St Petersburg
Lawful tax planning or tax evasion: the limits of administrative reassessment of business decisions

On 16 May 2019, the St Petersburg International Legal Forum will host a workshop titled: "Lawful tax planning or tax evasion: the limits of administrative reassessment of business decisions"



After each block of the discussion it will be suggested that all the event attendees vote on the most topical issues. A professional sociologist will analyse and interpret the results of the voting.

Following the discussion session, a resolution will be formed that will contain main conclusions formulated based on the discussion session and the audience voting.

Foreign anti-evasion doctrines allow for broad opportunities for law enforcers to act at their discretion. The Russian legislation has also adopted them.

From 2012 to 2018 taxes withdrawn from the economy (VAT and profit tax) grew more than 30 times faster than the Russian economy itself.

Russia's Federal Tax Service explains this by the quality of tax administration and ‘new business entities being involved in legal circulation and business operations’. These reasons alone cannot explain the dramatic disproportion between the growth rates of tax revenues and the economy.

Court statistics confirm that most additional assessments rely on the unjustified tax benefit concept (88% of judgements in such cases favoured tax authorities).

Anti-evasion rules, abstract and flexible, leave enforcers broad room for a discretionary approach. In countries of such rules' origin a controller’s discretion is balanced with a reliable pre-court settlement system for tax disputes, and a high reputation of an independent court. Scholars’ opinion is also taken into account, and such rules are applied in exceptional cases.

In Russia, as prominent tax lawyer A.A. Ivanov estimates, tax law rules letting tax obligations change at a tax authority’s discretion have reached 10% of the general part of the Russian Tax Code[1].. He wonders, “Has the Russian law moved to a new level where the principle ‘only that what is explicitly prescribed is compulsory’ has been replaced with the principle ‘that what tax authorities impute based on their own assessment is compulsory'?”

All this is set against an abrupt decline in people’s institutional trust, including trust in the court system, which sociologists recorded in 2018.


Please vote on the most topical issues.

A professional sociologist will analyse and interpret the results of the voting.

Following the discussion session, a resolution will be formed that will contain main conclusions formulated based on the discussion session and the audience voting.


The Programm

1. “Formal document flow” a legal concept or a label?

When they challenge taxpayer’s transactions or reclassify them, tax authorities hardly ever use civil law categories, such as an invalid, sham or fraudulent transaction, or a transaction consummated for a purpose contradicting principles of public order or morality. They have introduced a new concept instead: “formal (fictitious) document flow”.

Tax authorities interpret it as a taxpayer issuing documents that do not correspond to the actual economic relationship to evade taxes.

A lower standard of proof in court established for tax authorities allows them just to refer to the “formal document flow” to reassess the taxes in the way that would correspond to the substance of the relationship as the tax authority understands it.

Another approach is that companies’ tax obligations directly follow from their economic activities. They are based on civil law relationships. Therefore, for the tax obligations to be reconsidered, transactions should at first be reclassified from the standpoint of civil law, their invalidity should be established and it should be proven that the taxpayer's actual purpose does not correspond to the form and/or substance of the transaction it has declared.

Tax obligations may be reconsidered based on the transaction being recognised invalid only for tax purposes and this does not affect civil rights of the party to such transaction. The stability of business environment should not be disrupted.

I. The concept “formal document flow”:

II. If an unjustified benefit has been declared, proving that the transaction is invalid to change its tax consequences:

III. If, when declaring that a tax benefit was unjustified, a tax authority has not proven the invalidity of a transaction (a group of transactions), tax consequences of the transaction (the group of transactions):


2. Business or tax purposes of a transaction: is competition between them acceptable?

The scope of a taxpayer’s rights and obligations should be determined based on the true economic substance of operations performed.

Any transaction of a taxpayer must have valid economic reasons (business purposes) behind it.

The requirement of a business purpose being present is a prerequisite for the validity of transactions.

Operations are not taken into account as reducing tax obligations, if the primary purpose of a transaction (operation) is the non-payment of a tax (article 54.1(2)(1) of the Russian Tax Code).

