Mechanisms for the formation and control of holdings in Russia

Опубликовано: Proceedings of the International Сonference, Munich, Germany, July 2013

Текст: Evnevich M.A., Yaburova D.V.

Evnevich Maria - PhD (economics), associate professor at St. Petersburg State University

Yaburova Dinara - graduate at St. Petersburg State University

Данные для цитирования

Mechanisms for the formation and control of holdings in Russia
Evnevich M.A., Yaburova D.V.
В сборнике: Формирование механизмов устойчивого развития экономики промышленных отраслей, комплексов, предприятий Сборник материалов международной научной конференции, Германия, Мюнхен, 8-10 июля 2013 г.. под ред. проф. Н.Н. Хахоновой. Мюнхен, 2013. С. 64-67.

Holding companies appear all over the world under the influence of common to all countries integration processes. Nowadays there are also holding-like groups of companies in Russia, but they are not legally registered and appear towards the state and society as separate and independent companies.

Such lack of registered holdings affects first of all the collection of taxes by the state because holdings existing as groups of legally independent companies have opportunities for tax optimization using both offshore schemes and transfer pricing in transactions between interdependent  parties, located in regions of the Russian Federation with different tax treatments. Due to such inter-holding tax optimization state loses tax amounts. So we can consider the new section of the Tax Code V.1 ««Interdependent entities. General provisions on pricing and taxation. Tax control. Agreement on pricing», that came into force on 01/01/2012, to be an attempt to legalize groups of companies for the tax regulation in order to make them pay full amount of taxes.

This section adopts stimulating measures for formation of holdings as well as control mechanisms for real holdings, whether they are registered or informal. New section introduces the concept of interdependent parties, and transactions between them are controlled by tax authorities. Interdependent parties include mentioned earlier in art.40 organizations with direct or indirect participation of one of them in the other, individuals in family relations and relations of official submission. Also a number of new provisions for the recognition of interdependent entities, regarding the property belonging and management relations, was established. According to new provisions, groups of companies integrated not only with property connections but also various informal connections (friendship, traditional), business connections, connections of subordinating by official position, are fallen under the tax control [1].

Control of transactions between interdependent parties is held if the amount of transaction is more than 2 billion rubles in 2013 and 1 billion rubles in 2014 and further. It means that only large-scale groups of companies are considered to be holdings and are strongly controlled by the State. Control of market prices is also carried out if one of participants has a particular benefit on the profit tax rate [2], for example by using a special tax regime (single tax on imputed income or single agricultural tax), being a participant of Skolkovo or resident of a special economic zone, offshore zone, or simply the subject of the Russian Federation with preferred tax treatment [3].

Transactions involving intermediaries and offshores are also equated to interdependent, that characterizes the specific anti-offshore nature of law innovations. Moreover, the lower bound for offshore companies to deem their transactions controlled is significantly lower than for others: tax control mechanisms are already held starting from 60 million rubles, that is, the amount 30 times smaller comparing with 2 billion. Thus, the innovations are aimed to restrict the use of transfer pricing and offshore schemes.

As an incentive mechanism for legal registration of holdings, the largest and the most strict groups of companies can now voluntarily register as a consolidated group of taxpayers (CGT) (cl.2 art.25.2 of the Tax Code) if the share of participation of one organization in the other is 90% or more and if

  •   total amount of taxes, paid by companies of the group (VAT, excise tax, profit tax and mining and natural resource tax) over 10 bln RUB in the previous year;
  •    total amount of income from the sale of goods, works and services of the previous year over 100 bln RUB in the group;
  •    total value of assets of the group of companies at the end of the previous year over 300 bln RUB. 

The advantage of formation of CGT is that the tax base for profit tax may be reduced due to the fact that it is defined as an arithmetic sum of the incomes of all members of the group, which means that a profit of one company can be added to the loss of the other [4]. In addition, some subjects of the federation provide profit tax benefits for CGT (for example, in the Leningrad region the profit tax is 16% instead of the standard 20%). Moreover, transactions of CGT are not controlled by tax authorities, consequently it can independently determine and manipulate with the price for its own benefit.

Such benefits have avoided small and medium-sized enterprises, as they do not meet the established limitations. However, their transactions are a subject of the tax control regardless of the amount of income from this transaction in the case of participation of offshore and resale of goods (works, services) through intermediaries.

As for the compulsory control, the non-formalized way of formation of holdings commits to provide tax authorities with the information about transactions. The only incentive is to conduct an agreement on pricing (chapter 14.6), that has been used in Europe and the United States for a long time [5]. When conducting this agreement, before carrying out a transaction, the procedure of determining the market price must be determined, that makes it possible to avoid checking the prices.

Thus, with the entering into force of the new section of the Tax Code, the mechanisms of formation of holding companies are more clearly defined and disclosed, and mechanisms of the tax control are intensified and tightened. Such mechanisms allow to increase the collecton of the profit tax to the budget and stop the use of transfer pricing and offshore schemes in order to reduce their tax burden/


1.     Evnevich M.A. Integrated business groups in today’s Russia: clarifying the definition and classification for management // Bulletin of St. Petersburg State University (Vestnik St. Petersburg University), ser.5. 2007. Issue 1.

2.     The Tax Code of the Russian Federation. Part 1, Federal Law No 146 - FZ of July 31, 1998 (as amended and supplemented)

3.     Semenihin V.V. Corporate profit tax, income and expenses: tax return for profit tax with the Order of the No MMV-7-3/174 // Taxes Newspaper (Nalogi), 2012. No 41.

4.     The Tax Code of the Russian Federation. Part 2, Federal Law No 117-FZ of August 5, 2000.

5.     Financial Tax Service in Russia has signed the first agreement on pricing //  Russian Newspaper (Rossiyskaya Gazeta), 2012. URL: (date accessed 08.01.2013)