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Corporate Tax

Russia

The Supreme Arbitrazh Court has held that it was lawful for a taxpayer's representatives to recover nearly Rb3 million in expenses from the authorities. However, the court's comments on the reasonableness of costs suggest that companies may need to explain why they chose their legal representative ahead of similar candidates. The case could lead to a larger number of less complex tax disputes being resolved out of court.

The Federal Arbitrazh Court of the Urals District recently ruled in a case which demonstrates a potential alternative to lengthy and difficult information-gathering processes in support of tax dispute claims. The case is particularly significant in view of the new protocol to the double taxation agreement between Russia and Cyprus.

A position letter from the Ministry of Finance at the end of 2011, setting out its view on beneficial ownership and the taxation of interest on Eurobonds, cast doubt on the tax status of a commonly used structure for Russian companies. After much debate, a draft law appears to have addressed the immediate concerns of investors, but identifying beneficial ownership remains as big an issue for the authorities as for taxpayers.

The Supreme Arbitrazh Court is due to decide a case involving value added tax on trade bonuses. It has previously held that such bonuses are normal retail practice and are closely connected with the main business purpose. However, if the court agrees with the tax authorities' position that such bonuses are payments for separate services, retailers could face serious problems and an increase in their tax burden.

The recently signed tax treaty between Russia and the United Arab Emirates is unusual because it is not based on the Organisation for Economic Cooperation and Development's Model Tax Convention. Its tax benefits will apply only between public entities in the two countries. However, it may prove fiscally advantageous for private entities as well.

The Supreme Arbitration Court recently published a ruling that prohibits taxpayers with foreign capital from deducting the interest they pay on loans "with a foreign element". Apart from the prospect of reducing foreign investments, this ruling may already entail the additional assessment of considerable taxes on Russian borrowers when tax audits take place.

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Insolvency & Restructuring

Russia

Creditors have been given an effective legal tool to enforce the liability of shareholders and chief executive officers, including foreign companies and citizens, for a Russian debtor's bankruptcy. Creditors can now recover their debts from such parties' property if the debtor's property is insufficient to satisfy the debts. However, pursuing any claim requires an understanding of Russian bankruptcy proceedings.

Litigation

Russia

Overview
The Supreme Arbitrazh Court has ruled on the application of Tax Code provisions on the rate of value-added tax applicable to services relating to imports. A panel of judges noted the lack of uniform practice across the circuits and the Constitutional Court is considering whether appeals may be brought to review cases on the issue - a worrying prospect for many companies.

One of the most significant new changes to the Civil Procedure Code is that a full appeal stage - allowing for the re-examination of evidence presented at first instance - has been introduced into litigation procedure. Previously, a court judgment could be appealed only if the ruling had been issued by a justice of the peace.

The Supreme Arbitrazh Court has drawn a line under a dispute about promissory notes that had dragged on since 2009. It corrected the approach of the lower courts, which had held that the only lawful basis for issuing a promissory note was, in essence, a loan relationship, and had stated that a promissory note may not be paid if it is issued to secure a third party's obligation.

The Supreme Arbitrazh Court has ruled on two issues that are likely to affect companies in Russia with foreign employees. The court specified whether social security payments should be made in respect of foreign employees who do not plan to reside in Russia permanently. It also ruled on the need for professional translations in dealings between the tax authorities and foreign taxpayers.

Although the Supreme Arbitrazh Court has previously issued clarifications on the timing aspects of the application of the Bankruptcy Law, a number of key issues continue to arise in practice. All parties with a potential connection to an insolvency procedure can learn the lessons of recent case law.

In a case in which additional value-added tax (VAT) had been assessed, the taxpayer unsuccessfully challenged the amount before the Supreme Arbitrazh Court, submitting evidence of tax deductions that exceeded the additional VAT. In another case, the court held that if a violation of tax legislation is identified during a tax audit, a taxpayer cannot avoid a fine by filing adjusted statements and paying tax arrears.

Recent rulings have addressed a number of controversial issues for debtors and claimants. These include the seizure of a debtor's property in criminal cases and implications of receivership proceedings being held, and the question of whether the choice of an alternative self-regulating organisation must be postponed until after a receiver is suspended.

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