Russian Tax Legislation is Tending to the West

If a Russian company pays disproportionately high bonuses to its employee who is also its shareholder and beneficiary, there is a high risk that Russian tax authorities will requalify the bonus into dividends and make the company pay the profit tax on the bonus amount. They will do it even if the bonus was properly documented, applying the Russian Tax Code universal rule of unjustified tax benefit. And Russian courts will support them. This new trend was started by the recent court case of AO Gortop, first of the kind, but obviously not last, sending a clear signal to the business that any out-of-the-ordinary tax saving will be scrutinized and likely reversed into a fiscal revenue.

The very recent AO “Gortop” case that went through the cassation review in June 2025 dealt with bonuses paid to the General Director and his wife who were also majority shareholders of the company. During the audited period 2019-2021 the company paid both of them bonuses in the amount of 142 million RUB that accounted for 90% of the total taxable profit of the company. The base salary of the General Director was about 6 - 30% of his bonuses. The bonuses were deducted from the company profit tax base reducing the company profit tax. The bonuses were adequately documented. However, the tax inspectorate challenged and disallowed this tax deduction. All the courts unanimously supported the tax authorities. They decided to reclassify the bonuses as dividends, to restore the bonuses amounts from expenses of the company; to assess and charge on the company the 20% profit tax underpaid due to deduction of the bonuses; and charge a 40% fine for intentional tax evasion. Notably, the courts agreed to apply the double penalty for willful non-payment of corporate profit tax as a result of understatement of the tax base.

The courts supported the argument of the tax authorities that bonuses paid to General Director and top manager of a company who were relatives (spouses) and shareholders of the company, which bonuses were charged to expenses and reduced profit tax of the company created an unjustified tax benefit under Article 54.1 of the Russian Tax Code due to the unjustified overstatement of tax deductible expenses. The court concluded that due to the understatement of the financial result and reduction of the fiscal burden, the amount of profit tax was reduced and taken out of the turnover of the business. Thus, privately held businesses should take this into account and choose a better balance between base salary, bonus and dividend distribution in their compensation planning and in any event not zero out the company profit tax base by deducting the bonuses.