18 August 2025

Interdependent Persons and Controlled Transactions in Russian Tax Law

August 18, 2025

BRACE Law Firm ©

Interdependent persons include companies and individuals who are linked to one another by certain relationships that allow them to influence the terms of agreements between them. The law does not prohibit transactions between interdependent persons; however, such deals invariably attract the attention of tax authorities. This is because their purpose may be to obtain an unjustified tax benefit: understating the tax base, overstating the amount of losses, or the groundless receipt of tax incentives, etc.

In this article, we will consider:

Under what circumstances counterparties will be recognized as interdependent persons;
What tax consequences transactions between interdependent persons entail;
What the tax liability is in the event of detecting an abuse of rights by interdependent persons.

What Are Interdependent Persons?

Before examining the topic, we shall analyze what current tax legislation understands by interdependent persons.

In accordance with Clause 1 of Article 105.1 of the Tax Code of the Russian Federation (the "Tax Code"), persons are recognized as interdependent if, due to the specifics of their relations, they may influence the conditions and (or) results of transactions performed by such persons, and (or) the economic results of the activities of such persons or the activities of the persons they represent.

To recognize the mutual dependence of persons, the law considers the influence that may be exerted through participation in the capital of other persons or any other ability of one person to determine the decisions made by other persons.

Any taxpayers, regardless of their status (legal entities, individual entrepreneurs, or individuals), may be recognized as interdependent in any combination with one another.

Note that the concept of an "interdependent person" should be distinguished from the concepts of an "interested person" and an "affiliated person". As researchers of this issue correctly point out, [1] the key difference between these concepts is their scope of application. Interdependence is used in tax legal relations, interest is used in the field of corporate law, and affiliation is used in the field of competition protection. Consequently, comparing these institutes is incorrect, as they serve different purposes and regulate different objects.

As a general rule, interdependence is established based on the criteria specified in Clause 2 of Article 105.1 of the Tax Code. In particular, individuals are recognized as interdependent:

If one person is subordinate to another person due to their official position;
An individual, their spouse, parents (including adoptive parents), children (including adopted children), full and half brothers and sisters, guardian (curator), and ward.

Legal entities are recognized as interdependent:

If one organization directly and (or) indirectly participates in another organization and the share of such participation exceeds 25%;
If the same person directly and (or) indirectly participates in several organizations and the share of such participation in each exceeds 25%;
If the same person's decision resulted in the appointment or election of sole executive bodies or at least 50% of the membership of a collegial executive body or board of directors;
If the same individuals, together with interdependent persons, constitute more than 50% of a collegial executive body or board of directors;
If the same person exercises the powers of a sole executive body;
If an individual holding a share of more than 25% in one organization (or appointing the sole executive body or at least 50% of the collegial body) is a relative of an individual who has the same share of participation or the same powers in relation to another organization;
If an individual who holds a share of more than 25% in one organization or has the power to appoint (elect) the sole executive body (or at least 50% of the membership of a collegial executive body) is a relative of an individual who holds the specified share of participation and (or) powers in another organization;
If controlled foreign companies have the same controlling person.

Interdependence between an individual and a legal entity is recognized if the following criteria are met:

If an individual directly and (or) indirectly participates in an organization and the share of such participation exceeds 25%;
If the share of direct participation of each preceding person in each subsequent organization exceeds 50%;
If the same person's decision resulted in the appointment or election of sole executive bodies or at least 50% of the membership of a collegial executive body or board of directors;
If an individual exercises the powers of the sole executive body of the organization;
If a person is recognized as a controlling person and the organization is a controlled foreign company.

Law enforcement practice indicates that if the grounds listed in Clause 2 of Article 105.1 of the Tax Code are present, persons are interdependent until they prove otherwise.

In addition to the formal interdependence criteria specified in tax legislation, persons may have other opportunities to influence another person's decisions. In such cases, interdependence may be established:

By the specified persons independently;
By a court decision.

According to the position of the Supreme Court of the Russian Federation expressed in the Review of the Practice of Consideration by Courts of Cases Related to the Application of Certain Provisions of Section V.1 and Article 269 of the Tax Code, [2] a court may recognize persons as interdependent for tax purposes if the taxpayer's counterparty had the opportunity to influence the decisions made by the taxpayer in the sphere of its financial and business activities. The court establishes the fact of interdependence with the participation of the tax authority and the taxpayer during the consideration of a case concerning the validity of a decision to assess additional tax, or when resolving the tax authority's claims for the recovery of the assessed debt.

