Resale Price Regulation in Russia: Antimonopoly & Tax Restrictions

 

May 19, 2025

BRACE Law Firm ©

 

Trading activities often raise questions regarding the regulation of resale prices and the applicable antimonopoly requirements, restrictions, and prohibitions. Furthermore, the control of prices at which products are sold is a critical issue in the context of antimonopoly oversight.

This article provides a detailed analysis of these issues across antimonopoly, civil, and tax perspectives.

Under Article 421 of the Civil Code of the Russian Federation (the "Civil Code"), citizens and legal entities are free to enter into contracts and determine their terms.

The performance of a contract is paid for at the price established by the agreement of the parties (Article 424 of the Civil Code). Consequently, a provision regarding the resale price of goods is deemed valid if both parties reached the agreement voluntarily and knowingly.

Meanwhile, Russian antimonopoly legislation — the requirements of which are discussed below — imposes restrictions on agreements that may lead or do lead to the establishment of a resale price. Under Article 11 of the Federal Law On Protection of Competition (the "Law On Protection of Competition"), an agreement between a manufacturer (seller) and buyers who will subsequently resell the goods is considered a "vertical" agreement. Such agreements are prohibited if they lead or may lead to the establishment of the resale price of the goods.

Legal literature emphasizes that antimonopoly legislation deliberately avoids the term "contract," using instead the words "agreement" or "arrangement", because anticompetitive agreements do not constitute civil law contracts. Civil rights and obligations can only include those that do not contradict the law. Anticompetitive agreements prohibited by law cannot be recognized as transactions (contracts); rather, they should be qualified as the coordinated expression of will by competing entities in the form of a consensus, which is unlawful and constitutes a type of offense. [1]

An agreement between economic entities regarding minimum or fixed prices for the sale of relevant goods may be considered by FAS Russia as a violation of the Law On Protection of Competition, provided that the market share of at least one of the economic entities participating in the agreement exceeds 20%.

Transactions with unlawful content may be classified as voidable transactions. Under Paragraph 1 of Article 168 of the Civil Code, a transaction that violates the requirements of a law or another legal act is voidable, unless the law implies other consequences for the violation that are not related to the invalidity of the transaction. We note that judicial practice recognizes anticompetitive agreements as void transactions based on Article 168 of the Civil Code. In 2021, the Plenum of the Supreme Court of the Russian Federation clarified that the antimonopoly prohibition of vertical agreements applies to voluntary arrangements reached between a seller and a buyer of goods in connection with their existing civil law relations.[2]

Antimonopoly Aspects of the Resale Price of Goods

Antimonopoly aspects of the resale price of goods may involve the establishment and maintenance of prices, including monopolistically high and monopolistically low prices, pricing in vertical agreements, and several other actions restricted or prohibited by antimonopoly legislation.

According to Article 6 of the Law On Protection of Competition, a monopolistically high price is a price established by an economic entity holding a dominant position if this price exceeds the sum of expenses and profit necessary for the production and sale of such goods, as well as the price formed under competitive conditions in a comparable commodity market.

Under Article 7 of the Law On Protection of Competition, a monopolistically low price is a price established by an economic entity holding a dominant position if this price is lower than the sum of expenses and profit necessary for the production and sale of such goods, and lower than the price formed under competitive conditions in a comparable commodity market.

Article 10 of the Law On Protection of Competition prohibits actions (or omissions) by an economic entity holding a dominant position that result or may result in the establishment or maintenance of a monopolistically high or monopolistically low price. [3]

Vertical agreements are agreements between economic entities at different levels of the technological cycle, containing terms under which such economic entities will purchase, sell, or resell certain goods or services. [4]

As stated above, Article 11 of the Law On Protection of Competition contains an express prohibition on entering into a vertical agreement containing a provision that may lead or will lead to the establishment of a resale price, except where the seller establishes a maximum resale price for the buyer, excluding the following agreements (Article 12 of the Law On Protection of Competition):

• if such agreements are commercial concession (franchise) agreements;
• if the market share of each participant in the vertical agreement does not exceed 20%;
• between economic entities whose dominant position cannot be recognized under Article 5 of the Law On Protection of Competition, if the total revenue of such economic entities from the sale of goods for the last calendar year does not exceed 800 million rubles.

