Inclusion of income in taxable profit in the form of a right to use a trade mark received for no consideration
Pepeliaev Group would like to draw your attention to clarifications of the Russian Ministry of Finance on including income in taxable profit in the form of the right to use a trade mark received for no consideration.
The Russian Ministry of Finance indicates in Letter No. 03-03-06/1/299 dated 28 April 2010 that article 251 of the Russian Tax Code does not apply to the transfer of property rights and, accordingly, the right to use a trademark (and other intellectual property) received for no consideration fr om the parent company is included in the tax base on general terms and conditions.
Some officials from the Finance Ministry have already touched on this matter while considering similar issues. However, the tax authorities filed no claims with taxpayers, despite the widespread practice wh ere Russian subsidiaries use the trade marks belonging to foreign companies for no consideration. In part we believe that no claims have been filed owing to uncertainty regarding the assessment of the value of intellectual property received for no consideration and complications arising from the application of article 40 of the Russian Tax Code.
However, the Ministry of Finance draws an unambiguous conclusion in its clarifications dated 28 April 2010 on the taxation of such transactions and, similarly, proposes applying rules on assessment established by clause 8, article 250 of the Russian Tax Code. We would like to remind you that according to these rules the value of property (work, services) received for no consideration is assessed with due account of article 40 of the Russian Tax Code, but should not be below the book value (depreciated property) or production (acquisition) costs (work, services). It should be borne in mind that article 250 of the Russian Tax Code, in contrast to the general rule, imposes on the taxpayer the burden of proving the value of the property (work, services) received for no consideration, rather than the tax authorities.
The Russian Ministry of Finance indicates in Letter No. 03-03-06/1/299 dated 28 April 2010 that article 251 of the Russian Tax Code does not apply to the transfer of property rights and, accordingly, the right to use a trademark (and other intellectual property) received for no consideration fr om the parent company is included in the tax base on general terms and conditions.
Some officials from the Finance Ministry have already touched on this matter while considering similar issues. However, the tax authorities filed no claims with taxpayers, despite the widespread practice wh ere Russian subsidiaries use the trade marks belonging to foreign companies for no consideration. In part we believe that no claims have been filed owing to uncertainty regarding the assessment of the value of intellectual property received for no consideration and complications arising from the application of article 40 of the Russian Tax Code.
However, the Ministry of Finance draws an unambiguous conclusion in its clarifications dated 28 April 2010 on the taxation of such transactions and, similarly, proposes applying rules on assessment established by clause 8, article 250 of the Russian Tax Code. We would like to remind you that according to these rules the value of property (work, services) received for no consideration is assessed with due account of article 40 of the Russian Tax Code, but should not be below the book value (depreciated property) or production (acquisition) costs (work, services). It should be borne in mind that article 250 of the Russian Tax Code, in contrast to the general rule, imposes on the taxpayer the burden of proving the value of the property (work, services) received for no consideration, rather than the tax authorities.
We assume that after the publication of these clarifications the tax authorities will start to file claims against taxpayers that use trade marks received from foreign parent companies or affiliates for no consideration. In absence of information on the price of the received right for the use of the trade mark, the tax authorities may try to assess additional profit tax based on articles 31, 40 or 250 of the Russian Tax Code.
For further information, please contact:
in Moscow – Roustem Akhmetshin, Senior Partner, at: (495) 967-0007 or by r.ahmetshin@pgplaw.ru
in St Petersburg - Sergey Sosnovsky, Head of Tax Practice (St. Petersburg), at (812) 333-07-17 or by s.sosnovsky@pgplaw.ru