Tax Abuse Law


Legal Update No. 604

Goltsblat BLP advises that the Russian State Duma has passed a “tax abuse” draft law, which is currently pending with the Federation Council, then to be signed by the Russian President.

The Tax Code will have a new article (54.1) prohibiting any reduction in the tax base/amount if (1) business facts or (2) taxable items have been misrepresented.

Two conditions will have to be met for reducing the tax base/amount: (1) it is not the transaction’s primary objective to avoid (offset) taxes; and (2) the contractual obligation has been discharged by the party to the contract or a person empowered to do so by the contract or by law.

The law will effectively oblige taxpayers to check on who actually performs contractual obligations and whether there are any grounds for contracts to be performed by other parties. Under this new provision, if there are no documents confirming proper performance, expense or VAT deductions may be denied.

Source documents signed by unknown (unauthorised) persons, tax violations by counterparties or the possibility of obtaining the same results through other transactions will not be treated as standalone grounds for denying VAT or expense deductions. Even so, the tax authorities already rely on comprehensive legal reasoning and such grounds are but components of the legal position. Consequently, the amendments will probably provide the legal basis for the existing mechanisms they use for additional tax charges.

Obligating the tax authorities to prove that information is misrepresented or the tax base is unlawfully reduced will only slightly affect the balance of power in tax disputes.

Sadly, the amendments do not revise the Tax Code to state expressly that taxation is based on actual business facts rather than on blind observance of formal procedures. If this were the case, it would enable both the tax authorities and good-faith taxpayers to harness the law. Meanwhile, the amendments only amplify the formality of tax law. It is expected that SCC Plenum’s Resolution (which is already insufficient) will, for now, apply in the relevant part.

Contact details


If you would like to receive our legal alerts and updates highlighting current legal issues relevant to your areas of interest and providing expert commentary by our lawyers, please click on "Sign Up" and fill out the form.