In Case No. A40-35866/18 concerning the challenge of an antimonopoly authority's decision, the courts established that "the contract concluded between the applicant and the company represents an adhesion contract regarding the procedure and conditions for the sale of a third party's own products; therefore, the applicant did not open its own store for the sale of cosmetics (from various manufacturers), but specifically a retail outlet for products of a certain brand using the corresponding trademark, designating both the products themselves and the place of their sale." Dismissing the applicant's arguments, the courts correctly pointed out that under the terms of the contract, a set of exclusive rights to the products was transferred to the applicant along with the right to the trademark, as well as business reputation and commercial experience, for the purpose of the applicant's business activity through the sale of third-party goods. The company's actions in establishing a "fixed price for the goods and the conditions for their sale were dictated by its own marketing policy, which the applicant joined by concluding the contract." [5]

It should be noted that according to Clause 18 of Article 4 of the Law On Protection of Competition, an agreement is an arrangement in writing contained in one or several documents, as well as an arrangement in oral form; thus, prohibited terms of a vertical agreement may be contained in both oral and written forms. Furthermore, concluding a written agreement between economic entities for the purchase of goods does not preclude the application of the Law On Protection of Competition to oral arrangements between such persons containing prohibited terms. [6]

The establishment of a resale price may be deemed permissible if it does not create the possibility for certain persons to eliminate competition in the relevant commodity market, does not impose restrictions, and if the result is or may be (Article 13 of the Law On Protection of Competition):

• the improvement of production or sale of goods, the promotion of technical or economic progress, or the increased competitiveness of Russian-made goods in the global market;
• the acquisition by buyers of advantages (benefits) proportionate to the advantages (benefits) received by the economic entities as a result of the actions (omissions), agreements, coordinated actions, or transactions.

In Case No. A34-9832/2018, the courts established that "the company's share in the market for the production of trailers for passenger cars was 16.42%, i.e., it did not exceed the 20% dominance threshold, nor did the share of each distributor in the wholesale trailer sales market during the same period". The company and its distributors were not competitors because "they were engaged in different types of activities covering different stages of the technological cycle (production on one side and sales on the other), guaranteeing each other mutual performance of obligations within certain territories. While selling the applicant's goods, the distributors did not produce similar goods, and the applicant, in turn, carried out wholesale sales only through its network of regular sellers". These circumstances, combined with the dominance share established by the courts, allowed the distribution agreements to be reasonably recognized as permissible vertical agreements. The court of cassation found no "convincing evidence in the case file indicating that the company actually established the price for the products supplied to the distributors. Under the terms of the distribution agreements, the distributors undertook to establish wholesale and retail prices for the products strictly in accordance with price lists, which, however, determined only an indicative initial price and did not account for the distributor's expenses for transportation and assembly. This confirms that the final price of the products sold, despite the existence of price lists, was determined by the sellers themselves, taking into account their necessary economic benefit."[7]

The provisions of Article 11 of the Law On Protection of Competition do not apply to agreements regarding the resale price of goods between economic entities belonging to one group of persons, if one such economic entity has established control over the other, or if such economic entities are under the control of a single person, except for agreements between economic entities engaged in activities that may not be performed simultaneously by a single economic entity under Russian law.

As a reminder, control is defined as the ability of a natural or legal person, directly or indirectly (through a legal entity or several legal entities), to determine decisions made by another legal entity through one or more of the following actions:

• disposal of more than 50% of the total number of votes attached to the voting shares (stakes) constituting the charter (pooled) capital of the legal entity;
• performance of the functions of the executive body of the legal entity.

In Case No. A40-198265/14, the courts correctly proceeded from the fact that "the antimonopoly authority did not prove the absence of grounds for recognizing the vertical agreement as permissible in accordance with Article 12 of the Law On Protection of Competition, as it did not prove the existence of a market share exceeding 20% in the market where the investigated transactions were performed. The contested acts do not comply with the requirements of the law and result in the violation of the applicant's rights and legally protected interests in the sphere of entrepreneurial and other economic activity."[8]

Furthermore, Article 11 of the Law On Protection of Competition prohibits agreements between economic entities regarding the economically, technologically, or otherwise unsubstantiated establishment of different prices (tariffs) for the same product by an economic entity.

