Ekaterina Smolovaya, Principal Associate of the Tax practice at Capital Legal Services, talks about the most significant events and court decisions of the first half-year of 2022.

It is no surprise to anyone that the mass exodus of foreign investors from Russia is among the main recent trends. Large holding companies are taking a number of actions, from restructuring in different ways and selling their business to the management to shutting down all operations and liquidating businesses entirely. It is expected that we have yet to see the approach of the tax authorities to treating and assessing such actions, since corporate reorganization is usually closely scrutinized by the Federal Tax Service.

In this context, we should mention the case of AO TD Perekrestok. It has become a continuation of the ongoing saga involving the holding company, and is indicative of the general approach of the tax authorities to the problem of groups of companies being restructured, which in most cases has, unfortunately, a negative outcome for the taxpayer. Following the lead of the tax authorities, courts rigorously examine the economic essence and business purpose of the reorganization and pay particular attention to actual changes in the corporate management structure. In practice, if actual owners and managers do not change as a result of the restructuring, there is a significantly higher risk of claims from tax authorities, and they usually attempt to reclassify the income of foreign companies from selling shares in Russian subsidiaries as dividends.

In addition to reorganization, business fragmentation is still a common problem. Cases within this category are currently illustrating a more careful and fair approach to determining an actual tax liability. For example, in the case of OOO MDS, the Supreme Court of the Russian Federation noted that, when calculating the amount of additional charges to be imposed on an initiator of fragmentation, not just the income of all participants of the fragmentation needs to be consolidated, but also the amount of taxes they all paid.

Reclassification of loans as investments has also remained popular in the last six months. The trend in this type of dispute is generally negative for taxpayers, but in the case of OOO Vipoil-Gipercenter, the courts analyzed a wide range of risk factors related to reclassification of loan-based financing as investments and sided with the taxpayer.

Finally, there is another common issue. It concerns property being classified as movable or immovable for tax purposes (major disputes include cases of Lesozavod 24 and ООО Yug‑Novy Vek). In the last six months, there was an important case of ZAO KuibyshevAzot, where the taxpayer justified its position with the arguments typical for such disputes: equipment units being recorded as independent inventory items, a respective OKOF code used (All-Russian Classifier of Capital Assets), equipment can be disassembled and then reassembled in a new location. However, the court sided with the tax authority and noted that the separate identification of equipment was artificially made up by the taxpayer and should be deemed abuse of the law. In general, the positions of courts on this type of dispute remain ambiguous: subsequently, similar arguments worked in favor of the taxpayer in the case of OOO Ivanovsky Kombinat Detskogo Pitaniya.