Neftemash-Service LLC sold real estate (administrative and warehouse building, land plots, part of a workshop building) to two individuals that were also founders of the company and held the positions of general director and commercial director. The Company claimed the transactions were caused by an urgent need for capital, and that the reason for selling directly to the founders was that no third parties were interested in buying the properties. The Russian tax authorities held that the properties had been sold at non-arms length prices and issued an adjustment based on the market value. The court supported the position of the tax authorities. The price was lower than its market value at the time of sale, and the prices of land plots were substantially lower than their original purchase prices. Prices deviated from the market values multiple times (2-29 times). The tax authorities arguments in regard to the choice of pricing method (which was no a CUP) was found to be sufficient by the Court. The Company’s argument, that it was impossible to sell real estate at a higher price was rejected. In the opinion of the Court, the Company had no intention of selling the property to third parties. The Court also noted, that Neftemash-Service LLC continued to work in the building that was sold, but now under a lease agreements concluded with the founders. At the same time, the cost of maintaining the property continued to be carried by NefteMash-service LLC. The decision was upheld by the Court of Appeal and later the Supreme Court. A64-1247-2017 ...

Burdinsky A.V. sold building products to both related and unrelated parties. Following an audit of FY 2012-2014, the tax authorities concluded that Burdinsky had understated the price of goods in transactions with related parties in order to save on taxes and obtain unjustified tax benefits. Price discrepancies were in the range of 11% to 52%. Due to lack of information the tax authorities did not apply the CUP method method. Instead prices ware determined based on the gross markup. The Courts of first and second instances found the assessment of the tax authorities lawful and reasonable. The application of the inspection’s own method of determining whether prices had been at arm’s length (which implies the determination of the minimum trade mark-up at the subsequent sale) was not in conflict with the tax legislation, did not violate the rights of IEs. The Supreme Court cancelled the decision of the lower courts and ruled in favor of Burdinsky A.V.The difference between the price applied in a transaction and the market price level cannot serve as the sole basis for concluding that the taxpayer has received an unjustified tax benefit, and price deviations in the range from 11 to 52% are not multiple.Furthermore, the tax authorities did not establish comparability between the related and unrelated transactions, in particular the volume of goods sold to unrelated parties were significantly lower than the volumes sold to related parties. A relatively higher price to unrelated parties therefore had a reasonable economic justification. Click here for translation ...

Gazprom Chemical Fiber had previously sold goods directly to the final buyers, but now an intermediate trading hub had been established – the Trading House – through which sales and purchases were now passed. Following an audit, the tax authorities concluded that the cost of purchasing goods, as well as sales revenues following the establishment of the Trading hub, had been affected by non-arm’s length prices resulting in an understatement of taxable income. The court of first instance found the tax authorities arguments to be legitimate.The court of appeal overturned the decision of the court of first instance and ruled in favor of the taxpayer.The Supreme Court found the appellate court’s decision to be justified. According to the Supreme Court the tax authorities had gone beyond it’s statutory powers. There were no “multiple deviation” from market prices. A12-39246-2016 ...