EY’s Russian Tax & Law
practice was named a leading
Tax firm in Russia
in “World
Tax 2015,” an annual guide
published by the International
Tax Review.
The law and practice relating to the recovery of tax debts develop in parallel
with techniques for evading the payment of arrears revealed by tax audits.
Over the last few years we have witnessed a number of court rulings
supporting tax recovery methods applied by tax authorities in situations
where the business operations of a taxpayer in debt have been transferred to
a new company.
1
This approach was made possible by the introduction in
subsection 2 of clause 2 of Article 45 of the Tax Code of provisions allowing
tax authorities to present tax demands not only to subsidiary/participating
companies of a debtor taxpayer, but also to companies declared by a court to
be “otherwise dependent” in relation to a taxpayer which is in arrears (the
version effective from 1 January 2017 uses the term “persons”
2
).
We should point out that such recovery may take place only where a company
in arrears has transferred funds or other property to a dependent company
(person) after it became aware or should have become aware that a tax audit
was to take place, and that transfer has made it impossible for the arrears to
be recovered.
The Avtoritet-Avto case: A precedent for the recovery of tax arrears from a
creditor bank
On 26 January 2017 a landmark case involving Avtoritet-Avto, in which
Sotsialny Kommercheskiy Bank Primorya “Proimsotsbank” PAO (“the Bank”)
acted as the respondent, ended in the rejection of an application for the
referral of the cassation appeal to the Judicial Panel of the Supreme Court.
The ruling on the case asserted that it was legally justified for tax arrears to
be recovered from the Bank, which had accepted property of the debtor
taxpayer in settlement of credit debt.
1
The Korolevskaya Voda OOO case – No. А40-28598/2013; the Interos OOO case – No. A40-
77894/2015; the Trest Stroymekhanizatsiya OOO case - No. А12-14630/2014; the SU-91
Inzhstroyset case – No. А40-153792/2014.
2
Federal Law No. 401-FZ of 30 November 2016,
7 March 2017
Developments Regarding the Recovery
of Tax Debts from Dependent Entities
2
Details of the Case
Avtoritet-Avto OOO was ordered to pay additional
tax following an on-site tax audit. Since the
Company failed to meet its obligations voluntarily,
the tax authority took steps to recover the
amounts due from the taxpayer’s cash and
property. However, this did not result in the debt
being settled, since Avtoritet-Avto OOO’s entire
business had been transferred to Avtoritet-Avto+
OOO, while immovable property (an autocentre
building) had been transferred to the Bank in
settlement of debt.
As far as the transfer of property to the Bank was
concerned, the tax authority discovered the
following circumstances:
►
The same individuals and their relatives were
directly or indirectly involved in the activities of
Avtoritet-Avto OOO, Avtoritet-Avto+ OOO and
the Bank;
►
The Bank continued to lend to Avtoritet-Avto
OOO even after the company stopped making
repayments, and refrained from imposing any
civil penalties on it. This showed, in the tax
authority’s view, that the Bank had deliberately
sought to build up the debt of a dependent
entity (in order to make the amount of the loan
debt greater than the value of the collateral
that could be used to settle tax arrears);
►
Arranging the assignment of Avtoritet-Avto
OOO’s credit debt through operations involving
the use of a specially created company, Erius
OOO, enabled Avtoritet-Avto’s property,
including the autocentre, to be transferred to
the Bank. The autocentre was then leased to
Avtoritet-Avto+, and Erius OOO was liquidated.
The tax authority petitioned the court to declare
Avtoritet-Avto OOO and the Bank interdependent
and allow tax arrears to be recovered from the
Bank.
The first instance court took the Bank’s side,
stating that there was no decisive and
incontrovertible evidence that the entities were
interdependent or that the Bank had direct
influence over the activities of Avtoritet-Avto+
OOO.
The appellate and cassation courts, however,
sided with the tax authority. They asserted that
the term “otherwise dependent” used in clause 2
of Article 45 of the Tax Code in reference to the
relationship between a taxpayer and a person to
whom a demand for the recovery of tax debt and
been presented should be construed in terms of
the purpose of the provision in question, i.e. that
of combating tax avoidance in exceptional cases
where co-ordinated actions of a taxpayer and
other persons make it impossible for the taxpayer
to pay its taxes, whether or not the entities
concerned are interdependent within the meaning
of Article 105.1 of the Tax Code. It follows from
this interpretation that there is no need to prove
that the Bank exerted a direct influence on the
activities of Avtoritet-Avto+ OOO.
On 26 January 2017 the Supreme Court rejected
the Bank’s application for the cassation appeal to
be referred for further review.
Conclusions
The conclusions of the appellate and cassation
courts regarding the definition of the term
“otherwise dependent” used in subsection 2 of
clause 2 of Article 45 of the Tax Code effectively
give tax authorities the right to recover
indebtedness from any person (including an
individual) if they find evidence of co-ordinated
actions involving the transfer of property to
another person for the express purpose of
avoiding the settlement of tax debts.
Authors:
Yuri Nechuyatov
Sofia Tokareva
Daria Vaseneva
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