Earlier we wrote about a well-known case in which Vimpelcom challenged the legitimacy of a tax audit on controlled transactions. The tax authority charged the organization additional income tax due to the deviation of prices in a controlled transaction from the market level. As a result, the company succeeded in having the decision of the Federal Tax Service annulled in court due to non-observance of the statute of limitations for the audit. Fyodor Petrik, Senior Tax Consultant at Tax Compliance, analyzed the decision of the judicial body in the Kommersant review.

The expert emphasizes the peculiarity of the case, as the company managed to successfully challenge the decision of the Federal Tax Service on tax audit under TCO at the expense of appealing to the Constitutional Court of the Russian Federation. There have been no such reversals of TCO audits before, and inspectorates usually correct such violations at the pre-trial stage of proceedings.

It should be reminded that the features of TCO inspections are as follows:

• The inspecting authority - such inspections may only be conducted by the central office of the Federal Tax Service of Russia.
• Narrow subject matter of the audit - only controlled transactions of taxpayers.
• Special audit methodology - a study of the market price level using TCO methods.

Only taxpayers which carry out transactions with affiliated persons that are recognized as controlled transactions are subject to TCO audits. Transactions with foreign counterparties are under the greatest scrutiny by the Federal Tax Service.

The TC expert notes that there are still chances to overturn the decision of the Moscow Arbitration Court in appeal or cassation, as the dispute has been going on for a considerable period of time, and the Federal Tax Service is fundamentally defending the additional tax assessment already formed, and the existence of a dispute on a procedural basis will effectively «cancel» all the resources spent by the agency to conduct an audit and form a position.