COVID-19: Tax measures in support of the economy and changes in tax administration

Pepeliaev Group advises of the measures that have been adopted or are anticipated with the aim of supporting certain branches of the economy and changing tax administration procedures for the duration of the COVID-19 epidemic

Pursuant to the instructions given by Prime Minister Mikhail Mishustin on 18 March 2020 and 20 March 2020, the Russian Federal Tax service and other federal executive bodies must ensure:

1) that a deferral (tax vacation) is allowed with respect to the payment of taxes and social security contributions due by 1 May 2020 with respect to taxpayers whose business is connected with tourism and air carriage, as well as taxpayers who operate in the area of physical education, sport, art, culture and film-making.

The deferral is granted by virtue of a moratorium having been set on sending out demands to pay tax with respect to existing arrears[1] and on adopting decisions to collect taxes and social security contributions[2].

Granting such a deferral results only in the deadline for the payment of taxes and social security contributions being postponed, but it does not relieve the taxpayer from its obligation to assess and pay such taxes and contributions or from the assessment of late payment interest on the existing arrears. The possibility to recognise the coronavirus epidemic as a force majeure that has caused damage to taxpayers and gives the right to a deferral (instalment plan) with respect to the payment of tax under the current wording of article 64 of the Tax Code requires that an assessment be made with respect to each specific taxpayer and tax (insurance contributions, levies)[3]. At the same time, the Russian Finance Ministry has been ordered to prepare a draft law providing that no late payment interest is to be assessed on tax arrears that are prohibited from being collected until 1 May 2020 and introducing an additional ground for a deferral to be granted for the payment of taxes, levies and social security contributions for the specified categories of taxpayers without interest being charged, including simplifying the procedure of granting such a delay.

2) that a deferral is granted until 1 May 2020 with respect to the timeframes for filing bankruptcy petitions in relation to persons owing payments to public budgets of various levels within the Russian budgetary system, to state corporations, federal executive bodies and their subordinate organisations and credit institutions, unless a bankruptcy case has been previously instigated against them.

We believe that it would be prudent for businesses to use the above period until 1 May 2020 for restructuring existing tax and other debt to avoid the beginning of bankruptcy proceedings after the moratorium, including by obtaining a deferral (instalment plan) with regard to tax payments on the basis of article 64(2)(3) of the Tax Code[4].

3) that the appointment of new audits of business entities and conduct of audits already appointed, including field tax audits and scheduled field customs audits, as well as audits regulated by Federal Law No. 294-FZ “On the protection of rights of legal entities and individual entrepreneurs in the course of the state control (supervision) and municipal control” is suspended until 1 May 2020, save for the conduct of unscheduled audits that have been appointed on the ground of damage having been caused to life or health of individuals or on the ground of natural or man-made emergencies.

At this point, the purpose of these measures is not so much to support business entities as to rule out the direct interaction of the state authorities’ employees with an indefinite number of persons during audits and to mitigate the spread of the coronavirus infection.

In pursuance of the Prime Minister’s instructions, the Head of the Tax Service issued Order No. ED-7-2/181@ dated 20 May 2020, whereby:

• the conduct of field audits (repeat field audits) is suspended until 1 May 2020. Audits that have already been scheduled are to be suspended and new audits are not to be scheduled;
• tax control measures that involve direct contact with taxpayers (their employees and representatives), witnesses and other persons (e.g. the tax authority’s officials visiting a taxpayer’s territory (taxpayer’s premises), conducting interrogations and inspections, taxpayers being summoned to the tax authority, seizures, inventory audits and other activities being performed) are prohibited;
• tax audit materials and certificates of findings attesting to other offences under the Tax Code being identified must be examined via means of electronic communications (e-communications) and with the use of video conferencing channels. Interested parties must be informed in advance that they can participate in the examination of the case via e-communications;
• the materials of tax offence cases must be copied and sent for examination via e-communications;
• a report on being familiarised with audit materials and on additional tax control measures being taken, as well as a report on examining the audit materials must be signed and received via e-communications;
• complaints (appeals) to a higher-level tax authority must be examined without persons that have filed such appeals (or their representatives) being involved. If such involvement is deemed necessary, it must be ensured via e-communications (video conference tools);
• the initiation and holding of audits with respect to compliance with the legal requirements for the use of cash register equipment and compliance with currency control legislation is suspended until 1 May 2020[5]. The audits that have been started and not completed, as well as unfinished proceedings in cases concerning administrative offences must be performed without direct contact with taxpayers (via e-communications, through personal accounts of taxpayers, by post).

