Perm University Herald. Juridical Sciences. 2019. Issue 2 (44)

Title: BUSINESS SPLITTING: LEGAL ISSUES
Authors:

A. V. Volkov, Ulyanovsk State University

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ORCID: 0000-0002-2761-5545
ResearcherID: H-7740-2016
Articles of «Scopus» & «Web of Science»:       ---

O. E. Blinkov, Academy of Law and Management of the Federal Penal Service of Russia, State University of Humanities and Social Studies

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ORCID: 0000-0002-3506-2194
ResearcherID: A-6890-2019
Articles of «Scopus» & «Web of Science»:       --- 
Requisites: Volkov A. V., Blinkov O. E. Droblenie biznesa: pravovye problemy [Business Splitting: Legal Issues]. Vestnik Permskogo universiteta. Juridicheskie nauki – Perm University Herald. Juridical Sciences. 2019. Issue 2. Pp. 261–280. (In Russ.)4 DOI: 10.17072/1995-4190-2019-44-261-280
DOI: 10.17072/1995-4190-2019-44-261-280
Annotation:

Introduction: the paper deals with theoretical and practical issues of application practice for the new Article 54.1 of the Tax Code of the Russian Federation. Purpose: to analyze the ways of splitting a business and explain their relationship with the abuse of civil and tax rights taking judicial practice into consideration. Methods: theoretical methods of formal and dialectical logic, empirical methods of interpretation, comparison and description; specific scientific methods were also used. Results: the author conducted a scientific analysis of the business split procedure, described the abuse patterns (schemes) used by taxpayers. Signs of unjustified tax benefits and the income consolidation principle are discussed in relation to the current judicial practice. Conclusions: The author has formulated the concept of 'interrelated parties' income consolidation'. This is an extraordinary consequence for a tax offense which can be applied at the instigation of a tax authority and solely by the court in compliance with Article 54.1 of the Tax Code of the Russian Federation (right exercise limits), as well as Articles 1 and 10 of the Civil Code of the Russian Federation (prohibition of the right abuse) and only following the recognition of all the 'split' and 'false' organizations as a single right holder, thereby neglecting their unfair establishment (separation) and functioning as false (dummy) entities within or shortly before the tax audit period. The author also proposed amending Article 54.1 of the Tax Code of the Russian Federation 'Limits of the Exercise of Rights Relating to the Assessment of the Tax Base and/or the Amount of Tax, Fees, Insurance Contributions' to include the following clause: 'If dummy entities and/or fictitious transactions (operations) are revealed by a tax authority, the taxpayer's tax liability shall be adjusted proceeding from his reasonable behavior as if the taxpayer did not go beyond the limits of the fair exercise of rights'.

Keywords: income consolidation principle; tax structuring (optimization); right abuse; tax benefit; abuse patterns (schemes); real beneficiary; business split consequences.
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References: 1. Volkov A. V. Konec epokhi «optimizacii nalogov» v predprinimatel'skoj deyatel'nosti [The End of the Era of 'Tax Optimization' in Business]. Zhurnal predprinimatel'skogo i korporativnogo prava – Journal of Entrepreneurship and Corporate Law. 2018. Issue 3. Pp. 23–27. (In Russ.).
2. Volkov A. V. Priznaki neobosnovannoj nalogovoj vygody v kontekste zloupotrebleniya grazhdanskimi i nalogovymi pravami [Signs of Unjustified Tax Benefits within the Framework of Civil and Tax Rights Abuse]. Vestnik arbitrazhnoj praktiki – Vestnik Arbitrazhnoy Praktiki. 2017. Issue 6. Pp. 3–28. (In Russ.).
3. Prats F. The Abuse of Tax Law: Prospects and Analysis. 2010. Available at: https://www.re¬search-gate.net/publication/255698380_The_%27 Abuse_of_Tax_Law%27_Prospects_and_Analysis. (In Eng.).
4. Tax Abuses, Poverty and Human Rights. A Report of the International Bar Association's Human Rights Institute Task Force on Illicit Financial Flows, Poverty and Human Rights. International Bar Association, 2013. (In Eng.).

Received: 25.12.2018
Financing: ---

 

Introduction:the paper deals with theoretical and practical issues of application practice for the new Article 54.1 of the Tax Code of the Russian Federation. Purpose: to analyze the ways of splitting a business and explain their relationship with the abuse of civil and tax rights taking judicial practice into consideration. Methods: theoretical methods of formal and dialectical logic, empirical methods of interpretation, comparison and description; specific scientific methods were also used. Results: the author conducted a scientific analysis of the business split procedure, described the abuse patterns (schemes) used by taxpayers. Signs of unjustified tax benefits and the income consolidation principle are discussed in relation to the current judicial practice. Conclusions:The author has formulated the concept of ‘interrelated parties’ income consolidation’. This is an extraordinary consequence for a tax offense which can be applied at the instigation of a tax authority and solely by the court in compliance with Article 54.1 of the Tax Code of the Russian Federation (right exercise limits), as well as Articles 1 and 10 of the Civil Code of the Russian Federation (prohibition of the right abuse) and only following the recognition of all the ‘split’ and ‘false’ organizations as a single right holder, thereby neglecting their unfair establishment (separation) and functioning as false (dummy) entities within or shortly before the tax audit period. The author also proposed amending Article 54.1 of the Tax Code of the Russian Federation ‘Limits of the Exercise of Rights Relating to the Assessment of the Tax Base and/or the Amount of Tax, Fees, Insurance Contributions’ to include the following clause: ‘If dummy entities and/or fictitious transactions (operations) are revealed by a tax authority, the taxpayer’s tax liability shall be adjusted proceeding from his reasonable behavior as if the taxpayer did not go beyond the limits of the fair exercise of rights’.

 

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ISSN 1995-4190 ISSN (eng.) 2618-8104
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DOI 10.17072/1995-4190
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