Criteria for interdependence of taxpayers and tax liability

Concept

First of all, we note that in tax legislation quite a lot of attention is paid to the characteristics of interdependent persons, the relationships between them, as well as the tax consequences of their transactions. The reason is that it is much easier for interconnected companies, individual entrepreneurs and ordinary individuals to illegally reduce their tax burden or evade taxes altogether through various manipulations.

The legal concept of interdependent persons in tax legislation is contained in paragraph 1 of Article 20 of the Tax Code of the Russian Federation. And so, interdependent persons for tax purposes are individuals and/or companies, the relationship between which may affect:

conditions of their activities;
economic results of their activities;
economic results of the activities of the persons they represent.

More specifically, interdependent persons are recognized if one of the following conditions is present (clause 1 of Article 20 of the Tax Code of the Russian Federation):

The company directly/or indirectly participates in another company, and the total share of such participation is from 20%. As for the share of indirect participation through a sequence of other organizations, it is calculated as the product of the shares of direct participation of some firms in others.
A person is subordinate to another person due to the official hierarchy.
Marriage/kinship relations (by blood and by nature), adoption, guardianship on the basis of the family legislation of the Russian Federation.

Let us note that the listed interdependent persons in tax legal relations have this status a priori. That is, upon compliance with one of these three criteria.

At the same time, on the basis of clause 2 of Art. 20 of the Tax Code of the Russian Federation, interdependent persons are recognized by the court for tax purposes. Moreover, he is not limited to the specified three criteria, but can choose his own basis, not specified in the Tax Code. In practice, this happens when relationships between persons can influence the results of transactions for the sale of goods, works, and services.

EXAMPLE

The Federal Tax Service found, and the court supported, the conclusion that the company and its counterparty are interdependent entities under the Tax Code of the Russian Federation, since their founders are the same people, in whose interests the interaction of both businesses and the establishment of favorable terms of purchase and sale (information letter of the Presidium of the Supreme Arbitration Court RF dated March 17, 2003 No. 71).

The Tax Code of the Russian Federation has another more detailed definition of who interdependent persons are in tax law. According to him, this is when the characteristics of relationships between persons can influence:

conditions and/or results of transactions between them;
and/or the economic results of its activities or the persons represented.

Chapter 14.1 of the Tax Code of the Russian Federation consistently and in detail reveals what interdependent persons mean. For example, what kind of influence are we talking about? So, it can occur when:

participation of one person in the capital of others;
on the basis of an agreement concluded between the parties;
when otherwise possible, determine the decisions made by others.

The law especially emphasizes: such influence can be exerted by one person directly and independently, or together with its interdependent companies, individual entrepreneurs, and individuals.

Paragraph 2 of Article 105.1 of the Tax Code of the Russian Federation lists the main (most common) conditions for recognizing persons as interdependent. Among them:

one company directly and/or indirectly participates in another, and the share is from 25%;
an individual directly and/or indirectly participates in the organization, and the share is from 25%;
the same person directly and/or indirectly participates in organizations, and the share in each is from 25%;
a company and a person (including an individual together with its interdependent persons) can appoint/elect a sole executive body or at least 50% of the collegial executive body, board of directors (supervisory board);
companies whose sole executive bodies or at least 50% of the collegial executive body, board of directors (supervisory board) are appointed or elected by decision of the same person (individuals together with their interdependent persons);
companies in which 50% of the collegial executive body or board of directors (supervisory board) are the same individuals together with their interdependent persons;
legal entity and its sole executive body;
the powers of the sole executive body in different companies are exercised by the same person;
companies and/or individuals, if the share of direct participation of each previous person in each subsequent organization is from 50%;
one person is subordinate to another by position;
spouse, parents (including adoptive parents), children (adopted), full and half brothers and sisters, guardian (trustee) and ward.

Consequences of recognizing persons as interdependent and their responsibilities

Interdependent persons bear responsibilities related to the consequences of their recognition as such.

The main result is the control of market prices applied to these entities (controlled transactions). Every agreement between them will be considered as such. This means that these entities will have to keep records of them.

