Changes in the procedure for settling tax disputes out of court

Pepeliaev Group advises that a law which substantially amends the procedure for how taxpayers can make out-of-court challenges to tax authorities’ decisions and acts or omissions of tax officers comes into effect on 3 August.

Federal Law No. 153-FZ dated 2 July 2013[1] amended certain articles in Section I of the Russian Tax Code (the Tax Code). In particular, the legislators have adjusted the rules for how tax authorities’ decisions should come into force and the procedures for how complaints should be submitted and considered.

1. The deadliness for challenging tax authorities’ decisions, acts or omissions have been extended.

The period after which tax authorities’ decisions based on their consideration of tax audit materials come into force has been extended to one month (previously this was 10 business days). Accordingly, the period allowed for submitting an appeal has also been extended to one month.

A uniform one-year limit has been set for all other appeals.

PG’s comment

Such extended periods will allow the taxpayers to work through their arguments and prepare the evidence in a better and more detailed way.

What to think about, what to do

There is a possibility that the courts will use the extended periods allowed for preparing the appeals as an excuse not to accept any arguments or evidence which the taxpayer did not submit at the pre-trial stage. For this reason it is advisable to include in the statement of appeal all arguments and all possible evidence supporting the taxpayer’s position.

2. Pre-trial appeals have been made mandatory for all tax disputes

Pre-trial procedures have been made mandatory for appealing any non-regulatory tax authorities’ decisions and acts or omissions of tax officers, while previously these procedures were required only against the decisions made further to tax audits.

The procedure for submitting such appeals has been changed accordingly. Instead of submitting the appeal to the superior tax authority, the taxpayer should now submit the appeal through the tax office whose decision, act or omission is being appealed.

PG’s comment

Pre-trial procedures becoming mandatory may be to the benefit of taxpayers because it will ensure that at least some disputes may be resolved out of court, using only administrative procedures.

What to think about, what to do

Taxpayers should take into account that resolving some cases will now take longer because the mandatory pre-trial stage will be added, and this will in turn result in additional expenses.

3. The law stipulates a consequence for the superior tax authority breaking the time limit for making a decision.

If the superior tax authority fails to make a decision regarding the appeal within the specified timeframe, the mandatory pre-trial procedure will be deemed to have been completed and the taxpayer will be entitled to have recourse to the court.

PG’s comment

The legislators have affirmed the approach which existed in arbitration practice that a taxpayer should not be derived of court protection simply because tax authorities were too slow in considering the case.

What to think about, what to do

It is advisable to prepare the set of documents required to submit the claim to court by the due date when the tax authority should issue the decision, taking into account however that the superior tax authority may extend this time limit.

4. Requirements have been formalised regarding the content of the appeal

The law provides that the appeal should include:

· the full name and address of the individual or the company which is filing the appeal;

· the tax authority whose decision, or whose officers’ act or omission, is being appealed against;

· the name of the tax authority whose decision, act or omission of which is being appealed against;

· the grounds on which the individual or the company which is submitting the appeal believes that its rights were infringed;

· the claims of the person which submits the appeal.

The appeal may include phone or fax numbers, e-mail addresses or other information required for the appeal to be considered promptly.

If the appeal is filed by an authorised representative, the documents confirming such representative’s powers should be enclosed with the appeal statement.

PG’s comment

The law does not set out any adverse consequences for not complying with these requirements (except for failing to confirm the powers of the representative). However, taking into account that these requirements are very easy to follow, it is advisable to check that all statements of appeal are consistent with them.

What to think about, what to do

Particular attention should be paid to the documents confirming the representative’s powers. Until any official clarifications on this point appear, our advice is to make this set of documents as complete as possible.

5. The procedure for submitting additional documents to the superior authority has been clarified

It has been established that additional documents will only be accepted if the taxpayer has explained why such documents could not be submitted on time to the tax authority whose decision is being appealed.

PG’s comment

It is expected that this change will become one more reason for the taxpayers to “show their cards” before appealing to the superior authority, i.e. at the stage when the materials are being considered by the inferior tax office.

What to think about, what to do

From the formal perspective, the Tax Code does not entitle the superior tax authority to refuse to consider the additional documents only because the taxpayer cannot provide any valid reasons for not having submitted the documents earlier. However, if additional documents are submitted, it is advisable to explain in the fullest detail and give valid reasons why these documents could not have been submitted to the lower tax authority within the proper time limit.

