The conclusion of outstaffing contracts between a for-profit organisation and related parties that applied the simplified tax system was classified in a specific case as a transaction performed to obtain an unjustified tax advantage.



Goltsblat BLP advises that Resolution No. 12418/08 of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 25 February 2009 has been published. It concerns the case of a for-profit taxpayer organisation that leased (outsourced) staff from related parties, which applied the simplified tax system and did not pay unified social tax (UST).

According to the case materials, a tax authority performed a field tax audit into the compliance of a for-profit organisation with legislation with respect to the correctness of the accrual and timely payment of the UST and insurance contributions for mandatory pension insurance for 2005. The tax authority discovered during the audit that the organisation had concluded outstaffing contracts with related parties, which applied the simplified tax system and did not pay UST on this basis. As a result, the tax authority concluded that the taxpayer engaged in business with these entities solely for the purpose of obtaining an unjustified tax advantage from the reduction in expenses on the payment of the UST.

The state arbitration court of the relevant region and the state arbitration court of appeal sided with the tax authority. However, the federal arbitration court of the circuit revoked the judicial acts and satisfied the claim of the for-profit organisation.

After reviewing the case pursuant to supervisory procedures, the Presidium of the Supreme Arbitration Court of the Russian Federation upheld the position of the tax authorities on the following grounds:

  • The same individual was the founder of the staff outsourcing providers and a relative of the individual, who was the co-founder and head of entities participating in the taxpayer organisation;
  • The staff providers were set up in tandem with the development of the taxpayer’s retail chain;
  • The taxpayer and staff providers were registered at the same address;
  • The average staffing levels of each staff provider did not exceed the maximum headcount for eligibility for the simplified tax system;
  • The staff providers did not have any property and their employees worked on the premises, using the equipment owned by the taxpayer;
  • The staff providers only provide such services to the taxpayer;
  • Payment for the services of the staff providers and the payment of the salaries by the providers were performed on virtually the same day, while the revenues from the provision of staff outsourcing services only covered their payroll expenses;
  • The staff were actually selected by the for-profit organisation and by the regional state employment agency (further to a request from the taxpayer), instead of the staff providers that did not incur any expenses for these activities;
  • Employment relations between the staff providers and their employees, as well as the outsourcing of personnel to the taxpayer, constituted mere formalities by their very nature, with the staff de facto performing their employment duties at the taxpayer organisation. In connection with this fact, the taxpayer de facto paid the staff working in its stores through the staff providers;
  • The taxpayer failed to provide any economic supporting evidence that would have demonstrated that a tax advantage was not the sole motive for the taxpayer’s decision to use outstaffing contracts.

As a result the above circumstances permitted the Presidium of the Supreme Arbitration Court of the Russian Federation to classify, in this case, the activities of the for-profit taxpayer organisation as activities performed to obtain an unjustified tax advantage through a reduction in its tax liability owing to a decrease in the tax base for the unified social tax.

Judicial acts issued by the court of first instance and courts of appeal and cassation were revoked and the case was referred for review by the regional state arbitration court.

The Supreme Arbitration Court of the Russian Federation thereby upheld the practice that had been previously established at lower-level state arbitration courts, which had prohibited the conclusion and use of contracts involving the use of third party personnel (staff outsourcing, staff leasing) to obtain an unjustified tax advantage.

For more information, please contact:

Andrey Shpak, Head of Tax,
Goltsblat BLP
Tel: +7 (495) 287 44 44,

Contact details


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