18 march 2016

RBC has published an article on a precedent-setting case on application of thin capitalization

RBC (RosBusinessConsulting) has published an article “The Supreme Court Sets an Important Tax Precedent for Business” based on a court ruling involving a precedent-setting case on application of thin capitalization. “The Supreme Court passed a precedent-setting decision in favor of business involving the question of whether it is necessary to withhold tax on interest accrued on loans made by Russian sister companies, if such loans have been reclassified into dividends.”

“On March 16, the Chamber for Commercial Disputes of the Supreme Court announced its verdict in the case of Novaya Tabachnaya Kompaniya, which for 21 months tried to appeal a court ruling on a deficiency tax assessment. The court ruled in favor of the business company. The resolution was published in the judicial database on March 17. Nikita Shcherbakov, Senior Associate with the Jus Aureum Attorneys at Law, who represented the company’s interests in court, said that the case sets a precedent. Prior to this case, the Supreme court has never ruled on the question of reclassifying interest accrued on a controlled debt into dividends, if interest is paid to a Russian creditor, rather than directly to a foreign creditor.  The Federal Tax Service has declined to comment “until all court procedures are finalized,” the Service’s spokesperson told RBC.

Please click here to view the full article.