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Unprecedented Agreement Passed by SAC


The Supreme Arbitration Court approved an unprecedented agreement in a recent lawsuit between a taxpayer and the tax authority in favour of the taxpayer. Businesses now hope that the Ministry of Finance and the Russian Tax Authority are changing their strict and inflexible policy towards taxpayers. Taxand Russia discusses the case and what this outcome could potentially mean for Russian businesses.

The tax authority ran a tax audit on Loyalty Partners Vostoc, LLC, an operator of a loyalty program known as MALINA. Loyalty Partners Vostoc, has partners, who sell their goods and services to a range of clients. Those clients who take part in the MALINA program earn bonus points when they buy certain goods or services from MALINA's partners. The clients then use the points to redeem goods from the MALINA catalogue. MALINA's partners also allow certain discounts to the clients, but this does not reduce the price at the point of purchase. The discounts are paid to Loyalty Partners Vostoc, LLC as a prepayment for goods, which are granted to clients for saved bonus points.

The tax authority did not consider the payments from MALINA's partners to Loyalty Partners Vostoc, LLC as prepayments for goods, but as grants to clients. The tax authority further considered that these payments were a fee for marketing services, which were provided by the taxpayer to increase the partner's sales figures. The tax authority therefore charged Loyalty Partners Vostoc more than EUR 2,5 million in tax.

Loyalty Partners Vostoc lost in the first instance and the appeal, but won the cessation. The result of the judicial dispute was unexpected, so the parties decided to conclude by way of an agreement. The terms of this agreement are confidential, but it is expected that the taxpayer will pay all the charged taxes and the tax authority will not have the right to levy more tax so Loyalty Partners Vostoc is safe from additional tax charges.


Taxand's Take

This case is a precedent because it is a first time when the tax authority was prepared to conclude a lawsuit agreement especially one already approved by the SAC, possibly signaling a new order for the court system. Businesses will be hopeful that the practice of concluding lawsuit agreements with tax authorities becomes widespread, because it is sometimes cheaper and more efficient to conclude agreements before a judicial process.

Your Taxand contacts for further queries are:
Andrey Tereschenko
T. +7 495 967 00 07

Ivan Zelenin
T. +7 495 967 00 07

Taxand's Take Author