New practice on liability for breach of “countersanctions”
On April 25, 2024, the Arbitration Court of the Moscow Region (first instance) ruled in favor of the Interregional Inspectorate of the Federal Tax Service for Major Taxpayers No. 1 (tax authority) based on a claim filed by the latter against OOO “TORG” (ex - OOO “IKEA Torg”, belongs to the IKEA Group) for recovery of 12.9 billion rubles (approx. 135 million euros) to the state revenue in case No. А41-6043/2024 (the decision was issued on May 15, 2024). This tax authority is responsible for large companies with foreign capital and is a frontrunner and plays a leading role in shaping law enforcement practices for other Russian tax authorities. The court considered the transaction briefly outlined below to be void and a deliberate violation of the principles of law and morality, and specifically a violation of Russian “countersanctions”.
OOO “TORG” had a debt totaling 9.6 billion roubles under a loan agreement with its related company Fami Limited (Ireland), part of which was repaid in 2021. To settle the remaining debt, OOO “TORG” instructed its debtor, OOO “Market.Trade”, to make payments to Fami Limited for the goods delivered by OOO “TORG”. The total amount of these payments amounted to 12.9 billion rubles.
The tax authority has filed a claim to declare the transaction void based on Article 169 of the Russian Civil Code, which states that, if foreseen by law, everything obtained as part of a transaction that deliberately violates the principles of law and morality can be recovered to the state revenue.
In view of the tax authority, OOO “TORG” violated the Russian countersanctions, namely the Decree of the President of Russia No. 95 of March 5, 2022, by repaying the debt under the loan agreement with Fami Limited, a company incorporated in an “unfriendly” state, whereby the payment was made via a third party OOO “Market.Trade” without obtaining the approval of the Governmental Commission.
The court upheld the position of the tax authority despite the arguments of the defendant's representatives that Article 169 of the Russian Civil Code may only be applied in some statutory cases, not including the violation of “countersanctions”.
The defendant has appealed the court decision. However, in our view, it might be highly unlikely that the appellate court changes the first instance judgment. Such cases are not new to the court practice, but this case may serve as a precedent in the current circumstance when it comes to the consequences of violations of countersanction measures. Apart from the possible recovery to the state revenue of all amounts obtained under the transaction, there may be an equally significant risk of criminal liability of the management for violation of the currency control legislation (Article 193.1 of the Russian Criminal Code). Unlike criminal liability for tax crimes, there is no relief from liability for currency control crimes.