At the same time, as researchers of this issue point out, [3] courts take the following into account as circumstances indicating company interconnectedness:

The use of identical IP addresses and corporate email addresses;
The generation of accounting and tax reports for all entities by a single company;
Registration at the same address or the matching of physical addresses;
Opening bank accounts at the same bank.

Furthermore, the lack of labor resources necessary for the provision of services, the calculation of minimum tax amounts, nominal directors, and the transit transfer of funds through accounts may indicate the formal nature of contracts with an interconnected person.

Interconnectedness does not yet mean the automatic receipt of an unjustified tax benefit. The tax authority must prove that the taxpayer's actions aimed to evade tax payments. For instance, in Case No. A55-37631/2022, [4] a tax inspectorate conducted a field tax audit of a Management Company. Based on the audit results, additional VAT was assessed in the amount of 126,953,829 rubles and corporate income tax in the amount of 28,497,268 rubles, as well as penalties for late tax payment in the amount of 80,765,956 rubles. Furthermore, the Company was held liable for a tax offense under Article 122 of the Tax Code, "Non-payment or Incomplete Payment of Tax Amounts", and fined 11,230,823 rubles. The grounds were the tax authority's conclusion that the Management Company engaged interdependent companies to perform repair and maintenance work on housing stock for the purpose of obtaining a tax exemption for VAT and reducing the tax base for income tax.

The court indicated that interdependence, as a circumstance indicating the receipt of an unjustified tax benefit, can have legal significance only when transaction participants use such interdependence for the unlawful reduction of the tax base. In this case, the involvement of disputed counterparties in contract work was due to the achievement of real business goals. Additionally, during the trial, it was established that each contractor conducted independent activities and had its own staff, including actual managers and persons responsible for the production process, as well as a material and technical base. The court concluded that the coordination of the applicant's actions with counterparties to obtain unjustified tax savings was not properly proven. The tax authority's decision was declared unlawful.

Article 105.1 of the Tax Code also establishes cases where such persons cannot be recognized as interdependent:

If the influence on the terms and results of transactions or the economic results of their activities is exerted by persons due to their dominant market position or other similar circumstances;
If there is direct and (or) indirect participation of the Russian Federation, constituent entities of the Russian Federation, municipalities, or the "Sirius" federal territory in Russian organizations.

Tax Consequences of Establishing Interdependence

The interdependence of persons entails the following tax consequences:

Tax control over transactions of interdependent persons and the prices therein;
Assessment of additional taxes and liability in the event of detecting an unjustified tax benefit;
Restrictions on the provision of tax incentives;
The obligation to pay Personal Income Tax (NDFL) in the event of receiving a material benefit resulting from a series of transactions with interdependent persons.

Each of these is examined in more detail below.

Which Transactions of Interdependent Persons Are Subject to Control?

A number of transactions between interdependent persons are subject to tax control. In accordance with Article 105.14 of the Tax Code, transactions between Russian taxpayers are controlled if the income from such transactions for the corresponding calendar year exceeds 1 billion rubles and at least one of the following circumstances exists:

The parties to the transaction apply different corporate income tax rates, with a number of exceptions;
One of the parties to the transaction applies the unified agricultural tax;
One of the parties is exempt from the obligations of a corporate income tax payer;
Regarding mineral resources, one of the parties to the transaction is a payer of the mineral extraction tax at a percentage rate;
One of the parties is a payer of the tax on the extraction of hydrocarbons at a new offshore hydrocarbon field;
One of the parties applies an investment tax credit for income tax;
In relation to a number of highly specialized taxpayers specified in Article 105.14 of the Tax Code.

Transactions with interdependent foreign persons are controlled if the income exceeds 120 million rubles.

