VimpelCom is challenging the legality of a tax audit of transactions for which the company was assessed an additional 179 million rubles
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VimpelCom is challenging the legality of the tax audit on controlled transactions, as a result of which the company was assessed an additional 179 million rubles. Initially, the operator lost the dispute, but then achieved a review of the case in the Constitutional Court of the Russian Federation (CC). According to Kommersant, the arbitration court again supported the tax authorities, which VimpelCom considers non-compliance with the position of the Constitutional Court. Lawyers share the company’s arguments, but also allow alternative interpretations of the Constitutional Court’s ruling. The dispute is important for business, since the illegality of ordering an inspection entails the invalidity of the claims brought as a result.
On March 18, the Ninth Arbitration Court of Appeal accepted for consideration VimpelCom’s complaint against the decision of the Moscow Arbitration Court, which recognized the tax audit of the company’s controlled transactions as legal, follows from the file of arbitration cases. Since 2021, the telecom operator has been trying to challenge the very fact of ordering the inspection, but so far has been unsuccessful.
Controlled transactions are committed between interdependent and equivalent persons who have the opportunity to influence the terms of transactions, and must meet certain criteria. The Federal Tax Service must be notified of their commission, which can order an inspection no later than two years from the date of receipt of the notification: on March 26, amendments to Art. 105.17 of the Tax Code, which increased the period to three years, but this will only affect future audits.
In May 2018, VimpelCom notified the Federal Tax Service of 111 controlled transactions for the previous year, one of which was of interest to the tax authorities. We are talking about a deal with the Dutch Veon Wholesale Services BV (VWS) for the provision of services, including the management and development of new inter-operator roaming tariffs in the amount of 1.6 billion rubles. Five months later, the company sent an updated notification, where it corrected the contract number with VWS and added information about another transaction – with Veon Ltd (owned 100% of VimpelCom PJSC until October 2023) also for the provision of services.
In December 2020, the Federal Tax Service ordered an inspection, as a result of which it awarded VimpelCom an additional 179 million rubles. income tax on the transaction with VWS, seeing the deviation of prices from market prices. The company challenged the order of the inspection because the two-year period from the first notification had been missed. The Federal Tax Service considered the period from the date of the updated notification, and the arbitration courts agreed with it. The Constitutional Court, at the request of VimpelCom, checked the Tax Code rule on the deadline and in July 2023 declared it unconstitutional, obliging it to reconsider the company’s case. According to the Constitutional Court, the audit period can be counted from the date of the updated notification only if the tax decision explains the significance of the new information for the transaction from the initial notification. However, the capital’s arbitration court again recognized the inspection as legal in February.
VimpelCom told Kommersant that they “consider the pricing in the transactions to be correct and will continue to challenge the court’s decision.” The company believes that the position of the Constitutional Court is clearly that the terms from which the Federal Tax Service proceeded are incorrect, and the arbitration courts do not comply with the decision of the Constitutional Court: “We strive to protect our rights and limit the possibility of unjustified tax control. The decision in this case could set an important precedent.” The Federal Tax Service did not answer Kommersant.
The dispute is important for business, since “the illegality of ordering an audit entails the invalidity of tax claims made as a result of it,” emphasizes Fedor Petrik, senior tax consultant at Tax Compliance.
Taxology partner Alexey Artyukh believes that “the motivation for the Constitutional Court’s decision left many options for the development of events, including the refusal of the applicant for a new consideration.” As a result, to shift the deadline for verification, the arbitration court considered the connection of the deal with Veon from the updated notice with the deal with VWS sufficient, but “neither the nature of this connection nor the reasons for its materiality are disclosed in detail,” explains Mr. Artyukh, the decision only states “a partial overlap subject of transactions.”
According to the head of tax practice at K&P Group, Victoria Kanishevskaya, the decision of the arbitration court “does not fully correspond to the position of the Constitutional Court.” She notes that the justification for the connection between the transactions from the first and updated notifications should have been contained “directly in the tax decision on the audit,” but it was not there, and the Federal Tax Service presented these arguments in court. The lack of justification in the inspectorate’s decision “involves its invalidity and the illegality of the inspection,” the expert believes, “otherwise sending the case to the Constitutional Court for review makes no sense.” Fyodor Petrik also considers the company’s “argumentation to be correct,” but “taking into account the significant amount of additional charges,” he expects “an active defense of the position of the Federal Tax Service.”
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