Affiliation in tax dispute was not appeared

24.05.2012

On the 15th May 2012 Federal Arbitration Court of Ural District made a final decision in the tax dispute between tax authorities and retail trade system “Monetka”, which was considered by arbitration courts more than two years ( case №А60-32327/2010).The Court took the part of taxpayer, leaving cassation appeal of taxing authorities without prejudice.

The subject matter of the dispute was common tax deduction of legal entities by increasing in expenses based on payments from Trademark Licensing Agreement.

From case study, the copyright holder is the company registered on British Virgin Islands, which passed non-exclusive rights of using trademark by Trademark Licensing Agreement “Richmane trading limited” (Cyprus). In one’s turn the Cypriot Company signed the sublicensing agreement with retail trade system “Monetka” (OOO “Element-Trade”).

The tax authorities found that OOO “Element-Trade” signed simulated contract with the Cypriot Company to 472,5 million rubles, on the basis of which increased own expenses, and which lead in 2006-2008 to decreasing taxable profit. One of the arguments of tax authorities was that the Cypriot Company and the Company, which registered on British Virgin Islands are affiliated to the Russian company.

The important fact was providing a Certificate issued by the INTERPOL, proving that the company promoter is civil wife of Russian company’s owner. Nevertheless this fact of evidence was not admitted by the court of cassation, because of breaching rules of procedure of reclamation written evidence.

From case materials and arguments of parties, the court of cassation concluded, that tax authorities didn’t prove the following circumstances:

• unfairness of taxpayer;

• unjustified tax benefit by the contract with disputable party;

• affiliation of Russian and Cyprus companies.

Thereby the decision of taxing authorities about additional profit taxation, sum of fines and penalties was invalidated. 

Expert’s opinion

The court’s decision proved that doing business honestly correct tax planning works.

Everything is clear, fair and bright.

Tax planning as a part of financial planning is one of the fastest growing segments of the market of consulting services.

Referring to the figures: the amount of money that a company listed on account of royalties, totaled 472.5 million rubles, which roughly corresponds to 15.75 million U.S. dollars!

Expenses to all this consists of the value of the two companies with accounts of their annual maintenance and costs of services of lawyers who have made the correct contracts.

Agree that in the best case even taking into account the cost of attorneys who led court hearings - the cost will not exceed the cost of tens of thousands of U.S. dollars.

15 millions and 100 thousands – I think, I think the numbers speak for themselves.

Work honestly.

Use the services of qualified consultants.

Get rich!

On the basis: http://ras.arbitr.ru/

Yaroslav Lomakin ( Managing Partner of Honest & Bright Company Ltd. )