Unfair competition through discrediting is also prohibited, meaning the dissemination of false, inaccurate, or distorted information that may cause losses to an economic entity and/or damage its business reputation, including information regarding the terms under which goods are offered for sale by another competing economic entity, specifically the price of the goods.

Although economic entities are generally not restricted in their right to form prices for the goods they produce (sell) at their own discretion, including the resale price, antimonopoly legislation prohibits the use of civil rights for the purpose of restricting competition. Adhering to these prohibitions will reduce the risk of economic entities being held administratively liable.

Recommended Resale Price

A much more complex situation arises when economic entities establish a recommended resale price (RRP) that, formally, does not bind the counterparty. The possibility of establishing recommended prices is not detailed by the legislator. Legislation does not contain an express prohibition on establishing an RRP, but such establishment must not be accompanied by negative or positive consequences for the persons required to comply with them.

A recommended price may be recognized as unlawful if the manufacturer has levers of influence over the counterparty in the event of a deviation from it. If the manufacturer possesses certain mechanisms of coercion, the recommended price effectively transforms into a fixed price, which is strictly prohibited by the Law On Protection of Competition.[9]

The case of Apple Rus LLC, reviewed by FAS Russia, serves as an example. According to the case materials, Apple Rus LLC specified a recommended price in price lists sent to resellers and also fixed the price of smartphones in press releases published on the official Apple website. The Commission emphasized that the specification of a recommended price does not, in itself, violate antimonopoly legislation. Such actions become illegal if a mechanism exists to enforce compliance with the recommended price. In this case, this mechanism was found in the provisions of the agreements with distributors, which granted Apple Rus LLC the right to terminate the contract unilaterally without providing reasons. The FAS Commission also noted that the prices established by most retail sellers were close to or matched the recommended price. Given that Apple Rus LLC exerted influence not only on its direct counterparties but also on several final retailers with whom it had no direct contracts for the transfer of goods, FAS Russia noted that "the actions of Apple Rus LLC cannot be qualified as actions performed within vertical agreements, since the distribution of price lists, press releases containing prices for Apple iPhone smartphones, and letters aimed at changing reseller prices was carried out by employees of Apple Rus LLC not only to resellers purchasing smartphones directly from this company but also to resellers purchasing smartphones from distributors." [10]

Liability and Other Consequences of Legal Violations

Entering into an impermissible vertical agreement that contains a provision that may lead or will lead to the establishment of a resale price, or participating in such an agreement, entails penalties provided for by Part 3 of Article 14.32 of the Code of Administrative Offenses of the Russian Federation (the "CAO RF"), specifically:

• for officials: an administrative fine ranging from 15,000 to 30,000 rubles or disqualification for a term of up to one year;
• for legal entities: an administrative fine ranging from 1/100 to 5/100 of the offender’s revenue from the sale of the goods (works, services) in the market where the administrative offense was committed, or the amount of the offender’s expenses for the purchase of the goods (works, services) in the market where the administrative offense was committed, but no less than 100,000 rubles.

It follows from this Article that the penalty may be applied not only to the seller but also to other economic entities that were participants in such an agreement.

Additionally, if a contract establishing a resale price is recognized as invalid, each party is obliged to return to the other everything received under the transaction, or, if it is impossible to return what was received in kind (including when what was received consists of the use of property, work performed, or services provided), to compensate for its value, unless other consequences of the transaction's invalidity are provided by law (Article 167 of the Civil Code).

Furthermore, the aggrieved party to the contract is entitled to seek full compensation in court for caused losses, which include expenses that the person whose right was violated has incurred or will have to incur to restore the violated right, the loss of or damage to its property (actual damage), as well as lost income that this person would have received under normal conditions of civil commerce if its right had not been violated (lost profits) (Article 15 of the Civil Code).

