News: The Ninth Arbitrage Court of Appeals in Moscow reduced a fine to CFC for non-distribution of reporting

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On March 26, 2019, the 9th Arbitration Court of Appeals ruled that the court recognized the validity of the actions of the court of the first instance (the Arbitration Court of the City of Moscow) in connection with the reduction of the fine for failure to report to a controlled foreign company (case No. A40-264248 / 2018).

The applicant in this case (Inspectorate of the Federal Tax Service No. 34 in Moscow), relying on paragraph 1 of article 129.6 of the Tax Code of the Russian Federation, demanded a fine in the amount of 100,000 (one hundred thousand) rubles from the JSC "Inspectorate P" (hereinafter referred to as the Company) for failure to provide reporting on a controlled foreign company (CFC) within the prescribed period.

The company insisted on the disproportion of the imposed sanctions in view of the fact that:

a) the offence was committed by the company for the first time;
b) The company and its controlling persons lacked intent, and the offence was committed through negligence;
c) The company independently discovered the offence and filed the necessary reports;
d)  The budget of the Russian Federation did not suffer any negative consequences, since the controlled foreign company was established in the Republic of Kazakhstan and, in accordance with paragraph 2, chapter 1, article 25.13-1 of the Tax Code, its profit was released from taxation;
e) The proposed sanction is clearly disproportionate to the actual circumstances of the committed offence;
f) The company has pleaded guilty to the offence.

The court of first instance, on the basis of the company's arguments, and using its right to evaluate evidence in the case and determine the size of the sanction, taking into account the admission of some circumstance mitigating liability, reduced the amount of the fine by 4 times, from 100,000 rubles to 25,000 rubles.

The court of appeal supported the arguments of the court of first instance, and rejected the reference in the appeal of the tax authority to judicial acts in other cases, arguing that “the adoption of judicial acts in other disputes does not indicate the prejudicial significance of these judicial acts in relation to the dispute in question. [...] The court in reviewing the case is not bound by the conclusions of the courts on the legal qualification of the disputed relations in question and the interpretation of legal norms".

Thus, it can be concluded that not all notification or submission of reports on CFC leads to fines stipulated by law. On the contrary, this case clearly indicates that the fines, even though the design of the norm-sanction does not allow for their reduction (clause 1 of article 129.6 states: “entails a fine of 100,000 rubles,” and not “to 100 000 rubles"), can be reduced based on the actual circumstances of the case and the damage caused to the budget.

The specialists of Law and Trust International can help you notify you of a foreign company, file reports on your controlled foreign company (CFC), as well as represent your interests in court in disputes arising by a controlled foreign company.