The Russian Federal Tax service has published new recommended forms and formats of documents used when a company enters into and is subject to tax monitoring

Pepeliaev Group advises that, the Federal Tax Service in its Letter No. BV-4-23/13939@ dated 31 August 2020 forwarded new recommended forms and formats for submitting the documents used when a company enters into and is subject to the tax monitoring[1].

1. New recommended forms of documents

Please be reminded that at present the forms of documents used in monitoring are formalised by Orders Nos. 323[2] and 509[3].

The following were sent in the Letter:

• the changed forms of documents that are already used in practice (e.g., form of an application for monitoring; form for reporting about the persons with a shareholding of over 25% in the company that applies for monitoring; form of information exchange regulations (IER); and form of a notice on how an internal control system (ICS) is organised); and
• the new forms of documents.

Below we are describing the amendments we consider most relevant:

1.1. It is recommended that information about how ICS and IER are organised should be submitted in the form of a set of tables rather than a text (as is done today).

1.2. It is proposed that IER should disclose in most detail the information about the company’s information systems. Specifically, it is proposed that a type of information system should be indicated (e.g., production planning system, bookkeeping and tax accounting system, a system for generating tax reports and a system for filing reports with the tax authority), information regarding personal data included in the system and how such data is accessed by the tax authority, as well as specific functionalities of the information system.

1.3. IER is supplemented with new Chapter IV “Information regarding the procedure for introducing the changes” (according to Order No. 323, the procedure and timeframes for introducing the changes and additions to IER, although they must be described in the document, are not singled out in a separate chapter).

1.4. The list of information has been extended which the company must report to the tax authority, including information regarding:

• the differences between bookkeeping and tax profit (loss) resulting from the difference in the rules by which income and expenses are accounted for;
• the calculation of the share of standalone units in a taxpayer company;
• the breakdown of income and expenses under OKVED (Russian Classification of Economic Activities) according to the bookkeeping data;
• on how bookkeeping transactions are compared with the indicators used for the purpose of assessing the VAT;
•  the structure of relationships within the company group.

It is proposed that the above information should be represented as tables as set out in the appendices to the IER Requirements. No tables are attached to the Letter at the moment. They will probably be finalised and sent later.

1.5. The possibility of submitting IER as hard copies has been eliminated. There appears an alternative method, namely: reporting via the company's information systems to which tax authorities have access. It is proposed that submitted IER must be signed with an enhanced qualified electronic signature

Since, according to Order No. 323, IER are submitted, among other things, as hard copies, the regulations must be signed by the company’s authorised representative, with the document attached confirming the powers of such person.

1.6. New recommended forms include the following documents:

• notifications of withdrawing an application for tax monitoring;

Under article 105.27(3) of the Tax Code, a company that applied for monitoring may withdraw its application before the tax authority adopts a resolution on such application. Before the Letter was published, there was no form for such withdrawal.

• accounting policy for taxation purposes.

Among other things, the company should attach its accounting policy for taxation purposes to its application for monitoring (article 105.27(2)(3) of the Tax Code). Orders Nos. 323 and No. 509 do not provide for any specific form for the company’s accounting policy. The Letter also suggests that the company submits its accounting policy in a specifically established form and in an ‘ordinary’ text format.

2. New recommended formats of documents

The Federal Tax Service has envisaged that all new forms of documents can be submitted electronically.

The documents (other than accounting policy and IER) shall be submitted in the format of machine-readable XML files (exchange files). The requirements for the description of an XML-file are set out in the appendices to the Letter: the file name and its logic model.

The accounting policy and IER shall be submitted in PDF/A-3 formats. According to appendices Nos. 9 and 13 to the Letter, a document in PDF/A-3 format comprises a visual part, a structured part and an electronic signature. The structured part should contain the file for submitting the relevant document in the XML format. A file in the XML format can be submitted to the tax authorities both within the structured part of the document in PDF/A-3 format and as a separate document in the XML format.

What to think about and what to do

Taxpayers who are planning to become subject to the monitoring starting from 2021 can submit their documents in new forms and formats by 1 October 2020. Taxpayers who are already subject to the tax monitoring should submit their documents by 1 December 2020.

The Federal Tax Service has already announced on numerous occasions that it plans to develop new forms and formats of documents used when a company enters into or is subject to the tax monitoring. The purpose of such amendments is to ensure a fully automated review of the documents that taxpayers submit and exclude the manual method of revision and, hence, reduce the workload of tax officers. With continuously growing number of participants in the monitoring and the proposed considerable lowering of the thresholds for switching to this tax control form, the above purpose appears to be extremely relevant.

It is important to remember that at the moment the Letter serves as the guidelines. This means that, at least formally, taxpayers have a choice as to which forms and formats to use to submit the documents: the new ones in accordance with the Letter or those approved earlier by Orders Nos. 323 and 509.

It is most likely that the new method of interactions between the companies that are planning to be or are already monitored and the tax authorities will be tested in near future. Chances are high that the forms and formats of documents which are yet only recommended for use will be formalised in the Order of the Federal Tax Service as mandatory for use.

Help from your adviser

The Pepeliaev Group team will continue to monitor how legislation evolves. We offer our advice on a wide range of issues relating to entering into and participating in the tax monitoring, including: preparing grounds for the owners (shareholders) to enter into the tax monitoring, assessing the current internal control system and preparing recommendations on how to refine it taking into account the Federal Tax Service’s requirements, preparing documents for entering into the monitoring and requests for well-grounded opinions and objections to such well-grounded opinions.