Continental Tires RUS LLC had been issued a substantial loan from Continental AG (Germany). Following an audit the tax authority established that the main purpose of the loans was the systematic withdrawal of funds abroad. According to the tax authorities the loan transactions were concluded for the purpose of artificially raising cash in the form of loans and, accordingly, artificially increasing accounts payable, while the shortage of working capital arose and arises from the special, continuous and coordinated provision of deferred payments to buyers of tyre products. Judgement of the Russian Court of Appeal The Court ruled in favor of the tax administration. Excerpt: “The provisions of Article 252 of the Tax Code stipulate that the taxpayer reduces the income received by the amount of expenses incurred. Expenses are considered to be justified and documented expenses of the taxpayer. Reasonable expenses are defined as economically justified expenses, the evaluation of which is expressed in monetary form. Documented expenses shall mean ...
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