On June 15, 2020, the 9th Arbitration Court of Appeal of Moscow upheld the decision of the court of the first instance in the case of PharmaMed JSC against Nizhny Novgorod Chemical-Pharmaceutical Plant JSC (Nizhfarm) to recover over 1.8 billion rubles.

In 2013, Nizhpharm made a deal to purchase the Akvalor business, including 100% of the same name LLC, trademark, and other assets.

At the same time, Nizhfarm proposed to carry out the transaction through a company specially registered in Cyprus, while the seller company was registered in the British Virgin Islands, with which, unlike Cyprus, Russia does not have a double tax treaty.

The seller agreed, provided that the buyer compensates for the costs and the profit from the transaction does not change. As a result, Nizhfarm acquired the rights to the Akvalor trademark from a Cypriot company for 130.9 million euros, excluding taxes.

In 2017, the Russian Federal Tax Service conducted a PharmaMed audit and charged the company 1.2 billion rubles income tax for this transaction, considering the company is the actual seller of the Akvalor trademark and regarded the chain of transactions involving other legal entities as a sham.

PharmaMed lost all the trials in this case against the Tax service.

PharmaMed appealed to Nizhfarm with a demand to compensate for its costs of tax payments.

The Moscow Arbitration Court confirmed that the statute of limitations has not expired, and the period should be calculated from September 2017, when the decision on the additional charge of taxes came into force.

The court noted that taxes are a collective concept, and the wording on the value of the Akvalor business, excluding taxes, applies to all of their types. In this case, legal uncertainty does not arise, since in this case we are talking about the income of a foreign company, which was received from sources in the Russian Federation, and the tax on them is charged in a special manner and cannot be calculated in advance.

As a result, the court concluded that Nizhfarm did not fulfill its obligations under the contract and decided to recover 1.8 billion rubles (20% of 131 million euros at the exchange rate at the time of filing the lawsuit) in favor of PharmaMed.

The court of appeal upheld this decision.

Nizhny Novgorod Chemical-Pharmaceutical Plant is one of the largest pharmaceutical manufacturers in Russia, and since 2004 it has been part of the German holding Stada Arzneimittel AG.

The subsidiary of the Canadian pharmaceutical company PharmaMed has presented on the Russian market since 1995.