RF Ministry of Finance clarifications on tax aspects of application of the Federal Law on Trade.


Legal Update No. 135.

Goltsblat BLP advises of letter of the Ministry of Finances of the Russian Federation (MinFin) of 19 February 2010 No. 03-03-06/1/85 (the Letter) regarding tax payments made by a supplier to buyers under foodstuff supply agreements, in consideration of Federal Law of 28 December 2009 No. 381-FZ “On the Fundamentals of State Regulation of Foreign Trade in the Russian Federation” (the Law on Trade), which came into effect on 1 February 2010.

1. The issues considered by MinFin of Russia

A taxpayer enquires of MinFin regarding the possibility of deducting the costs of logistics services provided by stores (operational processing and unloading of goods through a distribution centre) from the profit tax base. The taxpayer did not ask about application of the Law on Trade in this situation.

Going beyond the situation described in the enquiry, MinFin, on its own initiative, expanded the scope of its response to include its position with respect to the Law on Trade. In doing so, it actually assessed the tax consequences of violation of the Law on Trade in the following cases:

  • payment by the supplier of a fee under a foodstuffs supply agreement for goods promotion, marketing and advertising by the buyer (clauses 11 and 12, article 9 of the Law on Trade);
  • granting by the supplier of any bonuses other than for volume (clause 6, article 9 of the Law on Trade);
  • payment of volume bonuses of more than 10% of the price of the goods supplied (clause 4, article 9 of the Law on Trade).

2. MinFin conclusions

MinFin concludes that, under a foodstuffs supply agreement, the supplier may deduct the costs for profit tax purposes only if the following restrictions set by the Law on Trade are observed:

  • the foodstuffs must be advertised, marketed and promoted within the scope of a separate agreement on provision of services for a fee;
  • bonuses other than for volume may not be paid under a foodstuffs supply agreement;
  • a volume bonus may not exceed 10% of the price of the goods supplied.

If the supplier violates the above provisions of the Law on Trade, MinFin considers that deduction of the relevant costs will not be justified.

3. Applying the MinFin position in practice

The given Letter sets out MinFin’s position in consideration of the Law on Trade. In fact, it takes a pro-budget position by judging violations of the Law on Trade as sufficient grounds for refusing the taxpayer the right to deduct the relevant costs for profit tax purposes.

Even though the MinFin Letter refers to specific rules of the Law on Trade, it may be assumed that it will proceed from a similar position regarding other violations of the Law on Trade not actually mentioned in the Letter. In other words, any such violations might, in practice, be taken as a pretext for refusing deduction of costs from the profit tax base.

Nor does the Letter make any mention of the Law on Trade transitional period (according to clause 2, article 22 of this Law, commercial entities are required to align existing foodstuffs supply agreements with the Law within 180 days of its effective date). In this connection, it is not out of the question that local tax authorities might seek to interpret the position taken by MinFin broadly, disputing costs incurred by the taxpayer within the given 180 days.

4. How legitimate is the MinFin position set out in its Letter?

The Law on Trade is not a legislative act on taxes and levies and cannot regulate tax relations (clause 1, article 1 and article 2 of the Tax Code of the Russian Federation). In itself, therefore, a violation of the Law on Trade should not, in our opinion, be recognised as grounds for refusing deduction of costs for profit tax purposes.

The current arbitration practice also proceeds from the tax legislation not making the legitimacy of cost deductions dependent on observance of the rules of other branches of law. At the same time, the possibility cannot be excluded that, specifically on this matter, the courts might take a different position, considering the major social significance of the Law on Trade.

For additional information, please contact:

Andrey Shpak,
Partner, Tax Practice,
Goltsblat BLP,
T: +7 (495) 287 44 44,
E: info@gblplaw.com.

Contact details


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