The Moscow Arbitration Court has deemed unlawful a decision by the Federal Tax Service Inspectorate No. 10 for Moscow, which charged Deloitte & Touche CIS an additional 23.67 million rubles in taxes, refusing almost completely to take into account the cos

The tax authorities considered that Deloitte & Touche CIS unlawfully recognized, in expenses for calculating income tax, costs totaling 66.69 million rubles under agreements for 2014-2016 on participation in the SPIEF, the Russian Retail Week, for advertising services of the Russian Football Union, during the RBC Awards and other events, and also had no right to apply VAT deductions.

The Federal Tax Service officials based this decision on the argument that since the Deloitte brand was used in advertising, the activities carried out were aimed at promoting it, disseminating information about the activities of members of a "group of companies" of the same name around the world, as well as advertising the site www.deloitte.ru/www .deloitte.com.

The inspectors calculated the additional charges by estimating the scale of the Deloitte & Touche CIS business against the background of the entire Deloitte international network (0.255% in 2014, 0.2312% in 2015 and 0.2656% in 2016). Only in this respect could the tax base be reduced, they believed.

The court disagreed. "The Inspectorate’s use of the term ‘group of companies’ distorts the nature of the organizational and legal form of the companies that are part of the Deloitte international network," the judgment says. The court deemed reasonable the arguments of Deloitte & Touche CIS, which indicated that the Deloitte international network does not provide professional services, does not manage, does not control and does not own any interest in any participating firm or affiliated organizations, and that it was consolidated "in order to establish a consistently high level of quality, professional conduct and service."

"Consequently, the international Deloitte network’s firms around the world are separate and independent legal entities performing entrepreneurial activities with the purpose of systematically generating profit on a standalone basis, at their own risk,” the court said in the ruling. Thus, each of the companies that is part of the network bears its own advertising costs, including with respect to events attended by employees of the respective company.

The fact that promotional events are geared towards the Russian market and markets of neighboring countries testifies to the fact that expenditure was carried out in the interests of Deloitte & Touche CIS, in the court’s opinion.

As the company correctly stated in the explanations provided, “it is naive to assume that the placement of advertising at the Russian Retail Week event, at football matches of the Russian Football Union, during the annual RBC Awards and others intended to generate income not by the company itself but by other organizations that operate in Angola, Bahrain, Cambodia, Japan, the United States and more than 100 other countries where such foreign organizations use the Deloitte trademark,” the court ruled. The court also drew attention to arguments by Deloitte & Touche CIS which can be treated not only as evidence that in principle an advertising effect was had on potential customers, but also in favor of the effectiveness of these events. "Thus, for example, the participation of the company's employees in the St. Petersburg International Economic Forum in 2014-2016 alone, as well as advertising of the company itself as a partner of this forum, resulted in the company receiving income of more than 1.5 billion rubles from the largest customers and participants of this forum in 2014-2017,” the court ruled.

The court also criticized the inspectorate's approach to the recognition of advertising expenses, calling it "unlawful and erroneous." The ruling notes, for example, that the consolidated revenue of Deloitte network companies ($32.4 billion, $35.2 billion and $36.8 billion for the financial years ended May 31, 2014-2016) are not comparable with data according to Russian Accounting Standards.

AO Deloitte & Touche CIS provides auditing, consulting, legal and other services. Deloitte partners Vladimir Biryukov, Alexander Dorofeyev, Lyudmila Grechanik, Yegor Metelkin and Olga Tabakova own the company on an equal basis via OOO Deloitte Audit, according to SPARK-Interfax data.

Deloitte & Touche CIS revenue grew 13.8% in 2021 to 6.19 billion rubles, and net profit was 216.63 million rubles, compared with a loss of 316.77 million rubles a year earlier.