Persons recognized as interdependent must send a notification of controlled transactions to the tax office. It should contain all completed operations of this type. It must be submitted annually no later than May 20.

The goals are to record entities that may underestimate payments to the budget and check them.

The new rules allow for control over the following taxes:

income tax;
Personal income tax relating to the income of individual entrepreneurs, notaries and lawyers;
MET;
VAT, if a legal entity or individual entrepreneur is not a payer of this tax or has an exemption.

As part of the inspections, such entities are required to provide all documentation related to the relationship in question. If during the audit it is established that the tax base is underestimated, then additional payments will be made by the tax authority.

If the adjustment is made voluntarily, the taxpayer must submit an adjusting tax return with appropriate explanations.

In situations where additional accrual occurred after the due date for payment of the tax or advance payment, the violator is obligated to pay penalties, including by court decision. He may also be held liable in accordance with the Tax Code.

Report in 2021

A kind of report on related parties is submitted to the tax authority as part of the Notification of Controlled Transactions. The form of notification of controlled transactions and the procedure for filling it out are approved by Order of the Federal Tax Service of Russia dated May 7, 2018 No. ММВ-7-13/249.

The interdependence factor is reflected in Section 1A of this form:

Notification of controlled transactions for the past period is submitted only once a year - no later than May 20 of the following year (Clause 2 of Article 105.16 of the Tax Code of the Russian Federation). If May 20 falls on a weekend and (or) a non-working holiday, the period is extended until the next working day (Clause 7, Article 6.1 of the Tax Code of the Russian Federation). You must report for 2021 no later than May 20, 2021.

What are controlled transactions

The tax office carefully checks transactions between related parties. It is important for her that the amounts of payments between persons were not reduced or inflated for the purpose of artificially increasing the tax base and obtaining a larger tax deduction or artificially reducing the tax base and reducing the tax amount. Transactions include individual operations (shipment of goods, performance of work, provision of services), including operations on the transfer of property rights and the issuance and receipt of loans.

Transactions between interdependent persons are classified as controlled (Article 105.14 of the Tax Code of the Russian Federation). Transactions that require accounting for income and expenses are controlled, which leads to an increase or decrease in the income tax base.

Notification of controlled transactions for the previous year must be submitted by May 20 in the notification form approved by Order of the Federal Tax Service of the Russian Federation dated May 7, 2018 N ММВ-7-13/ [email protected] If this is not done, a fine of 5,000 rubles will be issued. (Article 129.4 of the Tax Code of the Russian Federation).

The types of transactions between related parties that must be reported to the inspectorate are listed in Art. 105.14 Tax Code of the Russian Federation. These include the conclusion of an agreement between interdependent persons - residents of the Russian Federation, the amount of income from which for the corresponding calendar year exceeds 1 billion rubles.

For example, if one company sold to another company using the simplified procedure real estate without VAT worth more than 60 million rubles, it is obliged to submit a notification to the tax office about controlled transactions by May 20.

The total amount of income must be calculated by summing up all transactions with the counterparty for the year: purchases, sales, provision of services (Letter of the Ministry of Finance of Russia dated 02/11/16 No. 03-01-18/7239).

Transactions in which one of the participants :

pays taxes according to the general taxation system;
pays the mineral extraction tax, and the subject of the contract is the extracted mineral;
does not have to pay income tax;
is related to Skolkovo;
is a resident of a special economic zone with preferential taxation of profits;
one of the participants uses UTII or Unified Agricultural Tax (in this case, the annual turnover of both participants must exceed 100 million rubles).

Not considered controlled:

transactions between related parties who do not have to pay corporate income tax. (Clause 4, Clause 2, Article 105.14 of the Tax Code of the Russian Federation);
transactions between related parties for a total amount of less than RUB 1 billion. for the calendar year (clause 1, clause 2, article 105.14 of the Tax Code of the Russian Federation);
if interdependent persons are calculated according to the simplified tax system.

Equal to controlled:

foreign trade transactions with certain goods (petroleum products, ferrous and non-ferrous metals, mineral fertilizers, precious metals and precious stones). The total annual income from such an operation must exceed 60 million rubles;
transactions in which one of the participants is a resident counterparty of a state or territory from Order of the Ministry of Finance dated November 13, 2007 No. 108n or its permanent representative in the Russian Federation (Letter of the Ministry of Finance of Russia dated January 17, 2013 No. 03-01-18/1-4);
when counterparties engage third-party intermediaries between two interdependent entities without restrictions on the amount of income (Letter of the Ministry of Finance of Russia dated November 14, 2012 No. 03-01-18/9-169).

Affiliates: differences

It is important to understand that affiliates and interdependent entities have their differences. Thus, not a word is said about the former in the Tax Code of the Russian Federation. In addition, kinship and family relationships do not affect affiliation in any way, unlike interdependence.

Affiliates are more of a term from corporate law, which plays a big role only within the framework of antitrust law, as well as in the accounting and banking fields.

Who can be recognized as affiliated persons and for what purposes is stated in the RSFSR Law of March 22, 1991 No. 948-1 “On competition and restriction of monopolistic activities in commodity markets.”

The concept of the category of interdependent persons

Individuals and legal entities are considered interdependent, the relationships between which are determined according to the results of transactions. The Tax Administration considers interdependence to be a negative feature when it, in combination with other factors, hints at the recognition of a tax unjustified benefit.

According to representatives of the tax service, interdependent relationships may indicate that the taxpayer is aware of violations committed by his counterparty, but he does not take any measures.

During inspections, inspectors pay increased attention to the search for interdependent persons.

Most transactions between related parties are controlled (for this they must meet certain criteria). They must be notified to the Federal Tax Service annually before May 20 of each calendar year .

Transactions

As a general rule, the price in a transaction is considered to correspond to the market until the contrary is proven (Clause 1, Article 40 of the Tax Code of the Russian Federation). At the same time, transactions between interdependent persons are always under special scrutiny by tax authorities, since the law directly allows for checking the adequacy of prices in transactions between such persons (Clause 2 of Article 40 of the Tax Code of the Russian Federation).

Thus, the main tax risks of transactions between related parties in 2021 lie in the area of their pricing policy. In the event of an inspection, inspectors will compare the established prices with transactions in which:

the parties do not depend on each other;
connections do not affect the economic results of the transaction.

Tax debts from price manipulation in transactions between related parties The Tax Code of the Russian Federation allows collection only in court based on the results of an audit by the Federal Tax Service (subclause 4, clause 2, Article 45 of the Tax Code of the Russian Federation).

Keep in mind: almost all transactions between related parties are controlled. Moreover, a number of other transactions are equated to them. This issue is regulated in detail by Art. 105.14 Tax Code of the Russian Federation.

Ultimately, recognition of persons as interdependent entails that taxes will have to be paid not on the actual income, but on the income that could have been received, but this was prevented by the commercial or financial conditions of the interdependent transaction (clause 1 of Article 105.3 of the Tax Code of the Russian Federation).

When individuals are recognized as interdependent persons

The jurisdiction of the Tax Code of the Russian Federation in terms of regulating transactions between interdependent persons also extends to citizens who are not registered as individual entrepreneurs and are not related to the activities of business companies. So, in accordance with sub. 11 clause 2 art. 105.1 of the Tax Code of the Russian Federation, close relatives are recognized as interdependent persons - we said this above.

The presence of this norm in the Tax Code of the Russian Federation means, in particular, that interdependent individuals cannot use tax deductions based on transactions concluded between themselves (clause 5 of Article 220 of the Tax Code of the Russian Federation). So, for example, a person does not have the right to draw up a property deduction after purchasing a home from a relative (even if the transaction is accompanied by real cash payments and payment of personal income tax by the seller).

Loan

Please note that loans between related legal entities may or may not be controlled transactions. In both cases, you just need to notify the tax authorities about them as part of the Notification (see above).

Thus, there are no risks when there is an interest-free loan between interdependent legal entities - namely Russian companies. Due to changes in tax legislation, from January 1, 2021, such transactions are not subject to control (new subparagraph 7, paragraph 4, article 105.14 of the Tax Code of the Russian Federation, as well as letter of the Ministry of Finance dated March 23, 2017 No. 03-03-RZ/16846).

