GILS Tax law: Russia

TAX CONTROL AND APPEALING ITS RESULTS IN THE RUSSIAN FEDERATION

Part 1. Types and forms of tax control. The procedure for carrying out a tax audit.

Conducting a tax audit can be a significant test for any business. In addition, such an audit can greatly affect the financial position of your company. Therefore, it is important to know how the selection of candidates for audits is carried out and how to prepare for this procedure in order to protect your company and its interests. 

In the Russian Federation today there are several forms of tax control. 

The tax legislation of the Russian Federation provides that tax control is carried out by tax officials through tax audits, obtaining explanations from taxpayers, verification of accounting and reporting data, inspection of premises and territories used for the extraction of income (profit), as well as in other forms provided for by the Tax Code of the Russian Federation of 31.07.1998 N 146-FZ (hereinafter - the Tax Code of the Russian Federation). 

Calling a taxpayer to a commission. 

In the structure of tax authorities there are various commissions: commissions on legalisation of the tax base, commissions on VAT, commissions on underpayment, etc. The task of these commissions is to prevent tax offences and correct violations by the taxpayer voluntarily.  Failure to appear without a valid reason may lead to administrative liability in accordance with paragraph 1 of Article 19.4 of the Code of Administrative Offences of the Russian Federation.

A desk tax audit (DTA).

The period of desk tax audit is 3 months from the date of submission of the returns. If a desk audit reveals errors, discrepancies or inconsistencies in information, the tax authority informs the taxpayer thereof with a requirement to submit explanations (documents) and/or make corrections to the tax declaration. The deadline for providing explanations: 5 working days from the date of receipt of this requirement. Amendments to the declaration are made by submitting a revised declaration.

If irregularities are detected, a DTA act is drawn up within 10 working days from the date of completion of the desk audit. The term for filing objections to the tax audit report is 1 month. 

On-site tax audit (OTA).

On-site tax audit is conducted on the territory of the taxpayer on the basis of the decision of the head (deputy head) of the tax authority.

The audit is subject to 3 years preceding the year of the decision to audit, and reporting periods of the current year.  

The audit period is 2 months from the date of the decision to conduct an audit. The Federal Tax Service (FTS) has the right to extend this period up to 6 months in exceptional cases stipulated by the Tax Code of the Russian Federation. 

Tax authorities select taxpayers for field tax audits in accordance with the Concept of the Field Tax Audit Planning System and the Publicly Available Criteria for Self-Assessment of Risks to Taxpayers (Appendices No. 1 and No. 2 to Order No. MM-3-06/333@ of the Federal Tax Service of Russia dated 30.05.2007).

In accordance with the main objectives and principles of the above Concept, the selection of taxpayers for field tax audits is carried out after a thorough and comprehensive analysis of all information available to the tax authorities on taxpayers, including information obtained from external sources.

The tax authorities analyse:

1) amounts of calculated and paid taxes;

2) indicators of taxpayers' statements (tax, accounting) in order to identify significant deviations from the indicators of previous periods and contradictions (inconsistencies) between the data in the statements;

3) factors and reasons affecting the formation of the tax base.

In the process of field tax audit the following tax control procedures are possible: inventory, interrogation, inspection, summoning as a witness, requesting documents (information), seizure, involvement of an interpreter, examination.

On the last day of the audit a certificate is issued, the date of which fixes the end of the tax audit. And then within a period of up to 2 months the tax authorities draw up an Act. This Act is delivered to the taxpayer within 5 days. 

Objections to the Act of tax audit are filed within 1 month from the date of receipt of the act. The tax authority has the right to make a decision to conduct or refuse additional measures of tax control. 

Additional measures are: requesting documents, questioning witnesses, conducting an expert examination.

Objections to additions to the act of tax audit can be filed by the taxpayer within 15 days from the date of receipt of the act.

Following the results of a review of tax audit materials by a tax authority, the tax authority issues a decision which comes into force after 1 month from the date of delivery to the taxpayer.

Repeated on-site tax audit (ROTA).

As a general rule, tax authorities may not conduct two or more on-site tax audits for the same taxes for the same period. However, under certain circumstances it is possible to conduct a repeated on-site tax audit (ROTA), irrespective of the time of the previous audit, for the same taxes and for the same period. The audited period in this case is also limited to 3 years preceding the year in which the decision to conduct a second tax audit was made. 

