The buzz around intangible property and the precedents being set to ensure proper valuation and intercompany pricing is a difficult issue being heard worldwide. In the last two years, Russian tax authorities have been heavily focused on cross-border royalty structures, especially where royalties are paid by the Russian distributors of goods.
Recently, the courts in Russia have been quite active regarding the deductibility of royalties by distributors. At the heart of the controversy is the concept of who is responsible for the payment of a royalty, if and when does the obligation arise, and how is this impacted by the agreements in place among the parties.
With management fees, the recipient country always has an issue in terms of providing adequate documentation that any benefit is conferred on the recipient, and then ascertaining the appropriate valuation of same.
Each of the above highlights the need to prepare a defense in anticipation of pushback from the Russian authorities in particular, and other tax authorities in general, on these issues. The best defense is a good offense in the form of solid transfer pricing reports.
If you license Checkpoint, check out the full article today and learn the the details on the Russian court cases referenced in this blog.