On changes in tax monitoring
Pepeliaev Group advises of adopted and planned changes in the regulation of tax monitoring.
Current and future participants of tax monitoring should consider the following acts:
- Federal Law No. 389-FZ dated 31 July 2023 (the “Law”). This is a comprehensive law aimed at implementing the Main Avenues of Tax Policy. The Law includes certain changes connected with tax monitoring;
- A draft law decreasing the amount criteria for joining tax monitoring (ID 02/04/01-23/00134916);
- A draft law setting out special aspects of joining tax monitoring by residents of Priority Development Areas (“PDAs”), Free Port Vladivostok and the Arctic Zone (ID 02/04/10-22/00132211).
These amendments will take effect on 31 August 2023.
Working with tax authorities using telecommunication channels
The Law has extended to 2026 the timeframe for working with the tax authority using telecommunication channels through the operator of an electronic document management system. Previously, the use of this method of information exchange was limited to 2024.
It is still possible to use telecommunication channels to send an application for the declarative procedure to be applied to refunds of VAT and excise taxes and to send documents requested under article 93.1 of the Russian Tax Code (the “Tax Code”).
Pepeliaev Group's Comment
Of 445 participants of tax monitoring, 314 use the analytical data mart, 117 provide access to the accounting system and 14 exchange information using telecommunication channels.[1]
The extension of timeframes was relevant for certain companies that needed more time to implement (or complete the implementation of) the data mart and carry out direct integration with the Nalog-3 automated information system.
Extending powers of tax authorities
Tax authorities have received the power to interrogate witnesses when they carry out tax monitoring (article 105.29(3) of the Tax Code). Any person that may be aware of any circumstances that are significant for the tax control may be summoned as a witness to give testimony. Please be reminded that the procedure for such interrogation is set out in article 90 of the Tax Code.
The Law eliminates the previous inconsistency between article 91 “Access of officers of tax authorities to a territory or premises to carry out a tax audit” and article 92 of the Tax Code. Previously, tax authorities also had the power to examine territories, premises, documents and items of a participant of tax monitoringFederal Law No. 470-FZ dated 29 December 2020.
. However, the possibility to have access to a territory or premises to carry out tax monitoring appeared in article 91 of the Tax Code only when the Law was passed.
Both examination of and access to the territory or premises of the person in relation to which tax monitoring is being carried out, is performed only during an audit of a VAT return where the amount of tax is declared for refund or when contradictions or inconsistencies are identified (articles 88(8.1) and 88(8.9) of the Tax Code).
At the same time, in article 105.29(3) of the Tax Code (a special provision which regulates the tax monitoring procedure) only examination of territories is added as the tax authority's right. Neither examination of premises, documents or items, nor access to the territory or premises is mentioned.
Pepeliaev Group's Comment
It looks as though the legislators forgot to include the corresponding powers in article 105.29(3) of the Tax Code. We believe that, in practice, disputes are possible. Formally, the taxpayers can refer to article 3(7) of the Tax CodeArticle 7(3) of the Tax Code: all unresolvable doubts, inconsistencies and ambiguities of legal acts on taxes and levies should be interpreted in favour of the taxpayer.
and prevent an officer of the tax authority from examining premises, documents and items.
In general, extending the powers of tax authorities during tax monitoring is a rather controversial matter. Initially, tax monitoring was intended as an alternative to field tax audits with a more effective mechanism of how tax authorities work with taxpayers.
At present, we see that these two forms of control are drawing closer; however, field tax audits have not been eliminated (article 89(5.1) of the Tax Code) for participants of tax monitoring.
In other words, currently, the tax authority can, in the framework of monitoring, request documents, examine the territory, interrogate a witness, engage experts and specialists, and issue a well-grounded opinion concerning the payment of tax (additional tax). No practice has been formed of appealing a well-grounded opinion directly in court, and tax legislation provides for the possibility of a field tax audit if a taxpayer fails to comply with a well-grounded opinion.
Therefore, if a taxpayer disagrees with a well-grounded opinion, it falls under an audit and the tax authority can use the same range of measures (examination, interrogation and so on).
Essentially, the taxpayer becomes subject to double control with the tax authority being able to use the same instruments of control.
In our opinion, the extension of instruments of control to participants of tax monitoring is justified only if the tax authority refuses carry out field tax audits of them.
Extension of liability of experts, translators and specialists
The Law clarifies liability of experts, translators and specialists. Now, under article 129 of the Tax Code, they will bear liability for a refusal to participate in the corresponding tax control event during tax monitoring.
Clarification of the procedure for obtaining a well-grounded opinion at the company's request
The company which has requested a well-grounded opinion can withdraw this request by filing an application to this effect. The tax authority, in its turn, can decide to leave unconsidered a request for a well-grounded opinion if this request is inconsistent with the established requirements or is withdrawn by the taxpayer. A decision to leave unconsidered a request for a well-grounded opinion is prepared within 5 days and is sent to the taxpayer within 3 days. If a request is withdrawn or left unconsidered, this does not deprive the company of the right to a repeat request.
If the tax authority needs time to obtain clarifications on any matters connected with the application of legislation on taxes and levies from financial bodies of constituent entities of Russia, municipalities or federal territory Sirius, it can suspend the sending of the well-grounded opinion for up to 3 months, of which it notifies the organisation specifying the body whose clarifications are required.
Pepeliaev Group's Comment
In fact, these changes entrench in the Tax Code the current practice of obtaining a well-grounded opinion at a company's request (forms of the application to withdraw a request for a well-grounded opinion and the notification of it being impossible to consider a request for a well-grounded opinion are attached to Letter No. SD-4-23/17290@ of the Federal Tax Service dated 10 December 2021).
In practice, participants of tax monitoring have already encountered situations where the position in the well-grounded opinion depended on clarifications of other ministries and departments. However, no mechanism existed of obtaining such clarifications in the framework of preparing a well-grounded opinion. This amendment will help prevent tax authorities from using approaches that are not objective because no special clarifications are available.
Planned changes are as follows:
- the reduction by 20% of the amount thresholds for joining tax monitoring (the total amount of taxes will be reduced from RUB 100 million to RUB 80 million, the revenue from RUB 1 billion to RUB 800 million and the value of net assets from RUB 1 billion to RUB 800 million);
- the removal of amount thresholds for joining tax monitoring for residents of PDAs, Free Port Vladivostok and the Arctic Zone
Pepeliaev Group's Comment
This demonstrates one more time that the government, represented by the Federal Tax Service, is advancing tax monitoring and intends to expand the number of participants of this form of control.
Draft laws providing for these changes are currently at the public discussions stage and have not been put before the State Duma yet.
Help from your advisers
Pepeliaev Group's team is happy to offer assistance in advising on various issues related to entering tax monitoring and being subject to this form of control.
In particular, Pepeliaev Group offers services that involve: assessing the current internal control and risk management system and developing recommendations on how it can be updated taking into account the Federal Tax Service's current requirements; preparing documents to enter tax monitoring and providing support during this process; and analysing whether the documents already used by a monitored company need to be updated taking into account the changes in legal regulation.
[1] Presentation of M. Krasheninnikova “Tax monitoring - digitalisation of tax control and integration with the Nalog-3 automated information system”