In accordance with Article 89 of the Tax Code of the Russian Federation, a ROTA may be conducted both as a control over the activities of the body that conducted the audit and in the event that a taxpayer submits a revised tax declaration, in which the amount of tax indicated is less than the amount previously declared. Within the framework of this ROTA, the period for which the revised tax declaration was submitted is audited.  

All the requirements set forth by the Tax Code of the Russian Federation for the procedures of the OTA  apply to the procedure and procedures of the ROTA. 

However, there is one significant difference: in accordance with subparagraph 7, paragraph 10, Article 89 of the Tax Code of the Russian Federation, if the taxpayer is found to have committed a tax offence that was not detected during the initial tax audit, the taxpayer is not subject to tax penalties, except for when the failure to disclose the fact of a tax offence during the initial OTA was the result of collusion between the taxpayer and an official of the tax authority.

Tax monitoring.

Tax monitoring is an audit based on remote access to the taxpayer's information systems and its accounting and tax reporting. A significant advantage of this mechanism is that, as a general rule, OTA and DTA for the period being audited in tax monitoring are not carried out.

A company has the right to apply for tax monitoring under the following conditions: 

1) the aggregate amount of taxes is not less than RUB 100 million; 

2) the total amount of income received according to the accounting statements is not less than RUB 1 billion; 

3) the aggregate value of assets as of 31 December of the last financial statements is not less than RUB 1 billion. 

The tax authority has the right to request the necessary documents and explanations from an organisation, to engage an expert and a specialist, and to conduct an inspection.

If a company disagrees with the results of tax monitoring, a mutual agreement procedure is provided for.

Part 2. Procedure for appealing the results of tax monitoring.

Every person has the right to appeal against the results of actions of tax services.

However, it is possible to appeal to the court only after the appeal stage to a higher tax authority.

Appeal to a higher tax authority.

When appealing to a higher tax authority, the taxpayer has the right to submit additional documents, but it will be necessary to explain the reasons why these documents were not previously provided. The appeal is considered without the participation of the person who filed it. Until a decision is made on the complaint, it can be withdrawn. 

According to the results of consideration of the complaint Decision of the higher tax authority is delivered to the taxpayer within 3 days from the date of its adoption.

Appeal to the judicial authorities. 

When pre-trial methods of settlement of tax disputes are exhausted, the taxpayer has the right to appeal to the court. 

Court cases in the sphere of entrepreneurial and other economic activities are considered by the arbitration court according to the general rules of claim proceedings provided for by the Arbitration Procedure Code of the Russian Federation:

- The statement of claim must be filed within 3 months; 

- Term of consideration: up to 3 months;

• This term may be extended on the basis of a reasoned statement of the judge - up to 6 months (due to the special complexity of the case, with a significant number of participants in the arbitration process).

- The decision of the arbitration court of the first instance may be appealed in the court of appeal instance. The appeal may be filed within 1 month (from the date of adoption of the motivated court decision).

- In case of disagreement with the Resolution of the arbitration court of appeal - taxpayers have the right to appeal to the cassation arbitration court within 2 months from the date of adoption of the Resolution. 

- Judicial acts entered into legal force, specified in part 3 of Article 308.1 of the APC RF, may be reviewed by the Presidium of the Supreme Court of the Russian Federation by way of supervisory review on supervisory appeals of persons participating in the case and other persons specified in Article 42 of the APC RF.

Conclusion.

In 2022 the Russian Federation adopted additional measures to support business, in particular, field tax audits for accredited IT-companies were suspended until 3 March 2025 (Letter of the Federal Tax Service of Russia No. СД-4-2/3586@ dated 24.03.2022).

Other business representatives are subject to tax audits in accordance with the general procedure.

The system of tax control in the Russian Federation is multi-stage and quite complex. Assess the risks correctly, and we will help you minimise them.

Engaging GRATA International's tax specialists will allow you to:

- interact effectively with tax and judicial authorities, which allows you to significantly reduce the risks of additional charges and fines in case of tax offences; 

- conduct a financial audit to identify and prevent cases of financial embezzlement in the organisation; 

- set up an effective accounting system and prepare for any state audit in advance.

 

Author: Oksana Afanasyeva, Partner