Tax Aspects of Establishing the Resale Price of Goods

An organization or an individual entrepreneur recognizes income from the sale of goods at the moment the title to the goods passes to the buyer. Such income is included in the tax base forming taxable profit. The cost of acquiring goods used for resale is recognized as an expense that reduces the taxable base. This figure is calculated separately and affects the amount of profit subject to taxation.

Based on Article 268 of the Tax Code of the Russian Federation (the "Tax Code"), when selling purchased goods, the taxpayer is entitled to reduce the income from such operations by the cost of acquiring these goods, determined in accordance with the accounting policy adopted by the organization for tax purposes using one of the valuation methods for purchased goods provided for by the said Article.

The taxpayer has the right to form the acquisition cost of goods by including expenses related to their acquisition. For the purposes of corporate profit tax, the acquisition cost of goods is formed based on the price established by the contract terms and may include other expenses related to the acquisition of these goods. The procedure for forming the acquisition cost of goods is determined by the organization in its accounting policy for tax purposes. [11]

In accordance with Article 146 of the Tax Code, the sale of goods (works, services) is subject to VAT. Resale of goods also constitutes a sale.

Clause 1 of Article 154 of the Tax Code provides that the tax base for the sale of goods (works, services) by a taxpayer is determined as the value of these goods (works, services), calculated based on prices determined in accordance with Article 105.3 of the Tax Code, excluding value-added tax.

According to the third paragraph of Clause 1 of Article 105.3 of the Tax Code, prices applied in transactions where the parties are not recognized as interdependent, as well as income (profit, revenue) received by the parties to such transactions, are recognized as market prices.

According to Article 172 of the Tax Code, deductions of VAT amounts charged by sellers to the taxpayer upon the purchase of goods (works, services) are made based on tax invoices (VAT invoices) after these goods (works, services) are recorded in the accounts, provided that relevant primary documents are available. VAT amounts charged for goods purchased for resale to wholesale buyers and at retail are accepted for deduction after they are recorded in the accounts. [12]

When performing a VAT-taxable operation for the sale of goods at a price lower than the acquisition price, the tax amount previously accepted for deduction by the taxpayer should not be reinstated. [13]

Thus, violations of the procedure for establishing a resale price may lead to negative consequences for its participants.

_________________________________

References

[1] Bilenko A.I. Legal Qualification of Anticompetitive Agreements of Economic Entities. Vestnik Moskovskogo Universiteta Journal, 2022, No. 3.

[2] Resolution of the Plenum of the Supreme Court of the Russian Federation dated March 4, 2021, No. 2, On Certain Issues Arising in Connection with the Application of Antimonopoly Legislation by Courts.

[3] See: https://brace-lf.com/informaciya/konkurentnoe/monopolno-vysokaya-i-monopolno-nizkaya-tsena.

[4] Clarification No. 2 of the Presidium of FAS Russia, Vertical Agreements, Including Dealer Agreements, approved by the Minutes of the Presidium of FAS Russia dated February 17, 2016, No. 3.

[5] Resolution of the Arbitration Court of the Moscow District dated December 3, 2018, in Case No. A40-35866/18.

[6] Clarification No. 2 of the Presidium of FAS Russia, Vertical Agreements, Including Dealer Agreements, approved by the Minutes of the Presidium of FAS Russia dated February 17, 2016, No. 3.

[7] Resolution of the Arbitration Court of the Ural District dated August 8, 2019, in Case No. A34-9832/2018.

[8] Ibid.

[9] Shaubert M.V. Regulation of the Resale Price of Goods as a Violation of Legislation on Protection of Competition. Forum Molodykh Uchenykh Journal, 2017, No. 6 (10).

[10] Decision of the Commission of FAS Russia in Case No. 1-11-59/00-22-16 dated March 27, 2017.

[11] Letter of the Ministry of Finance of Russia dated October 14, 2022, No. 03-03-06/1/99816.

[12] Letter of the Ministry of Finance of Russia dated August 25, 2015, No. 03-07-11/48967.

[13] Letter of the Ministry of Finance of Russia dated November 9, 2015, No. 03-07-11/64260.