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Documenting intragroup expenses

Services for documenting expenses for management (Management Fee) and other services centrally provided within a group of companies

  • Reviewing expenses for management and other services centrally provided within a group of companies
  • Documenting the economic justification for expenses
  • Tax savings:
    • Profit tax – up to 20% of expenses under management contracts (Management Fee)
    • VAT – deduction for expenses for services provided within a group of companies
Услуги по документальному оформлению Management fee

Taxation of expenses for services provided within a group of companies

Groups of companies are most often centralized in their parent company that usually provides the group companies with the following services :

  • Management
  • Financial management
  • IT administration and support
  • Production consulting
  • HR
  • Marketing and brand management
  • Training

Expenses for transferred functions are documented by contracts for management services between the parent company and subsidiaries. Centralized expenses may be deducted from the profit tax base if they are:

  • economically justified; 
  • supported by documents.

Paying and deducting expenses with no documents and no economic justification is risky as tax authorities may qualify such expenses as hidden dividends. In such case, the tax liabilities of subsidiaries in Russia may amount to up to 50% of the cost of intragroup services, and they may also face additional fines and charges.

Services for documenting intragroup expenses to avoid tax risks

  1. Reviewing the expenses for services provided under contracts with the parent company
  2. Reviewing the policy and practice of the group of companies for distribution of expenses for centralized functions among the companies of the group
  3. Building a system to measure the volume and cost of services rendered under service contracts
  4. Revising the provisions on service scope and fee structure in the contracts with the parent company
  5. Preparing the economic justification to support the expenses for transferred functions based on our experience in supporting tax audits and litigation
  6. Preparing reports and collecting supporting documents for each type of services rendered in the format agreed with the parent company 
  7. Coordinating regular collection of supporting documents
  8. Preparing Federal Tax Service liaison regulations taking into account all procedural aspects
    • Preparing for inspections
    • Providing documents and information for tax and transfer pricing audits
  9. Creating security files in case of claims from tax authorities 

If you would like more detailed information about the taxation of expenses for intragroup functions, please do not hesitate to contact us.

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