If a transaction meets the criteria for being controlled, this entails an obligation for the parties to the controlled transaction to file a notification with the tax authority regarding the fact of its performance. Each party to the transaction files a notification. The filing deadline is no later than May 20 of the year following the year the transaction was performed. Legal entities file notifications only in electronic format; individuals may file in electronic format or on paper. The notification form and the procedure for its completion were approved by Order of the Federal Tax Service of Russia dated December 2, 2024, No. ED-7-13/1088@. [5]

Failure to submit a notification on a controlled transaction within the established timeframe or the submission of unreliable information will result in liability under Article 129.4 of the Tax Code. The fine is 100,000 rubles.

Thus, in Case No. A26-4595/2018,[6] a Company submitted a notification on controlled transactions to the tax inspectorate. Based on the audit results, the tax authority established that the notification did not contain information on the conclusion of a timber sales transaction with an interdependent foreign person. The Company was held liable for a tax offense provided for by Clause 1 of Article 129.4 of the Tax Code. However, the Company proved in court that the income from this transaction was 42,986,827 rubles, which is below the threshold for control. The tax authority's decision to hold the company liable was declared unlawful.

A notification filed by a taxpayer or a notice from a territorial tax authority regarding the detection of a controlled transaction serves as the basis for an audit of the completeness of tax calculation and payment.

Controlled transactions performed within a period not exceeding three calendar years preceding the year the decision to conduct an audit was made may be subject to audit. The powers to audit transactions between interdependent persons are assigned to the competence of the Federal Tax Service of Russia (the "FTS"). At the same time, the FTS notes [7] that territorial tax authorities do not have the right to independently conduct control measures regarding the compliance of prices in controlled transactions with market prices.

The general term for conducting an audit is 6 months from the date the decision to conduct the audit was issued; the tax authority has the right to extend the audit up to 12 months. The tax authority may request documents not only from the parties to the controlled transactions but also from other persons involved in the transaction who possess documents concerning the controlled transactions.

As a general rule, the transaction price is recognized as the market price until the tax authority proves otherwise. To check the integrity of concluded transactions, the FTS uses the following methods:

The comparable market price method;
The resale price method;
The cost-plus method;
The comparable profitability method;
The profit split method.

The procedure for applying these methods is regulated in detail in Chapter 14.3 of the Tax Code. The comparable market price method is the priority method. It involves identifying the market value by comparing the terms of transactions with independent counterparties and the interdependent person. The use of other methods is permitted if the comparable market price method is impossible to apply or does not allow for justified conclusions.

A certificate on the conducted audit is the final act evidencing the completion of the audit. If discrepancies are identified between the price applied in the transaction and the market price, the tax authority compiles an audit report within 2 months from the date the certificate was issued, which is delivered to the taxpayer within 5 days of its compilation. The taxpayer has the right to submit written objections to the FTS of Russia within 20 days of receiving the report.

Regarding the possibility of controlling prices in transactions not classified as controlled, the Tax Code does not contain a direct answer. The Ministry of Finance of Russia has expressed the position [8] that for such transactions, control over the compliance of prices with market prices can be the subject of field and desk audits. The methods established by Chapter 14.3 of the Tax Code may be applied to determine the actual transaction price.

Auditing the Taxpayer for Unjustified Tax Benefits

During control measures, the tax authority may also identify the receipt of an unjustified tax benefit by the taxpayer resulting from a transaction between interdependent persons.

Within the meaning of Article 54.1 of the Tax Code, an unjustified tax benefit is a reduction in tax resulting from the distortion of information about business activities, objects of taxation in tax and (or) accounting records, or tax reporting.

Interdependence is one of the factors considered by tax authorities when establishing an unjustified tax benefit. In particular, tax authorities view "business splitting" as a method for obtaining an unjustified tax benefit. In judicial practice, business splitting is understood as the creation of a large number of legal entities that are directly or indirectly interdependent (as a rule, having the same beneficiaries and (or) managers, including chief accountants and financial directors) and possessing a large number of identical features (identical types of activity, identical banks, use of the same software, shared labor resources, etc.). At the same time, as researchers of this issue point out, [9] the process of business splitting itself is not unlawful. For example, it may be necessary for optimizing management or production. However, if it aims exclusively at reducing the tax burden, tax authorities view it as obtaining an unjustified tax benefit.

