In a decree dated January 2012, the Supreme Commercial Court of the Russian Federation (the “SCC”) indicated that in order to set a limit on the interest rate of a loan which may be considered for decreasing taxable profits, it is necessary to compare the terms of other loans granted by the lender. This contradicts the tax authorities’ requirement of comparing the terms of loans received by the debtor.

The SCC believes that the main point of the Tax Code of the Russian Federation is to exclude the accounting of interest that exceeds market value. In the SCC’s opinion, this is impossible without considering the terms of loans granted by the lender during the respective period.

Consequently, in order to challenge the value of interest on loans, the tax authorities must demonstrate that such interest exceeds the interest on loans granted by the same lender under comparable circumstances. It should be noted that the SCC’s conclusions do not affect the regulations on the amount of interest for tax purposes when controlled indebtedness occurs.

[Decree No. 9898/11 of the Presidium of the Supreme Commercial Court of the Russian Federation, dated 17 January 2012]