The matter in brief
How it went
Situation. The tax authority imposed a fine on the company for what it considered unlawful use of a trademark within a group of companies, treating intra-group operations as unlawful trade.
What we did. We proved that the trademark was lawfully used under licensing relationships within the group, and challenged the tax authority’s decision through every instance in turn, relying on the actual contractual relationships.
Result. The tax authority’s decision was held unlawful in every instance, and the RUB 10 million fine was cancelled in full.
What governs trademark use within a group of companies
It is a matter of civil law, not only of tax law. The right to a trademark and the rules for its use are governed by Part Four of the Russian Civil Code (Articles 1477-1515). The right holder may use the mark itself or grant another person the right to use it under a licence agreement (Article 1489 of the Russian Civil Code).
The grant of rights must be registered. The grant of the right to use a trademark under a licence agreement is subject to state registration with Rospatent (Article 1232 of the Russian Civil Code). Without it, the grant is deemed not to have taken place, which often becomes a formal hook for challenging intra-group operations.
Tax consequences are assessed separately from civil law ones. If the tax authority recharacterises trademark operations within a group of companies, tax legislation then applies, primarily Article 122 of the Russian Tax Code on liability for non-payment or underpayment of tax.
The rules most often cited in such disputes:
How such an assessment is usually challenged
The appeal procedure is standard for most tax disputes involving intra-group operations.
Objections to the audit report
After receiving the tax audit report, the company has a month to submit written objections with documents confirming that the contractual relationships are real (paragraph 6 of Article 100 of the Russian Tax Code).
Appeal
If the objections have not removed the tax authority’s claims and a decision has been issued, it must be appealed to the higher tax authority before going to court. This is a mandatory pre-trial procedure (Articles 138 and 139.1 of the Russian Tax Code).
Application to the commercial court
If the higher authority rejects the company’s arguments, the tax authority’s decision is challenged in the commercial court under Chapter 24 of the Arbitrazh Procedure Code.
Appeal and cassation
If the court of first instance rules against it, the company retains the right to have the case reviewed in the higher courts.
Common misconceptions about trademark use within a group
“The companies belong to one holding, so no contract is needed.” Each legal entity in a group of companies is independent, even with common beneficiaries. Using another entity’s trademark without a licence agreement can formally be held unlawful regardless of the parties’ affiliation.
“The contract is signed, so everything is in order.” Without state registration of the grant of rights with Rospatent, a trademark licence agreement is deemed not to have taken place as regards third parties, including the tax authority.
“Licence payments within a group are always a scheme.” The mere existence of licence payments between companies in a group does not indicate a tax scheme. The question is whether the relationship is genuine and whether the contract terms are at market level.
“The audit is over, so it is too late to appeal.” An audit decision can be challenged until it enters into force and for some time afterwards. What matters is meeting the procedural deadlines at each stage.
Time limits and thresholds worth knowing
Key time benchmarks in disputes over trademark use and related tax claims.
Risks of using a trademark without proper documentation
Additional tax assessment and a fine. If the tax authority holds that the use of a trademark was unlawful, or disputes the amount of licence payments, the company faces additional tax, late-payment interest and a fine under Article 122 of the Russian Tax Code, from 20% to 40% of the unpaid amount depending on whether the act is found to be intentional.
Claims from the right holder itself. Using a trademark without a licence, or with an unregistered licence, entitles the right holder to claim compensation under Article 1515 of the Russian Civil Code: from RUB 10,000 to RUB 5 million, or twice the value of the right to use the mark.
The risk extends to the whole group. If the trademark use arrangement is structured the same way across all entities in the group, the tax authority often carries the same approach over to the other companies in the group in later audits.
Related areas:
A similar situation? Let us discuss the details at a consultation.
Frequently asked questions
Can a fine be challenged if it has already been imposed and the money debited?+
Yes, it can be challenged even after the money has been debited. If the court rules in your favour, the money must be returned with interest.
Can a nominee director face subsidiary liability for tax debts?+
Formal status does not automatically exempt a person from liability, but a genuine lack of influence over the company’s decisions is a weighty argument in their defence.
Is this a real case or a generalised example?+
It is a real matter from the firm’s practice. We publish it without company names or the names of the participants, as every client agreement includes a non-disclosure clause.