Bulatovskiy Basalt LLC extracted and sold basalt rubble. The rubble was sold to three related intermediaries, whom in turn, resold the rubble to the final buyers. The resale price was on average double the transfer price.
The tax authorities considered that the sole purpose of incorporating intermediaries into the sales structure was to obtain an unreasonable tax benefit in the form of underestimation of the profits from the sale of rubble and the tax base. According to the tax authorities, Bulatovskiy Basalt LLC could instead have enter into contracts with the final buyers directly.
The tax authorities issued an assessment of income based on the resale of the rubble to the final Consumers.
Bulatovskiy Basalt LLC brought the case to Court.
The courts of the first and second instance ruled in favor of Bulatovskiy Basalt LLC.
The courts took into account the existence of reasonable reasons for the involvement of intermediaries, including the presence of real functions.
The first instance court considered the method used by the tax authority to calculate the amount of the additional charge to be the price of subsequent sale (Article 105.10 of the Tax Code).
The courts indicated that the subsequent sale price method should not have been applied in this case, since the method of comparable market prices has priority.
The tax authority did not substantiate the use of the subsequent sale price method actually applied and did not refer to the provisions of Chapter 14.3 of the Russian TC.
The tax authority incorrectly applied the subsequent sale price method. The gross profit margin of comparable companies was not calculated.