Russia - Formalistic Approach to the Application of Thin Capitalization Rules to Interest Flowing between Russian Companies of an International Group Abolished

In September 2020, the Supreme Court held that it is necessary, in applying the thin capitalization rules, to take into account their purpose, which is to counter abuse (LLC Mega Invest (Case А60-29234/2019)). Accordingly, when a taxpayer is not attempting to gain a tax advantage and there is no loss to the Russian budget, the taxpayer cannot be prevented from deducting interest expenses in full. This note contains an analysis of, and the author’s commentary on, this pivotal case.