Therefore, the business purpose may compete with the tax purpose for primacy. What are the criteria based on which such competition should be allowed, if there are no such criteria in laws?

Higher courts have pointed it out more than once that the fact that it is possible to achieve the same economic result with a lesser tax advantage than the one the taxpayer received by performing transactions set out in for or not prohibited by the law, does not constitute a ground for the tax gain to be classified as unjustified.

If a transaction (a set of transactions) is valid, it must have a business purpose even if a tax benefit has been obtained as a result of it.

The question is whether the business and the tax purposes may compete if there are no criteria determined by law and when the system of the pre-trial and court resolution of tax disputes does not fully ensure that public and private interests are balanced and taxpayers’ rights are protected.

I. If there is a business purpose of a transaction, the competition between the business and the tax purposes is:

II. Criteria for defining the hierarchy of purposes (primary/non-primary)

III. Engaging independent specialists (experts) with specialised knowledge by the court to identify a business purpose of a transaction:


3. Business purpose of a transaction or a way to achieve it: what is assessed in practice?

One and the same business purpose (business result) may in practice be achieved in different ways, by consummating various transactions with different conditions.

The right of tax authorities to assess a business purpose of transactions consummated by a taxpayer is indisputable.

It is supposed that it is reasonable and based on rules of civil and tax legislation that such assessment should be limited to the analysis of the following:

  • whether the transaction is real and whether the way in which it is documented is in line with actual circumstances (including the functions of the parties to the transaction);
  • the business purpose of the transaction, in other words what was the result of economic (business) activity at which the specific transaction (group of transactions) was aimed;
  • the connection between the established purpose/planned result and the taxpayer’s business activity.

However, in practice disputes mostly concern the way of how the business purpose is achieved.

If the way chosen by a taxpayer, as compared to the alternative determined by the tax inspectorate, has resulted in in the tax burden having been reduced, the inspectorate concludes that the actual purpose of the transaction has been to save on taxes. The situation is even worse when in practice the business purpose that the taxpayer set has not been achieved while the tax benefit has been obtained (expenses or the VAT have been deducted or in other cases).

We will demonstrate this using the following example.


Amounts of expenses incurred when these options are implemented may differ considerably.

I. Which of the two statements given, do you think, is closer to your position?

II. If, when the way to achieve the business purpose is chosen, the choice has to be made taking account of the state’s budgetary interest, which of these positions do you see as the most precise?

III. The fact that the chosen way to achieve the purpose made it possible to obtain the minimum tax burden as compared to other ways:

IV. If the chosen way has not let the set business purpose be achieved,


Invited panellists:

  • Danil Vinnitskiy, Doctor of Laws, Director of the BRICS Law Institute, Head of the Finance Law Department, Ural State Law University
  • Natalya Sheveleva, Doctor of Laws, Head of the Department of Administrative and Financial Law, St. Petersburg University
  • Alexey Ryabov, PhD in Law, Head of the Expert and Legal Service of the Russian Presidential Commissioner for Entrepreneurs' Rights.
  • Natalia Pavlova, Judge, Supreme Court of the Russian Federation/ Anatoly Pershutov, Judge, Supreme Court of the Russian Federation
  • Daniil Egorov, Deputy Commissioner, Federal Tax Service of Russia/ Konstantin Novoselov, Deputy Head of the Control Department, Federal Tax Service of Russia
  • Kurt Demeyere, tax lawyer, lawyer-counsel with Mythra, Brussels
  • Valentina Akimova, Partner, Pepeliaev Group

General information:

Date: 16 of May 2019
Time: 9.30 to 11.00
Venue: Palace Square 6-8, St Petersburg


[1]A. A. Ivanov Tax abuse: between an intent and an incident. Bulletin of the Russian economic justice, No. 4, 2018, Consultant Plus. 



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Lawful tax planning or tax evasion: the limits of administrative reassessment of business decisions

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