The unified tax account and aggregate tax obligation are introduced
Pepeliaev Group advises that from 2023 all tax obligations will be booked in the aggregate on a unified account. The procedure is changing for taxes to be paid, for overpayments to be reimbursed and for debts to be recovered[1].
The changes will require business to rebuild the tax function and to pay closer attention to accumulated tax overpayments, although in the long run such changes may reduce administrative costs. The probability arises of the accelerated recovery of additional tax assessments when they are still being disputed.
A notification of tax amounts calculated is a new type of document that a taxpayer will be obliged to draw up and submit to the tax authority when tax returns (a calculation) are not submitted, for example, when taxes are paid each month, for which the reporting or tax period is a quarter.
The tax inspectorates will distribute the funds in accordance with their allocation between the budgets and taxes based on the notifications, calculations and tax returns received from the taxpayers. Within three years a reconciliation of the allocation may be carried out following which a certificate is provided.
If tax was overpaid owing to an excessive assessment it is still required that an adjusted report with a reduced amount should be filed. For this purpose a 3-year period is still in force from the payment date of the tax paid in excess. This period, if it has been missed for a valid reason, can still be restored, albeit, as previously, only through court proceedings, since an administrative procedure has not yet been introduced for the deadline to be restored.
The introduction of the aggregate tax obligation eliminates the need to offset tax overpayment against debt: now the inspectorate does not need to draw up a resolution for this purpose.
However, several cases still persist when an offset is performed. In a slightly altered form an offset is kept against future payments: it is possible on account of a future obligation under a specific tax which the taxpayer needs to describe in the application. If the future obligation does not occur, an application can be filed to cancel such offset. A debt can also be offset in accordance with a decision of the tax authority that has not come into force or that the court has suspended, as well as debt that is to be recovered through court proceedings or that is awarded by the court after the inspectorate misses the deadline for recovery. Such offset does not deprive the taxpayer of the right to challenge the debt in court.
An approach has formed in court practice whereby the current 3-year period starts not earlier than the deadline for a tax return to be filed[4]. Since the taxpayer is obliged to calculate tax within this deadline based on the results of the tax period, the taxpayer cannot become aware of the overpayment of advance payments earlier. This means that, for example, with respect to profit tax the period expires at the end of March of the third year that follows the reporting year. For overpayments that are carried over, the law provides for a 3-year period from the “payment” date that expires on 31 December 2022. Applications for the offset or reimbursement of overpayments that have not been examined during this period are not examined subsequently and another application will need to be filed already in accordance with the new procedure.
Among the changes improving the position of taxpayers we should point out that it will be easier to reimburse an overpayment of tax on the income of foreign companies: there is no need to provide copies of payment documents regarding the transfer of the overpayment.
The new procedure is based on a unified register of resolutions for recovery to which banks will be connected. Based on the data of the register banks will suspend transactions on accounts and recover the existing balances to the treasury, which will reduce the amount of debt in the register. Subsequently, the remaining debt will be recovered in the same manner until it has been repaid.
As part of the existing court practice, an overpayment that is to be reimbursed by virtue of a court decision cannot be offset by the inspectorate itself against arrears that are additionally assessed in accordance with an administrative procedure: the tax authority should submit to the court an application to change the procedure for enforcing the court decision[5]. Under the new conditions this approach is likely to stop being used, since a resolution for offset is no longer required, and the overpayment confirmed by the court is not allocated to the balance of the tax account and is not subject to a specific protection.
An approach has formed in court practice whereby funds a taxpayer independently transferred under a payment order but on account of debt additionally assessed are treated specifically as recovered in excess if the additional assessments were subsequently recognised as unlawful[6]. These funds accrue interest from the day of recovery. As part of the new procedure such payment will probably not be considered recovery, since it will be recorded as a unified tax payment, rather than as a repayment of specific additional assessments. It remains unclear whether an offset of an overpayment will be considered recovery based on the taxpayer's application against additional assessments that subsequently turned out to be unlawful. Nonetheless, in such a case, funds can be identified, and therefore, there is no reason not to retain the legal approach that was devised previously.
