Pepeliaev Group’s experts share recent news on intra-group services
Tax authorities are demonstrating a keen interest in intra-group services. Over the last few months, practice has shown that events are moving forward at great pace. Within the framework of pre-audit measures of tax control, many of our clients have received requests regarding contracts under which payments have been made to foreign entities of the group. It has become clear that tax inspectorates are geared towards a blanket rather than targeted application of the policy, which is unfavourable for taxpayers, regarding cross-border payments within a group of companies. In other words, all Russian members of multinationals that perform such payments could, in our opinion, receive a claim to this effect (or inquiries with a view to becoming claims) in the near future.
A tax audit will be launched if, after a tax inspectorate files a claim, companies refuse to willingly file adjusted tax returns and remove intra-group payments from their expenses. Based on the audit results, companies may not only have their expenses removed but also have withholding tax additionally assessed. They can also be subjected to sanctions for profit tax arrears (40%) and for the non-payment of withholding tax (20%). Management can face criminal liability for breaching currency legislation under article 193.1 of the Russian Criminal Code. An inspectorate is a currency control body and is thus entitled to pass the materials to law enforcement officials. If a case does not go as far as a criminal penalty for tax arrears in connection with the payment of additionally assessed taxes by the companies, a criminal prosecution under the above article will not be terminated by the payment of such taxes.
In our experience, it is very important to prepare in advance for an audit of such type of expenses and to start a dialogue with tax authorities without waiting until the audit is over or even until it has been scheduled.
Pepeliaev Group’s tax practice offers a range of services that involve challenging the claims relating to intra-group payments.
In similar projects, we achieve substantial reductions in assessments of additional tax. In 2019, we gained excellent experience in dealing with tax inspectorates, specifically, with the Federal Tax Service’s Inter-district Inspectorates No. 1 and No. 2 for Major Taxpayers among them.
In cases when a company, by engaging outside experts or without them, has developed a set of measures to eliminate or mitigate the risks, we offer our assessment of such measures (as a first or second opinion). This will help the company to be more confident that the action plan it has developed is viable and that the work planned will indeed help to attain the results expected from it.
We are interested in practice that is favourable for taxpayers being established on the market with respect to intra-group services. To this end, we have prepared a leaflet regarding legal support with respect to such claims. If this issue is relevant for you, you may contact your personal tax manager at Pepeliaev Group or the persons stated in this leaflet.
A tax audit will be launched if, after a tax inspectorate files a claim, companies refuse to willingly file adjusted tax returns and remove intra-group payments from their expenses. Based on the audit results, companies may not only have their expenses removed but also have withholding tax additionally assessed. They can also be subjected to sanctions for profit tax arrears (40%) and for the non-payment of withholding tax (20%). Management can face criminal liability for breaching currency legislation under article 193.1 of the Russian Criminal Code. An inspectorate is a currency control body and is thus entitled to pass the materials to law enforcement officials. If a case does not go as far as a criminal penalty for tax arrears in connection with the payment of additionally assessed taxes by the companies, a criminal prosecution under the above article will not be terminated by the payment of such taxes.
In our experience, it is very important to prepare in advance for an audit of such type of expenses and to start a dialogue with tax authorities without waiting until the audit is over or even until it has been scheduled.
Pepeliaev Group’s tax practice offers a range of services that involve challenging the claims relating to intra-group payments.
In similar projects, we achieve substantial reductions in assessments of additional tax. In 2019, we gained excellent experience in dealing with tax inspectorates, specifically, with the Federal Tax Service’s Inter-district Inspectorates No. 1 and No. 2 for Major Taxpayers among them.
In cases when a company, by engaging outside experts or without them, has developed a set of measures to eliminate or mitigate the risks, we offer our assessment of such measures (as a first or second opinion). This will help the company to be more confident that the action plan it has developed is viable and that the work planned will indeed help to attain the results expected from it.
We are interested in practice that is favourable for taxpayers being established on the market with respect to intra-group services. To this end, we have prepared a leaflet regarding legal support with respect to such claims. If this issue is relevant for you, you may contact your personal tax manager at Pepeliaev Group or the persons stated in this leaflet.