Intra-group services: working with tax risks

Issues of tax regulation of intra-group services (RIS) have been the focus of attention of Russian regulatory authorities for quite a long time, but only recently the Federal Tax Service of Russia issued a guide to interregional inspections, explaining some key issues in the analysis of such transactions (Letter of the Federal Tax Service of Russia No.SHY-4-13/12599@ dated 06.08.2020). Despite the fact that the Letter clearly limits the scope of application to expenditure transactions between members of international groups of companies, we believe that the proposed approach can also be applied to domestic transactions.

Key aspects that I would like to highlight are as follows:

  • it is important to:
    • confirm the legitimacy of the services provided, including the availability of proper documentary evidence;
    • justify the economic value for the recipient of the service;
  • separately, it is proposed to assess whether there is no duplication of the services received and whether the contractor's expenses for joint-stock activities are not included in the cost of services;
  • positive point: we recommend territorial tax authorities to avoid a formal approach to analyzing IGS, which is emphasized throughout the Letter
    • the legitimacy of the services – If from the submitted documents it is not possible to verify the fact of provision or essence of services, it is necessary to request additional explanations, comments, alongside the supporting documents;
    • duplication - by itself, the coincidence of the names of departments or positions does not indicate duplication (paragraph 4 of the Letter);
    • economic value - the assessment of the benefits of the purchase of a service should be made, taking into account the circumstances indicating the taxpayer's intentions to obtain an economic effect; a negative financial result, or non-application of the result of services received, do not indicate the unreasonableness of the costs incurred (paragraph 5 of the Letter);
    • the shareholder activity of the service provider does not indicate the nature of the services provided (paragraph 7 of the Letter);
    • documentary evidence - in case of insufficient information about the services provided, it is recommended to receive additional clarifications and documents - the list of supporting documents is stated (paragraph 3 of the Letter);
  • it is worth mentioning pricing issues: The letter explicitly states that the control in controlled transactions cannot be the subject of on-site and cameral tax audits, and indicates that the factor of price, mechanism and the principle of its formation, is "an integral characteristic of the service itself." In practice, this will mean attention on the part of the territorial bodies during RIS pricing.

When is it relevant?

Analysis of the issue of sufficiency of documentary evidence of VSU is relevant for all Russian taxpayers providing and/or receiving services from the companies of the group, when your company:

takes into account for the purposes of income tax expenses for the RIS (the risk of challenging the deduction of expenses);
receives income from the provision of services (the risk of revaluation (increase) in the cost of services);
it receives services, but the relationship is not formalized (there is no contract) and, therefore, there is no deal, but the company receives economic value (the risk of recognition of receiving gratuitous services);
does not take into account VSU expenses for profit tax purposes, but pays the cost of such services to the group company(s) (the risk of re-qualifying such payments, for example, into dividends);
it provides services, but does not receive income (the risk of recognition of gratuitous provision of services).

What do we offer in terms of reducing tax risks under intragroup service contracts

We offer a comprehensive approach to dealing with tax risks associated with RIS, which is adapted to the needs of your company:

Stress test of the current situation and the existing documentary confirmation of RIS: both during a phone call and within the framework of correspondence by receiving an answer to a small questionnaire that we will send you;

Diagnostics of tax risks: deeper analysis, including verification of supporting documents on a sample basis;

Recommendations for reducing existing tax risks (if relevant), including advice on strengthening documentary evidence, taking into account pricing issues and "best practices" of other market players in the Russian Federation and in the world;

Refinement of existing documents (including contract and primary documentation) or assistance in the development of projects / document templates;

Preparing a «security file» that can be used for checks;

Assistance in communication with foreign colleagues: drafting and justifying requests, discussing the requirements of the Tax Code of the Russian Federation and the expectations of tax authorities, agreeing on documents and approaches.

We work with companies from many sectors of the economy

  • Mining (oil and gas production, mining of ore gold, etc.);
  • Metallurgy;
  • Production (mechanical engineering, shipbuilding, production of confectionery products, medical preparations, high-precision analytical devices, etc.);
  • Retail;
  • Companies from the service sector;
  • Construction and commercial real estate;
  • Energy industry;
  • Hotel business;
  • Transport sea and river transport;
  • IT companies (including mobile application development, production and implementation of legal reference systems).

Responsible approach is the core principle of ADE Professional Solutions

  • We study business processes and the internal control system in detail;
  • We analyze and evaluate risks individually;
  • We actively involve our partners in the project implementation process;
  • During the project, we are always in touch with the client;
  • We use a formalized quality control system;
  • We adhere to the principles of independence and business ethics.

5 reasons to order consulting services from us

We specialize in providing tax advisory services, including transfer pricing advice, and have extensive experience advising clients in many industries and countries.
We prepare high-quality and detailed reports on the results of the analysis, indicating the level of existing risks, as well as offer recommendations for their elimination.
When rendering services, key employees of the company are involved in projects, including directors and partners with many years of experience in consulting and working in the Big Four companies.
Thanks to our experience, we can not only consult on specific tax issues, but also conduct complex projects taking into account industry specifics and knowledge of various aspects of the company's activities (tax, financial, accounting and reporting, management consulting).
We regularly inform our clients about changes in Russian tax and accounting legislation and in IFRS, and we are happy to share our knowledge during training sessions.

The list of regular customers is the best confirmation of our qualifications! Check it out here (link).

Разработка и продвижение сайта SEO Lebedev