THE FEDERAL TAX SERVICE ELABORATES ON THE DISTINCTION BETWEEN SHAREHOLDERS’ ACTIVITIES AND INTRA-GROUP SERVICES

05/03/2021

As opposed to expenses incurred under the services agreements which can be deducted for-profit tax purpose, reimbursement of expenses for shareholding activities is not recognized as an expense for tax purposes. In this respect, as a clear distinction shall be made between these two categories of intra-group payments.

In its Letter N SuYu-4-13/1749@ dated 12 February 2021 Federal Tax Service specifies the main characteristics of shareholders’ activities:

• they are based on the needs of the shareholders of the group, and not of individual local companies;
• the economic benefit from the activities appears at the level of the group or its business segment as a whole, and not at the level of individual local companies;
• individual local companies would not engage third independent parties to provide such services on a reimbursable basis and would not engage in them independently.

Furthermore, the Federal Tax Service sets a list of example shareholders activities, including the development of the strategy for the multinational group; conducting new market research, provided that such research is not linked with the projects that are already being implemented on the market; assessment of investment projects; strategic planning and budgeting; preparation of consolidated financial and management reporting; analysis of the effectiveness of investments in the companies included in the multinational group; control over the financial and economic activities of the group, including internal audit and internal control in the interests of the shareholder; development of group standards, methodologies, policies and other internal regulations and control over their implementation; approval of significant decisions and transactions, including investment programs, not related to the current activities of individual local companies.

The Federal Tax Service draws attention to the fact that in case the intra-group payments are assimilated to payments for shareholders’ activities, they can not only be recognized as non-deductible for-profit tax purpose but could also be re-qualified into other types of income (i.e. dividends) and subject to withholding tax.

Despite the fact that the approach of the Federal Tax Service seems to be in line with OECD based practice, it is important to wait and see how these guidelines will be interpreted and applied by the local tax authorities. At present, all intra-group services are regarded as suspicious and subject to intensive scrutiny and challenging by the tax authorities.

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