On 29th of June 2016 the Commercial Court of Moscow delivered a
judgement in case No. А40-51925/16 under the claim of the
Austrian company Strabag AG (the "Company"), which
carries out business in Russia through a permanent establishment.
The case is a logical continuation of a series of cases previously
considered by the Russian commercial courts on determination of tax
base for foreign entities' permanent establishments(such as,
for example, the Freshfields case, the Gide Loyrette
Nouel Vostok case, and the MI Drilling Fluids UK
Limited case). The court ruled against the Company.
The court held that Russian permanent establishment of the
Company illegally accounted costs transferred from its foreign head
office, which the head office incurred with respect to the
permanent establishment. The court delivered the judgement basing
on the following:
The Company submitted to tax
authority the documents, which were not signed by director of the
head office. Therefore, the documents may not be treated as a
primary accounting records and may not confirm the figures stated
in them. In particular, the tax authority examined the
Company's accounting policies, the certificate of transfer of
the Company's head office expenses, the estimates statement
from the audit company, the copy of the head office's expense
The documents presented to tax
authorities do not identify particular projects, employees, time
spent, salary expenses and theirs relevance to activity of the
Russian permanent establishment.
The certificates of transfer of the
head office's expenses do not contain information about
business transactions for which the Company incurred expenses.
Moreover the certificates do not contain the title of the person
who signed them.
The head office's expenses
calculation and description of the method of expenses calculation
were not verified by the Company's director and do not bear
The certificates of transfer of the
head office's expenses and head office's expense reports do
not determine which expense items comprise the administrative and
general expenses mentioned in them. Moreover the documents
confirming the figures in the certificates and the reports are
The Company failed to confirm a
connection between the disputed expenses and the activities of the
Furthermore, the court stressed that the Company must submit to
tax authority foreign-language documents with due translation into
Russian language. According to court's opinion, the Company
knowingly had not exercised its right to present evidence to defend
its position, since the Company submitted to tax authority
foreign-language documents without a due translation.
Obviously, decisions similar to the analyzed Strabag
case set new standards for taxation of permanent establishments in
Russia, especially in terms of expenses accounting. Without clear
legislative regulation of the analyzed issue of permanent
establishment's expenses taxation shall be guided by the courts
Dentons' Tax practice team has an extensive experience in
structuring Russian permanent establishments' activity for
foreign companies, as well as in supporting during tax
authorities' audits. Dentons' Tax practice team will be
happy to analyze your foreign company's activities in Russia to
determine whether such activity might lead to creation of a
permanent establishment. Dentons' Tax practice team will be
ready to assist you with determination of the tax base for such
activities, including how to account, confirm income and expenses,
especially in light of the most recent trends in Russian case
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