tax effect of any transaction should be evaluated based on its real economic substance. In practice, this has allowed the authorities to take a somewhat odd approach: they have started to deny the deduction (an offset) of all costs (related input VAT), if one of the steps in a transaction chain was undertaken merely to avoid (or minimise) taxation. For instance, if instead of buying inventory directly from a supplier, the parties agreed to squeeze into the supply chain an intermediate company which: inflated the cost of the inventory; collects money from the buyer; and then disappears without paying taxes – then the authorities can deny deduction of the entire cost of the inventory, and not just the part artificially inflated by the intermediate reseller.



In one of its clarifying letters (No. 01-03-11/97904 of December 13 2019), the Finance Ministry supported its fiscal subdivision in this interpretation of the law. The arbitration court practice is very limited at the moment and cannot be viewed as consistent, as some courts have supported denying the deduction of only artificial costs, which seems reasonable, whereas others have supported the authorities’ approach. This is clearly an area of uncertainty requiring either amendments to the law or clarifications from the Supreme Court. 





Dmitry Garaev

T: +7 916 584 01 13

E: dgaraev@kpmg.ru


more across site & bottom lb ros

More from across our site

Energy ministers agreed on regulations including a windfall tax on fossil fuel companies to address high gas prices at an extraordinary Council meeting on September 30.
The European Parliament raises concerns over unanimity in voting on pillar two, while protests break out over tax reform in Colombia.
Ramesh Khaitan speaks to reporter Siqalane Taho about tax morality, transfer pricing regulations, Indian tax developments, and the OECD’s two-pillar solution.
Join ITR and KPMG China at 10am BST on October 19 as they discuss the personal, employment, and corporate tax-related implications of employees working from overseas.
Tricentis and Boehringer Ingelheim, along with a European Commission TP specialist, criticised the complexity of pillar one rules and their scope at an ITR event.
Speakers at ITR’s Managing Tax Disputes Summit said taxpayers can still face lengthy TP audits, despite strong documentation preparation
Gig economy companies in New Zealand will need to fully account and become liable for the goods and services tax of underlying suppliers on their platforms, under new proposals.
Join ITR and Thomson Reuters at 2pm (UAE) / 11am (UK) on October 13 as they discuss how businesses can prepare for Tax Administration 3.0 and future-proof against changes such as e-invoicing and increasing digitisation.
ITR has partnered with global TP leaders from Deloitte to discuss transfer pricing controversy around the globe, and to share advice on how to navigate an increasingly uncertain and risky TP landscape.
Sources say they are not satisfied with pillar one protections in the marketing and distribution safe harbour, even though it was designed to give businesses greater tax certainty.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree