On 17 June 2016 the Commercial Court of Moscow rendered a
decision on the Gazprom Neft OJSC case, No.
А40-2476/16-108-19 (the "Decision").
In this decision the commercial court considered, among other
things, a number of issues of how the company did tax accounting of
expenses in the form of incentive, compensation and other payments
made to employees when the company relocated from one city to
another (in this instance, from Moscow to St. Petersburg).
In connection with the relocation, the company adopted human
resources polices providing for a number of payments to company
employees who had agreed to relocate, including:
1) compensation for housing rental for a period of not more
than 24 months;
According to the policies, this compensation was to be paid by
default in equal monthly installments together with salary
payments. However, the compensation was paid in a lump sum if the
employee decided to acquire housing in St. Petersburg. When it made
such a lump sum compensation payment the company included the
entire amount in expenses in the same period for profit tax
Following the tax authority, the commercial court decided that
economically the payment of this compensation was essentially an
advance on salary (Article 137 of the RF Labor Code), as a
consequence of which the court declared the company's one-time
accounting of this payment for tax purposes to be illegal. The
court agreed with the tax authority that the company should have
included this payment in expenses for profit tax purposes evenly
over the same period of time (24 months) as the standard housing
rental compensation payment. The court's reasoning for treating
the disputed payment this way was primarily that under the terms of
paying the compensation contemplated by the addenda to the
employment contracts, if the employee left the company before the
end of 24 months from the date of relocation to St. Petersburg the
employee was to return the full amount of the compensation to the
company. For this reason the court considered that this payment is
a payment of a compensatory nature included in the remuneration
(Article 129 of the RF Labor Code), and not a compensation for
costs incurred by the employee related to the performance of job
duties as contemplated by Article 164 of the RF Labor Code;
2) individual compensation for living arrangements at the
new place of residence;
According to the company's policies, this compensation was
paid by default in four equal installments over 18 months; however,
if the employee decided to acquire or build housing in St.
Petersburg the entire amount of the compensation was paid in full
in a lump sum.
The court found that the company did not have the right to
include that compensation in expenses recorded for profit tax
purposes because, despite its name, that compensation was
essentially financial assistance to acquire housing which,
according to the express reference of the law (Article 270 of the
RF Tax Code) is not included for profit tax purposes. The court
based its finding on the fact that the amount of the compensation,
as established by the court, was determined by the company in its
sole discretion and depended not on the actual amount of moving
expenses incurred by the employee, but the evaluation of the
specific employee's value to the company. For this reason the
court refused to consider this compensation as the payment of
relocation allowance contemplated by Article 169 of the RF Labor
It should also be noted that in its decision the commercial
court stated more than once that when determining the tax treatment
of payments to employees it is not the name of the payment
mentioned in the policy and/or employment contract that should be
evaluated, but the true nature of those payments and their economic
The lawyers of Dentons' Tax practice follow the development
of practice, have considerable experience in tax advising on
commercial and corporate restructuring, and are available to
provide you with the necessary assistance to evaluate the tax
implications of changes in a group structure, including those
causing additional employer expense.
Dentons is the world's first polycentric global law firm. A
top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm
is committed to challenging the status quo in delivering consistent
and uncompromising quality and value in new and inventive ways.
Driven to provide clients a competitive edge, and connected to the
communities where its clients want to do business, Dentons knows
that understanding local cultures is crucial to successfully
completing a deal, resolving a dispute or solving a business
challenge. Now the world's largest law firm, Dentons'
global team builds agile, tailored solutions to meet the local,
national and global needs of private and public clients of any size
in more than 125 locations serving 50-plus countries.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Join Dentons government contracts lawyers for a Public Contracting Institute (PCI) webinar series involving the most current industry analysis in government contract cost accounting from a team of leaders in the field with unparalleled experience
Jonathan Sheehan gives an Irish perspective in the October 2016 edition of The American Lawyer on the European Commission's decision that Ireland granted undue tax benefits of up to EUR13 billion, plus interest, to Apple.
Three of my favourite topics feature in this issue of the Denton Briefing – tax, Bond and beer. But not necessarily in that order and not necessarily for the right reasons.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).