Tax Planning and the Tax Code in 2013

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The Russian taxation outlook for 2013 may be viewed as having three main strands: transfer pricing, case law, and de-offshorisation.

The new Russian transfer pricing rules reach the stage of practical implementation: the notifications of controlled transactions are to be filed in May, and the prices have to be justified by a dossier of documents. At the same time, the taxpayers may have to tackle ambiguity in the statutory definition of related parties and in rules for calculating trade volume thresholds above which the transactions are subject to control. The Finance Ministry directs the local tax authorities to audit transactions regardless their volume if there are signs of tax evasion, and therefore any risky transaction should be examined closely. A taxpayer needs to ensure that it can defend data that was obtained to justify prices: this data should comply with requirements as to form and should be set out in contractual documentation. The taxpayer may not only need economists and accountants but also to make certain legal efforts to comply in full. In current practice, the ‘safe havens’, i.e. the advanced pricing agreements with Federal Tax Service and the ‘consolidated group of taxpayers’ rule, are available only to major Russian companies, which are mostly state-owned.

Exploring the Russian tax environment, a tax strategist should not confine himself to the statutes in force. In some ways, case law and policy declarations are more important.

Currently the most peculiar aspect of Russian tax law is that the major issues are mostly raised and decided by the Supreme Commercial Court rather than by the legislature. The Court is entitled not only to hear cases but to issue surveys that contain abstract opinions on interpretation of law. Currently the Court is finalising the set of opinions on general tax collection issues. Various other taxation issues are pending, including those decided previously but requiring further clarification.

At the same time, when the Court clarifies an issue of tax law, the lower courts tend to state that this is the way the law should have been interpreted from the start, even if other approaches existed on which the taxpayers could reasonably rely. The Court usually implies that one could interpret the law properly if enough analytical effort was made, but this is not always the case.

The new opinion of the Court is not retroactive against cases that were finalised in lower courts in favour of the taxpayer before such new opinion was issued, but is indeed retroactive if a similar case is not finalised (can be appealed, is pending or is in its pre-trial stages). We know only one example when the Court acknowledged that its new position shall be applied only to contracts concluded after this opinion was issued. This wasn’t a tax case and wasn’t even the most controversial case to appear before the Court.

Some legislative changes in taxation of capital assets recently entered into force. From the beginning of 2013 the obligation to reinstate the amortisation premium arises only if a capital asset was disposed of to a related party. The property tax will not be levied on movable property if its acquisition as a capital asset occurs after the beginning of 2013.

We can anticipate that the major legislative effort of 2013 might be the so-called de-offshorisation proclaimed by country’s leadership. The G20 will meet in Moscow and the measures against tax haven abuse will be on the agenda. The Russian government is combating the erosion of the national tax base, and the global competiveness of the Russian tax regime may be compromised in some matters. The legislative action is expected near the end of this year.

About Author

Petr Popov graduated with honours from the Law Faculty of Lomonosov Moscow State University, Department of Administrative and Financial Law and specialises on tax consulting and tax litigation.
Petr has been working for Pepeliaev Group since 2004. Prior to joining the team, he worked as a legal counsel for small non-legal businesses.

Petr has extensive experience of advising on the analysis (audit) of the risks of tax authorities’ claims which have not yet been stated but are probable, including issues of form as well as of the substance of business transactions.

He has participated in consulting projects for a number of companies in the oil & gas, energy, telecommunications and space systems, transportation, manufacturing, pharmaceutical, financial leasing, investment and commercial banking sectors. Petr was actively involved in a project for Shtokman Development, where he prepared comments on draft agreements to create offshore infrastructure with regard to document management for tax purposes and analysing legal grounds for the operator to exercise its right to a VAT refund under earlier legislation where this issue was not directly regulated. Within the project Petr also prepared a legal justification for the VAT refund and core wording of possible adjustments to tax legislation that will formalise the approach in question. Further to a desk tax audit of adjusted returns, the tax inspectorate confirmed the right to the VAT refund. The legislative changes that were later introduced also correlate with results of provided legal analysis.

Another highlight of Petr’s consulting projects was for a large Russian company, where he provided legal comments on the pricing methods that had been developed with advisors in economics to enter into pricing agreements with the Russian Federal Tax Service.

Petr is the author of numerous publications on tax issues and regularly participates in tax conferences and seminars as speaker. Petr also possesses vast knowledge in various other areas of legislation, including civil law and core general administrative law issues.

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