6. Time limits have been changed for how long the superior tax authority can consider and extend consideration of appeals

A one-month time limit has been set for extending the appeals against decisions which were made further to audit results. The time limit for considering other appeals has been reduced to 15 days[2], but the possibility also exists to extend it for another 15 days.

PG’s comment

If the taxpayer submits additional documents, this may become a reason to extend the time limit for considering an appeal against the audit results.

What to think about, what to do

You should take into account the time limits for considering an appeal when you decide whether to appeal to court when the tax authority breaks the deadline for making a decision.

7. The law has clarified the consequences arising if it is discovered that the inferior tax authority committed significant violations when making the decision

If the higher tax authority discovers significant violations of the procedure for considering tax audit results, not only should the decision based on such results be set aside, but the audit results may be considered by the lower authority in compliance with the rules and the decision be made accordingly.

PG’s comment

In such a situation the higher authority may try to make a decision that would be even less favourable for the taxpayer than the original decision that was appealed against.

What to think about, what to do

When a tax authority makes a decision, you should assess whether it is possible to set aside that decision on formal grounds and, when such grounds are discovered, the taxpayer should be prepared for the higher tax authority to reconsider the audit results.

8. The option to leave the appeal unconsidered has been made legal

The following reasons are treated as valid an appeal not to be considered in part or in full:

1) if the person who submits the appeal or his/her representative fails to sign the appeal or to provide properly executed documents confirming the representative’s powers to sign it;

2) if the appeal is submitted after the statutory due date, unless a petition to extend this time limit is enclosed, or if such petition has been dismissed;

3) if an application fully or partially to withdraw the appeal is submitted before accepts the appeal;

4) if another appeal was submitted earlier using the same grounds.

PG’s comment

Previously tax authorities have also tried to leave appeals unconsidered for various reasons, but this was treated as unlawful.

What to think about, what to do

It seems to us that more attention should be paid to confirming the powers of the person who signs the appeal. Since the person who assesses the documents confirming the powers has a certain freedom of choice, it is advisable (as we also recommended above) to provide as complete a set of documents as possible.

9. Rules have been clarified for submitting appeals involving the Russian Federal Tax Service

It has been directly stated that any non-regulatory instruments of the Russian Federal Tax Service, as well as any actions or omissions of its officers, may only be appealed in court.

The time limit for appealing decisions of superior tax authorities in the Russian Federal Tax Service has been set to three months after the date of such decision.

PG’s comment

Legislators have eliminated a certain ambiguity which existed regarding the involvement of the Russian Federal Tax Service in considering tax disputes by taking into account the existing specific features of such matters.

What to think about, what to do

Appealing to the Russian Federal Tax Service against decisions of lower tax authorities has some practical value and this may be used simultaneously with turning to the court.

10. Appeals against regulatory acts issued by tax authorities will not be considered by commercial (‘arbitration’) courts

Disputes involving appeals against regulatory acts issued by tax authorities “have fallen out of” the commercial (‘arbitration’) courts’ jurisdiction.

PG’s comment

Taking into account the Supreme Commercial (‘Arbitration’) Court and the Supreme Court are expected to be merged, it is possible that this change will not give rise any significant changes.

What to think about, what to do

In view of this reorganisation of the highest courts, it is advisable to consider postponing any appeals against such regulatory acts until the consolidation of the highest courts is complete.

11. Amendments coming into force and the transitional period

The law will become effective one month after it is officially published, on 3 August 2013.

It has also been provided that if an appeal is submitted before the law has become effective, Section I of the Tax Code will be applied without the amendments which this Law introduced.

Finally, the requirement regarding mandatory pre-trial appeals for all tax disputes will not become effective until 1 January 2014.

PG’s comment

The transitional rules only apply to the provisions which regulate the procedure for considering appeals. At the same time, it remains unclear how to apply the other developments, for example, the provisions regarding due dates, in situations when the time period starts before 3 August 2013 and ends after this date.

What to think about, what to do

Because there is so little clarity with regard to how the new regulations will be applied in transitional situations, it is advisable to take the safest course of action. This means relying on the lesser time limits and taking into account the new stricter procedural requirements for appeals.

Help from your adviser

Pepeliaev Group’s lawyers are available to help you with any matters connected with these new developments and tax legislation in general.