In 2012 a few court cases were held whereby the Russian tax authorities demonstrated their perseverance in identifying if certain tax planning practices are acceptable or abusive.
One recent case which was upheld in the Russian courts was the Eastern Value Partners Limited Case where the back-to-back debt financing activities were challenged in the context of interest withholding tax issues and the applicability of the Russian Cyprus double tax treaty. In 2006, Cyprus company ‘I’ received money under the terms of a loan agreement, from its Cyprus sister company ‘II’ in order to purchase an office building in the centre of Moscow. According to this loan agreement, Company I paid the loan interest percentage and principal amount in favour of a third party, namely a British Virgin Islands (BVI) company.
Although the Russian tax authorities lost the case (Decision of the Moscow Arbitration Court No.A40-60755/1220-388 of 29 August 2012, upheld by the Decision of the 9th Circuit Arbitration Court of Appeals No.09АП-33421.2012-AK) it is interesting mainly because it is one of the first serious attempts by the Russian tax authorities to limit the scope of application that only the beneficial owner of the interest is allowed to the benefits of the Treaty.
In addition, it is expected that more attention will be paid to anti-abuse cases within the context of international tax planning.