Thus, in Case No. A37-749/2024, [10] a field tax audit was conducted against a Company. Based on its results, the Company was assessed additional VAT in the amount of 22,091,426 rubles and corporate income tax in the amount of 3,206,222 rubles, and a fine of 220,084 rubles was imposed. The grounds for the additional tax assessment were the control authority's conclusion that the Company applied a "business splitting" scheme using an interdependent individual entrepreneur who applied the unified tax on imputed income. The Company appealed to the court to have the decision declared unlawful. During the court hearing, it was established that the individual entrepreneur was an employee of the Company. The Company and the interdependent person functioned as a single economic entity providing cargo transportation services. The conclusion of lease agreements with the individual entrepreneur was formal in nature, as the Company independently performed the cargo transportation. The courts agreed with the tax authority's conclusion regarding the taxpayer's receipt of an unjustified tax benefit due to the concealment of part of the revenue passing through the settlement accounts of the individual entrepreneur, who was entitled not to maintain income records. The claims were denied.

In another Case No. A53-26914/2020, [11] the tax authority identified during an audit that a loss-making transaction for the assignment of a claim was concluded between the Company and an interdependent person. The Company was assessed additional income tax in the amount of 2,592,557 rubles, interest for late payment in the amount of 848,682 rubles, and a fine for a tax offense in the amount of 1,037,022 rubles. During the court hearing, it was established that the Company concluded the loss-making transaction to reduce the tax base for corporate income tax. This transaction did not meet ordinary business customs and could not have been concluded on such terms in ordinary business life. The request to declare the tax authority's decision unlawful was denied.

Restrictions on the Application of Tax Deductions

According to Clause 5 of Article 220 of the Tax Code, if a sale and purchase transaction for a residential house, apartment, room, or share(s) therein is performed between individuals who are interdependent, the property tax deductions provided for by Clause 1 of Article 220 of the Tax Code are not granted.

For instance, in Case No. 33A-22672/2016, [12] T. purchased a 1/2 share of a residential house and a 1/2 share of a land plot from M. under a sale and purchase agreement, the value of which was determined at 1,115,000 rubles. The tax authority refused to grant T. a property tax deduction in the amount of 46,350 rubles because the sale and purchase transaction was performed between a brother and sister, who are interdependent persons. Disagreeing with this decision, T. appealed to the court to have the refusal declared unlawful. The court of first instance satisfied the claims, justifying that the transaction price did not deviate from the market average, the seller did not retain the right to use the housing, and the buyer possessed a sufficient sum of money to purchase the real estate. The court concluded that the kinship did not influence the economic result of the transaction. The court of appeal overturned this decision, stating that current legislation does not require establishing economic justification when performing a transaction between persons who are interdependent by operation of law. The Supreme Court of the Russian Federation supported this position.

Note that citizens have repeatedly appealed to the Constitutional Court of the Russian Federation with demands to declare these provisions of the Tax Code unlawful. However, the Constitutional Court of the Russian Federation has formulated and maintained the following position for a long time:[13] "In resolving the tasks of stimulating citizens to improve their housing conditions, the federal legislator provided for cases where the right to a property tax deduction does not apply. These include, among others, cases where a sale and purchase transaction for an apartment is performed between interdependent individuals, which is due to the difficulty of establishing the real nature of the transaction. At the same time, the establishment of exceptions to the rules for granting a property tax deduction does not in itself evidence a violation of the constitutional rights and freedoms of the applicants".

Payment of Personal Income Tax Resulting from Material Benefit

If an interdependent individual receives a material benefit, they are obliged to pay Personal Income Tax (NDFL) in the following cases:

Upon receiving a material benefit from interest savings on a loan received from organizations or individual entrepreneurs (Sub-clause 1 of Clause 1 of Article 212 of the Tax Code). Savings on interest for a loan issued by an individual without individual entrepreneur status are not subject to NDFL;
Upon acquiring goods (works, services), digital currency, digital financial assets, and digital rights at reduced prices from individuals, organizations, and individual entrepreneurs (Sub-clause 2 of Clause 1 of Article 212 of the Tax Code).

Note that negative consequences for non-payment of NDFL may arise not only for the interdependent person who received the material benefit but also for the tax agent. Let us illustrate this with an example from judicial practice.

