the Russian Supreme Arbitration Court has confirmed taxpayers' rights to receive annexes to an audit report
Pepeliaev Group advises that the Russian Supreme Arbitration Court’s Decision No. VAS-16558/10 dated 24 January 2011 has held that clause 1.15 of the Requirements for Compiling a Tax Audit Report is invalid to the extent that it allows a tax inspectorate not to annex to the copy of a tax audit report given to the taxpayer being audited the documents which confirm breaches of tax legislation revealed during the audit.
Federal Law No. 229-FZ dated 27 July 2010 [1] has amended article 100 of the Russian Tax Code by adding to it a new clause 3.1. Under this new clause, documents which confirm breaches of tax legislation which are revealed during a tax audit should be annexed to the tax audit report.
This new rule is at odds with clause 1.15 of the Requirements for Compiling a Tax Audit Report, which were approved by the Russian Federal Tax Service’s Order dated 25 December 2006. This clause states that documents which confirm breaches of tax legislation revealed during the audit are for official use only. In practice, the tax authorities have often refused to supply document annexed to an audit report, relying on clause 1.15 of the Requirements. The Russian Supreme Arbitration Court’s Decision No. VAS- 16558/10 dated 24 January 2011 has held that this particular part of clause 1.15 of the Requirements is invalid.
Pepeliaev Group's comments: The Supreme Arbitration Court’s Decision confirms that a taxpayer’s claims for documents to be supplied are lawful when such documents are stated to be annexes to a tax audit report and confirm that there have been breaches of tax legislation.
Conclusions and recommendations
The court decision has been published on the Federal Tax Service’s website so as to make it publicly available. At the same time, the fact that there will be a transition period means that taxpayers may encounter difficulties in receiving the case files for field tax audits. Moreover, it should be borne in mind that it being technically impossible for the tax authorities to copy documents does not exempt them from the obligation to provide a taxpayer with documents or extracts from them which reveal the fact that tax legislation has been breached.
It should be noted that clause 3.1 of the Tax Code does not oblige the tax authorities to supply documents which confirm that there are no breaches of tax legislation. To this end, we recommend using another new rule, which entitles an entity in respect of which a tax audit has been conducted to acquaint itself, before the decision is handed down, with all of the case files including materials from additional tax supervisory measures (para 2, article 101 of the Tax Code as amended by Federal Law No. 229-FZ dated 27 July 2010). Thus, a taxpayer is entitled to familiarise itself with all of the case files right up to a decision being handed down.
Federal Law No. 229-FZ dated 27 July 2010 contains no direct reference to the fact that a taxpayer is entitled to familiarise itself with audit files as soon as the tax audit has been completed as confirmed by the relevant statement from the tax authority. The Law has made no clearer the issue as to whether there is a right to make copies (including photocopies) and extracts when a taxpayer is familiarising itself with the audit files. The issue as to whether 'extract' should be interpreted literally or whether it means material removed from documents. Companies need to examine these and other legal issues so as to protect their rights and legal interests effectively during tax audits.
[1] Federal Law No. 229-FZ dated 27 July 2010 “On amending the first part and the second part of the Russian Tax Code and certain other Russian legislation, and also on repealing specific items of Russian Federation legislation (or provisions thereof) in connection with the settlement of outstanding taxes, charges, default interest and fines and certain other issues of tax administration”.
For further information, please contact:
in Moscow – Denis Schekin, Senior Partner, at: (495) 967-0007 or by d.schekin@pgplaw.ru; Leonid Kravchinsky, Head of Tax Group, at: (495) 967-0007 or by l.kravchinsky@pgplaw.ru
in St Petersburg - Sergey Sosnovsky, Head of Tax Practice (St. Petersburg), at (812) 640-60-10 or by s.sosnovsky@pgplaw.ru