Taxology Lawyers won High Court Controversy Over Thin Capitalization Rules

The main issue in the dispute was whether the taxation should be the same for companies, the structure of which is completely tied to Russia, and businesses, in the structure of which there are foreign elements.

Taxpayer interests were represented by Taxolog lawyers

The dispute arose over the right to include in expenses the costs of paying interest on intragroup loans between Russian legal entities structured into foreign jurisdictions. Based on the results of the audit, the tax inspectorate recognized the intragroup loans as "controlled debt" according to the rules of Article 269 of the Tax Code of the Russian Federation, and the courts of all three instances upheld the position of the tax authority.

Our lawyers got involved in the dispute during the preparation of the complaint and the consideration of the case in the Supreme Court. We were able to prove that the Company only formally met the criteria for controlled debt under Art. 269 of the Tax Code, and the foreign company did not control the granting of the loan in any way, there were no facts of tax abuse, and the budget did not suffer losses. The court accepted our position, according to which deviation from the formal application of thin capitalization rules should be assessed on the merits.

This dispute may become a significant step in the development of judicial practice under Article 269 of the Tax Code of the Russian Federation. For the first time in a long time in judicial practice, not only a purely formal and restrictive approach to this article was voiced, but an essential approach, taking into account the factual circumstances.

The interests of the taxpayer in this matter were represented by the head of the transfer pricing and international taxation practice at Taxology Lyubov Starzhenetskaya and managing partner Sergey Semenov.

Congratulations to colleagues and the client on the success in the dispute! We hope for further victories at such a high level.