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The performance from year to year

Car manufacturer versus tax authorities over 1.3 bln in tax

Objective

Tax Service resolved that our client, a major Russian car manufacturer was liable for taxes and fines totaling over 1.3 bln Rubles. The payment of claimed taxes and fines could have substantially affected the client’s financial standing, requiring a review of certain business processes, which would have required time and financial resources. The risk of bankruptcy of this flagship enterprise of a monotown, ultimately led to the risk of mass unemployment in the locality. Our task was to perform a thorough analysis of the client’s original documents and a systematic tax analysis of the disputed business processes. Further, it was necessary to design a strategy for the rebuttal of arguments presented by the tax authority. 

Resolution

We represented the client in arbitration courts of three instances. We proved to the court that both the logistics expenses incurred by the car manufacturer and the costs of sales of manufactured cars were justified. We contested every document presented by the tax authority and proved that our client had acted in good faith. The court accepted the arguments that the car manufacturer acted lawfully and followed clarifications provided by the Russian Ministry of Finance, rather than the views of tax authorities. As a result, we succeeded in refuting the position of the tax authority. 

Result

By winning the case, the car manufacturer avoided taxes and fines totaling over 1.3 bln Rubles and managed to prove the legality of its business arrangements with its partners. The case was among the first in which the courts used the “business operations substantiality” principle in practice. Later, the principle was formalized by a Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation.

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