Analysis of tax risks related to the offsetting of counterclaims
Mikhail Begunov, Nikita Zharov, Andrey Solomyany
Under the contract, the client (the general contractor) was to receive income from the client. At the same time, the client had a payable to a subcontractor. The client was interested in setting off the counterclaims and analysing the resulting tax risks.
As a result of the project, Tax Compliance team managed to assess potential tax risks related to the transaction for the client and suggest ways to minimise them (changing the documents on business transactions, justifying the existence of a "business purpose" of the transactions, etc.).
Tax authorities imposed a fine for violation of the deadlines for CFC notifications and considered that the fine corresponded to the severity of the act, since 13 episodes were identified for different companies.
In view of the above, a legal position was proposed for the taxpayer to mitigate the penalty.
Tax Compliance team assisted the client in developing a legal position, identified all possible mitigating circumstances and presented arguments to the tax authority in due form.
The tax authority accepted the arguments of the taxpayer and the penalty for each episode was reduced by 8 times.
Thus, as a result of the project, tax claims of 6.5 million rubles were reduced to 812 thousand (by 5.7 million rubles or 88% of the initial claim).
Supporting the client (owner of one of the largest shopping malls in Moscow) in challenging the cadastral value of the property
The client was interested in finding tax reserves for corporate property tax. The team identified an opportunity to reduce the cadastral value of the property, helped collect the necessary evidentiary basis and accompanied the legal process of contestation.
As a result of the lawsuit, the cadastral value of the property was reduced by more than 25 percent. The tax savings for the client amounted to more than 50 million rubles.
Preparation of a legal position confirming the reality of engaging subcontractors
Confirm the actual performance of works by subcontractors for the construction of the Moscow-St. Petersburg Expressway, confirming the absence of a scheme to obtain an unjustified tax benefit
An on-site audit was carried out in respect of the client, as a result of which additional VAT was charged on the counterparty. According to the tax authority, in fact the specified work was not performed by the disputed counterparty, but was performed by the taxpayer itself or other organizations. In the legal defense developed a legal position, which proved that the performers were part of the same group of companies, consisting of more than 12 legal entities. The taxpayer, when working with the counterparty considered it as a single economic entity and could not know about the corporate structure of the counterparty.
According to the results of the developed legal position it was possible to confirm the economic feasibility of the transaction, as well as the reality of the financial and economic activities of the disputed counterparties.
Represented an IT company, a subsidiary of the largest telecom operator and IT solutions developer of the Southern and North Caucasus Federal Districts, in a dispute with the tax inspectorate.
The client appealed to the arbitration court with a claim to the tax authority to invalidate the decision made on the basis of the field tax audit. The basis for the accrual of additional taxes, penalties and fines served as the basis for the conclusions of the tax authority that the Client received an unjustified tax benefit in the relationship with several counterparties, which, as telecommunications operators, could not provide services for traffic transit in connection with the fact that they had signs of organizations that do not perform real financial and economic activities. The main difficulty in proving the case is that the "traffic service" has no clear material expression and is not subject to visualization, therefore it was very difficult to collect the evidence base confirming the reality of transmitting traffic. During the court hearing Tax Compliance lawyers managed to have technical expertise assigned to the case and attach the expert's conclusion to it. As the result of legal efforts and well-designed defense strategy the court of the first instance partially ruled in favor of the Client. In this case the court saw an opportunity to interpret the concept of "due diligence" in favor of telecom companies. It pointed out that, given the specifics of the traffic services provided, as well as the peculiarities of the communications equipment through which the services are provided, the process of checking the availability of the counterparties' communications equipment, as well as the setting up of the connection was carried out remotely. This approach (if supported by higher courts) may be used by other recipients of similar services (in particular, telecommunications companies), both at the stage of selecting counterparties and when defending against claims of tax authorities.
Tax Compliance team managed to defend about 50% of the additional tax charge (in the part of corporate income tax the Client's claims were recognized as legitimate). This dispute is unique and forms positive arbitration practice for the entire telecommunications industry.