We are glad to share with you the review of the Guidelines for establishing circumstances that indicate the intention of a taxpayer aimed at non-payment of taxes (fees), provided by Letter No. ED-4-2/13650@ of the Federal Tax Service (“FTS”) of Russia, dated 13 July 2017 (the “Guidelines”).
Basic information about the document
The Guidelines were prepared jointly by the Investigative Committee of the Russian Federation and the FTS of Russia, and are intended for local tax and investigative bodies.
The document provides specific examples, where indications are considered and recommendations are provided on the algorithms and methods of establishing and proving, by the tax and investigative authorities, the presence of intent of non-payment or incomplete payment of the tax.
Intentional non-payment (incomplete payment) of the tax, in accordance with the current tax legislation, results in the application of a double (40%, instead of 20%) penalty for the taxpayer, as well as criminal liability against the guilty officials.
Our evaluation of the document
Tax authorities are recommended to conduct detailed and thorough work to identify and prove intent in the actions of taxpayer officials. This recommendation to some extent protects taxpayers from arbitrary use of the increased penalty, and also reminds the tax authorities of the obligation to prove guilt, and not only the occurrence of the offense, for the application of tax liability.
It is likely that now the tax authorities will be more active in applying increased (40%) fines for deliberate non-payment (partial payment) of the tax. Proof of intentional non-payment (incomplete payment) by tax authorities increases the likelihood of holding guilty officials criminally liable.
The Guidelines reinforce the existing tendencies towards the integration of state bodies in fighting tax evasion and increasing the intensity of inter-agency information exchange.
What is recognized as intentional non-payment
According to paragraph 2 of Article 110 of the Tax Code of the Russian Federation, a tax offense is recognized as committed intentionally, if the person was aware of the unlawful nature of his actions (inaction), and desired or consciously allowed harmful consequences of such actions (inaction).
An example of the intentional nature of a tax offense, according to the Guidelines, is the totality of actions by a taxpayer aimed at building distorted, artificial contractual relations, and imitating real economic activities of frontmen (one-day companies).
The Guidelines also provide the following specific examples of schemes used by dishonest taxpayers to evade tax:
- use of fictitious transactions, including those with one-day companies or affiliated organizations, for the purpose of increasing the cost of the purchased goods (works, services) – overestimating the expenditures, or to underestimate the revenues, namely, the sale of goods at a reduced price (economically unjustified transactions);
- splitting the business for the purpose of unjustified application of special tax regimes with more favorable taxation (STS (Simplified Tax System), UTII);
- unjustified application of tax benefits, preferential tax rates (artificial accumulation of profits in the SEZ, engagement of a public organization of disabled people as a contractor);
- execution of agreements for commission, leasing, sale of shares in the authorized capital, covering the purchase and sale of property, with the aim of extracting tax benefits.
What is not recognized as intentional non-payment
Unintentional arithmetic (technical) error in calculating the tax, according to the authors of the Guidelines, does not indicate guilt. According to subparagraph 2 of paragraph 1 of Article 109 of the Tax Code of the Russian Federation, in the absence of guilt of the taxpayer, tax liability does not apply.
Non-payment (incomplete payment) of tax due to poor qualification or temporary incapacity for work of an accountant must be recognized, based on the Guidelines, as an offense committed by negligence.
How intent should be proven
According to paragraph 4 of Article 110 of the Tax Code of the Russian Federation, the organization’s fault in committing a tax offense is determined depending on the fault of its officials or representatives, whose actions (inaction) caused the commission of this tax offense.
For that reason, according to the Guidelines, it is necessary to consider the specific officials of the organization, whose actions resulted in the tax offense. Such officials include the head, chief accountant, accountant (in the absence of the chief accountant), whose duties include the signing of accounting documents submitted to the tax authorities, ensuring full and timely payment of taxes and fees, as well as other persons specially authorized to take such actions.
Intent may be established based on:
- external source (in accordance with the court’s verdict);
- collected evidence;
- information describing the specific actions (inaction) of officials of the organization or its representatives that caused the commission of the tax offense;
- comparison of contradictory (competing) testimonies of different persons and repeat interviews taking into account the information already received.
Direct evidence includes testimony of witnesses, the presence of seized documents that reveal the actual intentions of the person and their implementation (records, documents and/or files of the second set of books), video and audio recordings, the results of wiretapping and other conversation recordings.
The following actions were recommended to the tax authorities:
- questioning of taxpayer officials and counterparties and their employees, including former ones;
- requesting and analyzing documents, including optional ones (correspondence, applications, minutes of meetings, warehouse books, entry and exit logs, pass issue logs, etc.);
- analysis of information in the information resources of EGRUL, EGRN, Tax Reporting, Bank Accounts, as well as in EGRP, GIBDD, Rostekhnadzor, GIMS, Rospatent, Rosfinmonitoring, CBR to establish single sets of persons, addresses, Internet sites, employees, property;
- retrieval of information about IP addresses at the place of access to the network for sending tax reports and managing the settlement account remotely electronically;
- inspection of premises with the involvement of IT specialists;
- analysis of related agreements (warehouse leasing, cargo transportation, etc.), interviews of drivers, carriers of goods, landlord, calculation of volume and weight of goods and comparison with the volumes of trucks and warehouse;
- establishing the actual producer or supplier of goods;
- checking the existence and level of qualification of the contractor’s specialists in the provision of consulting, marketing, and other similar services;
The Guidelines contain a list of questions that are subject to mandatory clarification from the head and employees, concerning the choice of counterparties, the procedure for signing agreements, and inventory accounting.
|It is possible that the tax authorities will more actively apply the increased (40%) fines for intentional non-payment (partial payment) of the tax, taking into account the recommendations provided in the document. Proof by tax authorities of intentional non-payment (incomplete payment) of the tax increases the likelihood of holding the guilty officials criminally liable.
We will be happy to answer your questions in connection with the release of the Guidelines, as well as to update your internal policies on working with tax authorities.
In addition, we are ready to offer a small individual training session for managers and responsible employees on preparation for tax control measures.