As you can see, the measures specified by the Federal Tax Service serve only the purpose of preventing the Federal Tax Service’s employees from having direct contact with taxpayers and other persons. The initiation and holding of desk tax audits, as well as control and analytical work (pre-audit activities), is not suspended. The timeframes remain unchanged that have been established for taxpayers to submit tax reporting documents or comply with the tax authority’s demands to provide documents (information) and clarifications. A violation of these timeframes, as well as the obligations to receive documents from the tax authority (send confirmations of receipt) via telecommunication channels does not gives rise to the liability established by the Tax Code. In some situations, for instance, when a company’s work is suspended due to quarantine measures pursuant to a decree of an authorised state body or when the company’s officials responsible for performing the relevant obligations of the taxpayer during quarantine / the application of social distancing rules, will allow liability to be avoided based on article 111(1)(1) of the Tax Code. However, this rule is applicable on a case-by-case basis, and each particular situation will have to be assessed individually. A violation of the timeframes for submitting reporting documents as well as the taxpayer’s failure to send to the tax authority confirmation of receipt of a demand to submit documents or provide clarifications and/or a notification of the taxpayer being summoned to the tax authority may result in a suspension of transactions on taxpayers’ bank accounts. If a deferral is necessary, it would be prudent to consider reaching out to the tax authority with the relevant request. Please note: during the period of suspension of field audits, tax inspectorates may not issue new requests for documents and information (clause 26 of Resolution No. 57 of the Plenum of Russian Supreme Commercial Court dated 30 July 2013). Moreover, if a field tax audit is being conducted with respect to a taxpayer, the request may not be sent as an ‘adjustment’ of the previous requests that were sent during the pre-audit analysis. We have discovered that certain inspectorates are disregarding these prohibitions and, therefore, we believe it is necessary to address these violations in writing pointing out to the inspectorates that their demands contradict the law.

What to think about and what to do

Under the current circumstances, in addition to observing the requirements of current legislation and avoiding penalty sanctions and other adverse implications, corporate tax departments are advised to make the best use of the relaxations and preferences for companies that are being introduced at the moment and to take preventive measures.

Bearing in mind that most employees of companies are being transferred to a remote work pattern, it would be prudent to take measures aimed at ensuring that documents are received from the tax authorities without any trouble in electronic form via e-communications and that the company addresses the demands set out in such documents in a timely manner.

With respect to performing the tax authority’s requests for documents (information) the taxpayer is advised, within a day following the date on which the request is received, firstly to determine whether such request is legitimate. Secondly, if it is legitimate, the taxpayer should find out whether the company is able to comply with it under the current circumstances and, if necessary, notify the tax authority in writing if it is unable to provide the required documents (information) within the specified timeframe, including on account of the employees being transferred to a remote work pattern and not having access to documents, etc. By way of a new deadline for meeting the demand the company could, in our opinion, consider the period required for submitting the requested documents (information), which starts running once the quarantine measures adopted by the state authorities and taxpayer cease to apply.

Help from your adviser

The lawyers of Pepeliaev Group are keeping track of the changes in tax legislation and tax administration that are currently taking place. They are ready to provide any support by way of identifying potential risks and demands, accurately assessing a specific situation, as well as finding and implementing ways to address the current challenges.