According to the letter of the Federal Tax Service dated April 13, 2021 No. ED-4-13/6968, an interest-free loan between interdependent persons is not subject to tax control if the place of their registration or residence of all parties and beneficiaries is Russia. The date of conclusion of the contract (additional agreement to it) does not matter.

In other situations - when the rate on a controlled loan is very low or 0% - tax authorities may require that unearned interest be included in income according to the market rate (for example, letter of the Ministry of Finance dated May 27, 2016 No. 03-01-18/30778). And vice versa: when the rate is above the maximum, the borrower can cut costs by amounts in excess of the market interest rate (clause 1.1 of Article 269 of the Tax Code of the Russian Federation).

The relationship between mutual dependence and controllability in tax law: nuances

So, a transaction involving interdependent entities may have legal consequences if it is recognized as controlled. This will mean that the Federal Tax Service will pay close attention to it and study it for unreasonable understatement or overestimation of amounts transferred from one entity to another. Deviations in transaction prices between related parties can be used:

to understate the tax base in order to reduce tax amounts;
overstatement of the tax base for the purpose of calculating a larger deduction.

By controlling the transaction, the Federal Tax Service has the right to ensure the correctness of tax calculations:

at a profit;
Personal income tax (for individual entrepreneurs);
MET;
VAT.

How transactions between related parties take place can be found here.

The criteria for recognizing transactions as controlled are specified in Art. 105.14 Tax Code of the Russian Federation.

You can view these criteria here.

In turn, in paragraph 4 of Art. 105.14 of the Tax Code of the Russian Federation contains criteria for non-recognition of transactions as controlled. It is useful to pay attention to the letter of the Federal Tax Service dated November 2, 2012 No. ED-4-3/18615. In it, the department warns taxpayers that it will:

control any transactions of interdependent persons that give rise to talk about the establishment of non-market prices in contracts for the purpose of tax evasion;
Conduct desk audits using methods for identifying unjustified tax benefits of the payer in accordance with the norms of Chapter. 14.3 Tax Code of the Russian Federation.

In practice, this may mean additional assessment of taxes in the manner established by Chapter. 14.2 of the Tax Code of the Russian Federation (in particular, based on clause 5 of Article 105.3 of the Tax Code of the Russian Federation). However, if the taxpayer decides to challenge such activities of the Federal Tax Service in court, he has a good chance of defending his position. The fact is that the Supreme Court of the Russian Federation, in its decision No. AKPI15-1383 dated February 1, 2016, actually established that the Federal Tax Service does not have the necessary powers to verify prices set by related parties in uncontrolled transactions.

When a transaction with residents of offshore zones is controlled, ConsultantPlus experts explained. Get free trial access to the system and move on to the Ready-made solution.

Similar assessments of the actions of the Federal Tax Service can be found in other judicial precedents.

Settlement

Any accountant and lawyer should know how to carry out netting between interdependent parties, so as not to later run into accusations of receiving an unjustified tax benefit. Judicial practice shows that tax authorities mostly win in such disputes (for example, resolution of the Arbitration Court of the North-Western District dated May 26, 2017 No. F07-4431/2017 in case No. A42-23/2016).

Here's what you need to take into account if you want to set off between dependent parties (Article 410 of the Civil Code of the Russian Federation):

there are counter homogeneous demands to each other;
at least 2 different agreements have been signed between the parties, in one of which the counterparty is the debtor, and in the other, the creditor;
the date of execution of the counter-similar claim has already arrived/has not been specified in the contract/determined by the moment of demand;
Early offset is permissible, but only if this is expressly provided for by law.

What is required to approve a transaction?

The general director has the right to carry out transactions and manage legal entities in an unlimited number. Risks are likely only when non-market prices are set in transactions.

In the event that the general director is not the sole management body, he is obliged to provide detailed information about the legal entities in which he holds a leadership position to all other participants in the company. In this case, the transaction must be approved by the general meeting of non-interested participants.

