The Russian government approved the concept of amendments to the tax monitoring system

The RF Government Order of February 21, 2020 approved the concept (“Concept”) of amendments to tax monitoring control system for Russian taxpayers (“Monitoring System”). In order the amendments to become effective, the Concept needs to pass the legislative process.

According to the Concept it is not only planned to decrease the thresholds for voluntary participation of companies in the Monitoring System, but also to facilitate the taxation procedures. In this review we will inform you of the advantages which the Monitoring System taking into account the amendments envisaged by the Concept will have for your business and what you may expect in future.

The Monitoring System: what is it about?

The Monitoring System which has been in effect in Russia since 2016 replaces traditional tax audits by online interaction between the taxpayer and the tax authorities. Within the Monitoring System inspectors analyze tax and accounting reports, as well as information on transactions and other business operations of the company in real time.

Under the Monitoring System businesses grant online access to the responsible tax authorities to documents and other information forming the basis for the calculation of taxes or provide these documents to the authorities through telecommunication channels by themselves.

Upon the introduction of the Monitoring System, only seven companies decided to try this form of interaction. At the beginning of 2020, 95 taxpayers were already participating, testifying the success of the Monitoring System. After the approval of the Concept by the Russian government, the Federal Tax Service expects further growth of at least 20% annually.

The main changes envisaged by the Concept

What’s so good about the Concept? It makes the Monitoring System more attractive for businesses. In particular, the thresholds for admission to the Monitoring System will be gradually decreased:

• The threshold for the total amount of taxes paid (including personal income tax and social contributions) per year will be reduced from RUB 300 million to RUB 100 million in 2022.
• The minimum requirement for the annual income will be reduced from RUB 3 billion to RUB 1 billion in 2022.
• The minimum threshold for assets will be reduced from RUB 3 billion to RUB 1 billion in 2022.

At the same time, access will be granted if at least one (instead of all cumulatively, as previously) of the established criteria are met.

According tot he Concept the scope of functions for the benefit of the participating businesses should be extended. The businesses should be enabled to raise claims for re-imbursement of VAT or excise taxes.

The amended Monitoring System will envisage several ways to interact with the tax authorities:

• Online interaction,
  • either through full connection of tax authorities to the company’s information system, or
  • through a so-called “data window”, IF companies only partially open access to their documents and information.
• Provision of documents in format of XML or PDF/A3 through telecommunication channels.

In addition to tax inspectors, there will be special programs, automated solutions which will remotely track errors and violations. It is assumed that the robots will check the completeness and integrity of accounting data, organize the documentation according to  the chronological sequence of all operations, and verify the availability of supporting primary documents.

Advantages for businesses

The amendments under the Concept are expected to make the Monitoring System more attractive for businesses. According to the forecasts of the tax authorities, about eight thousand taxpayers will be able to apply the regime by 2024.

Although the entering into the Monitoring System requires some efforts from the participating businesses, the efforts are outweighed by the benefits of the Monitoring System. Please find below the most important benefits:

• Reduced expenses for tax audits
• Reduced tax risks and increased predictability of tax liabilities
• Reduced administrative pressure
• Increased trust of the Federal Tax Service into the relevant business
• Possibility to receive motivated opinion from the tax authorities
• “Quick closure” of tax periods – no later than 9 months after the end of the year.