The Federal Tax Service has recently published explanations in respect of the rules of combating sham transactions.
You may find the complete text of letter No. BV-4-7/3060@ dated 10.03.2021 published by the Federal Tax Service of Russia in respect of Article 54.1 of the Tax Code of the Russian Federation and tax abuses at the official portal of the Federal Tax Service at: www.nalog.ru/rn77/about_fts/about_nalog/10687108/.
Please be reminded that the rules of Article 54.1 of the Tax Code of the Russian Federation are intended to counteract the tax base “dilution” by way of using sham and offshore companies. Negative effects of such provision was supposed to not affect good faith taxpayers.
In the broadest sense, the substance of the rules found in Article 54.1 of the Tax Code of the Russian Federation is that the tax authority may refuse deducting VAT amounts or recognising profit tax expenses, if any “misrepresentations” of business processes (sham and fictitious transactions) are discovered.
It follows from the letter of the Federal Tax Service that a good faith transaction shall meet the following four criteria:
In addition, the letter describes which specific facts may indicate the taxpayer’s intent to establish relations with “technical” companies and ways of their confirmation by tax authorities.
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