On 24 January 2017 the Commercial Court of Arkhangelsk Oblast
delivered a judgement in case No. А05-9115/2016 (the
"Judgement") under the claim of Severnoye Siyaniye
(Northern Lights) Oil Company Limited Liability Company (the
"Company").
The case is noteworthy because the tax authorities applied thin
capitalization rules to a controlled transaction (a loan agreement)
between a lender (a Cypriot company) and a borrower (a Russian
company). This was even though the Cypriot company did not
participate directly or indirectly in the Russian company and the
parties to the loan relationship did not have a common holding
company in order to be considered sister companies.
As follows from the Judgement, the court considered that in the
periods of 2012-2014 being audited the Company should have withheld
tax when paying loan interest to the Cypriot company at the 10% tax
rate (the general tax rate on dividends under the Russia-Cyprus
double tax treaty). The Company paid the