In Case No. A54-8835/2021, [14] the tax authority conducted an audit of a Company regarding the completeness and timeliness of Personal Income Tax transfers. Based on the audit results, the tax authority demanded payment of an NDFL arrears in the amount of 1,810,536 rubles and interest for late NDFL payment of 794,687 rubles. Additionally, the taxpayer was held liable under Article 123 of the Tax Code, Failure of a Tax Agent to Perform the Obligation to Withhold and (or) Transfer Taxes, and a fine of 130,494 rubles was imposed. As justification, the control authority stated that the Company failed to calculate and withhold NDFL when an interdependent person — the Company's director — received income.

Disagreeing with the decision, the Company appealed to the court. The court established that the head of the Company was issued accountable funds in the amount of 13,927,200 rubles to settle with counterparties. However, during the audit, the tax authority established that actual financial and business relations between the Company and the said counterparties were absent, and the transferred funds were intended for cashing out.

The court stated that in the absence of evidence confirming the expenditure of accountable funds, as well as the organization's recording of inventory items, said funds are considered income of the accountable person pursuant to Article 210 of the Tax Code and must be included in the NDFL tax base. Consequently, the Company unlawfully failed to withhold and transfer the Personal Income Tax. The request to declare the tax authority's decision unlawful was denied.

Interdependence can be established both by formal criteria directly provided for by the Tax Code and proven by tax authorities through other features formed by judicial practice, or recognized by taxpayers independently.

The main legal consequences of interdependence are:

Tax control over certain transactions between interdependent persons and an audit of the prices therein;
The impossibility of applying tax incentives and deductions;
Additional tax assessments resulting from an unjustified tax benefit and the imposition of tax liability;
Payment of NDFL upon receiving a material benefit resulting from transactions with interdependent persons.

Only the FTS of Russia is endowed with the right to exercise control over transactions classified as controlled. However, territorial tax authorities may identify the fact of receiving an unjustified tax benefit during control measures.

Interdependence does not always evidence the receipt of an unjustified tax benefit; tax authorities must prove it.

To avoid negative legal consequences, transactions with interdependent persons must always have real substance.

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References

Nelyubin I.D. Tax Risks for Transactions Concluded between Interdependent Persons // Financial Law, 2022, No. 1.
Approved by the Presidium of the Supreme Court of the Russian Federation on February 16, 2017.
A. Toriya, I.V. Bit-Shabo. Controlled Transactions and Interdependent Persons: Issues of Law Enforcement Practice // Business Security, 2024, No. 2.
Resolution of the Arbitration Court of the Volga District dated November 16, 2023, No. F06-10083/2023 in Case No. A55-37631/2022.
Order of the Federal Tax Service of Russia dated December 2, 2024, No. ED-7-13/1088@, On Approving the Form, Procedure for its Completion, and Format for Submitting the Notification on Controlled Transactions in Electronic Form.
Resolution of the Thirteenth Arbitration Court of Appeal dated December 28, 2018, No. 13AP-30112/2018 in Case No. A26-4595/2018.
Letter of the Federal Tax Service of Russia dated January 29, 2024, No. ShYu-4-13/796@, On the Work of Territorial Tax Authorities Regarding the Exercise of Tax Control in Connection with Transactions between Interdependent Persons.
Letter of the Ministry of Finance of Russia dated October 18, 2012, No. 03-01-18/8-145.
Psheunov A.M. Business Splitting from the Perspective of Assessing the Circumstances for Obtaining an Unjustified Tax Benefit // Financial Law, 2024, No. 6.
Ruling of the Supreme Court of the Russian Federation dated July 21, 2025, No. 303-ES25-7052 in Case No. A37-749/2024.
Ruling of the Supreme Court of the Russian Federation dated December 22, 2021, No. 308-ES21-24291 in Case No. A53-26914/2020.
Ruling of the Judicial Chamber for Administrative Cases of the Supreme Court of the Russian Federation dated July 25, 2017, No. 18-KG17-92.
Ruling of the Constitutional Court of the Russian Federation dated June 17, 2010, No. 904-O-O, Ruling of the Constitutional Court of the Russian Federation dated July 18, 2019, No. 2115-O, Ruling of the Constitutional Court of the Russian Federation dated October 12, 2023, No. 2708-O.
Resolution of the Arbitration Court of the Central District dated May 29, 2025, No. F10-617/2025 in Case No. A54-8835/2021.