In paragraph 7 of Art. 45 of the Federal Law of 02/08/1998 No. 14-FZ “On Limited Liability Companies” states that transactions can be approved by the board of directors if their amount does not exceed 2% of the value of all property owned by the company.

Subject to the conditions typical for transactions between unrelated individuals and/or legal entities, transactions that are carried out between interdependent counterparties are not illegal.

These conditions include:

transaction cost
rules for transfer of goods
payment deferment
installment payment
insurance rules

The tax authorities are only interested in transactions carried out under non-market conditions, as a result of which one of the parties incurs excess costs and receives less income.

Position of the Presidium of the Supreme Arbitration Court of the Russian Federation

The practical application of the provisions of Article 20 of the Tax Code of the Russian Federation is significantly facilitated by the recommendations of the Presidium of the Supreme Arbitration Court of the Russian Federation, set out in Information Letter No. 71 dated March 17, 2003.

In particular, the Presidium of the Supreme Arbitration Court of the Russian Federation indicated the following:

1. Establishment of the fact of interdependence of persons due to circumstances other than those listed in paragraph 1 of Article 20 of the Tax Code of the Russian Federation is carried out by the court with the participation of the tax authority and the taxpayer during the consideration of the case concerning the validity of the decision to assess additional taxes and penalties. Preliminary (before inspection by the tax authority correct application of prices), recognition by the court of the fact of interdependence of persons at the request of the tax authority is not required.

2. A legal entity (seller) and its director (buyer), who, together with his son, are the owners of 100% of the shares of this company, taking into account the possible influence of the relationship between the seller and the buyer on the terms and results of the transaction, can be recognized as interdependent persons in the sense of paragraph 2 Article 20 of the Tax Code of the Russian Federation and for the purpose of applying the provisions of Article 40 of the Tax Code of the Russian Federation.

3. Additional assessment of taxes by the tax authority on a transaction between related parties is justified if there is evidence that the price for goods (work, services) applied by the parties to this transaction deviated from the market price by more than 20 percent (Article 40 of the Tax Code of the Russian Federation).

What types of taxes are subject to verification?

In paragraph 2 of Art. 105.3 of the Tax Code of the Russian Federation determines what types of taxes fall under the strict control of the Federal Tax Service :

income tax
for added value
on the profits of organizations
for mining

To verify the integrity and legality of all transactions carried out, the Federal Tax Service can use any of the following methods :

cost method
comparability of market prices
profit distribution
cost of subsequent sale
profitability comparability

During inspections, the Federal Tax Service may request the following documentation and information :

a detailed description of the transaction, as well as its conditions
list of all participants
the amount of income and expenses determined based on the results of the transaction
indication of the reasons for choosing a particular method, as well as their justification
information about the economic benefits received as a result of the transaction
listing the factors that influenced the cost of the transaction, as well as its profitability
adjustment of the tax amount and tax base

All controlled transactions for the three years preceding the period in which the decision to conduct them was made are subject to verification by the tax service The average check duration is 6 months, but in some situations this period can be extended.

Transactions are not subject to control by the Federal Tax Service if their value is automatically recognized as market value. This applies to prices that were set by antimonopoly authorities, a pricing agreement, an appraiser, and also as a result of exchange trading.

Exceptions to the rules

The presence of any of the above signs entails recognition of persons as interdependent. Meanwhile, according to none of the above criteria, an organization and an individual, including a joint-stock company and its citizen shareholders, cannot be recognized as such. A similar exception is provided for organizations connected to each other through an individual (general director, founder).

Marriage relations

In paragraph 3 of Article 20 of the Tax Code there is a reference to the Family Code. Accordingly, only the presence of an officially registered marriage entails recognition of persons as interdependent. Accordingly, cohabitants (subjects in a civil marriage) are not considered interdependent.

In paragraph 3 20 of the article there is also such a concept as “property relations”. They mean relationships of intimacy that arise not as a result of kinship, but from marriage. We are also talking about the relationship between the blood relatives of a spouse with another spouse or between their relatives. However, these persons cannot be considered interdependent due to the lack of official registration of the relationship.