British American Tobacco in Russia to pay extra taxes

International Tobacco Marketing services (MUMT trader from British American Tobacco in Russia) sought last April to reverse the decision taken by an Interregional Inspection of large taxpayers.

British-American-TobaccoTax Authority insisted that the trader to pay an additional 187.9 million rubles ($ 6.26 million) in profit taxes, penalties and interest.
The inspection finds that the company had no reason to turn their spending on contracts for “strategic consulting services and support” to the British BAT Investments Ltd in the calculation of income tax.

The tax authority wondered why the cost of consultancy services has increased by 25 times in 2008 to 2.2 billion rubles ($ 70 million).
During the inspection in 2011, the company was unable to provide documents confirming the amount of services purchased in 2009, and held that the inspection of the taxpayer acted with no business purpose and aimed at obtaining undue tax benefits.
The company objected, saying that in 2009, he expanded the list of services offered. In addition, the cost of consulting services included several tobacco factories.
The first court upheld the company, but the trader lost the case in the second and third courts (Court of Appeal handed down its decision in March 2013).

Alexander Luty, BAT Russia corporate relations director, said the MUMT will challenge the ruling in the Supreme Arbitration Court of the third: “Just like any other international company, we make use of the services provided by our central office and pay for these services. It is common practice for most international companies operating in Russia and other countries of the world. ”
This system of delivery and payment for services is standard practice for large international groups of companies, says Yulia Kuznetsova, a senior lawyer Sameta tax and legal advice.

The system is based on the repayment of the actual costs for manufacturing companies, depending on the ratio of sales of a particular company to gross sales of the Group, including general and administrative expenses.
A marked increase in payments often attract the attention of tax authorities, especially when it comes to the payment of royalties, licenses and consulting, says Deloitte partner Sergei Voropaev.

The courts do not have a unified position on these issues. For example, in MUMT case, the court upheld the tax office, while earlier, in the case of tobacco packaging Amkor Novgorod, the court ruled in favor of the taxpayer, says Kuznetsov.

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