When switching to the new rules, we recommend paying the most careful attention to possible tax overpayments by claiming for them to be reimbursed or offset in 2022 so that the examination period for the application expires before the year ends. There may be no technical difficulties with the application of the new procedure; however, the risk would better be avoided.
The changes will require business to rebuild the tax function and to pay closer attention to accumulated tax overpayments, although in the long run such changes may reduce administrative costs. The probability arises of the accelerated recovery of additional tax assessments when they are still being disputed.
What is an aggregate obligation, a unified payment and a unified account?
The draft law is underpinned by three new tools:- an aggregate obligation that unites assessments of various taxes;
- a unified tax payment – any funds transferred on account of tax obligations, and when such funds are transferred a specific debt will not be specified; recoverable taxes or deductions that the tax authority has confirmed to be paid from the state budget will also be considered a unified tax payment;
- a unified tax account – a form of tax service recording the aggregate obligation and payments. Depending on the correlation of the above the taxpayer may have a positive, negative or zero account balance. Therefore, the taxpayer may claim a reimbursement or expect funds to be recovered.
How has the procedure for paying taxes changed?
A uniform deadline, i.e. the 28th of the month, is introduced for all taxes. There will be no requirement that tax be specified in payment orders. Instead, there will be a requirement that notifications of tax calculated, calculations or tax returns be submitted in advance, not later than the 25th of the month.A notification of tax amounts calculated is a new type of document that a taxpayer will be obliged to draw up and submit to the tax authority when tax returns (a calculation) are not submitted, for example, when taxes are paid each month, for which the reporting or tax period is a quarter.
Notifications of tax amounts calculated is not an accurate name for such notifications, since it makes them easily confused with tax notifications that tax authorities send to taxpayers when the inspectorate is obliged to calculate taxes (for example, regarding individuals’ property taxes).
Tax agents will as a rule be able to transfer withheld amounts on the same date and for a period that has ended. This is later than in a number of cases at present (within one day). They will be obliged to report about the taxes withheld for a month (from the 23rd of the previous month until the 22nd of the current month). The most difficult period is the end of a year: a notification of amounts withheld for the end of December is to be submitted and the tax itself is to be transferred not later than the last business day of a year. The tax inspectorates will distribute the funds in accordance with their allocation between the budgets and taxes based on the notifications, calculations and tax returns received from the taxpayers. Within three years a reconciliation of the allocation may be carried out following which a certificate is provided.
The new procedure points to less current costs on the payment of taxes, but requires substantial one-time costs on reconfiguring the accounting and treasury systems. Business would be unlikely to be able to forecast such costs and make provision for them in budgets for the current year, which is already difficult enough in any case.
How will the procedure change for the reimbursement and offset of overpayments?
Taxpayers that paid to the treasury more that they were obliged to will be granted substantially more options for having the overpayments reimbursed. The new procedure provides for an unlimited period for filing an application to have funds reimbursed that were paid on top of assessments and that directly form a positive balance of a unified account, as though it was a case of the balance of a bank account. The inspectorate will reimburse the funds in accordance with the application within one day and it will take one more day for the treasury to reimburse the funds.If tax was overpaid owing to an excessive assessment it is still required that an adjusted report with a reduced amount should be filed. For this purpose a 3-year period is still in force from the payment date of the tax paid in excess. This period, if it has been missed for a valid reason, can still be restored, albeit, as previously, only through court proceedings, since an administrative procedure has not yet been introduced for the deadline to be restored.
In practice, valid reasons include, for example, the loss of documents confirming overpayment owing to force-majeure circumstances resulting in such documents needing to be restored for an extended period and the retroactive force of the amendments reducing the tax burden for a period of over 3 years. A less clear ground is a court dispute of many years if confirmation of overpayment depends on its results.
The Russian Ministry of Finance has developed a draft law establishing a mandatory pre-trial procedure for property claims against the tax authorities, including the reimbursement of tax overpayments[3]. Probably, it would be prudent to include in this draft law an administrative procedure for restoring the period.
The reduction of the aggregate obligation based on an adjusted tax return will be recorded after a desk tax audit (but as compared with the current procedure the process will extend if violations are identified), and in the event of tax monitoring, immediately when the adjusted reports are filed. The Russian Ministry of Finance has developed a draft law establishing a mandatory pre-trial procedure for property claims against the tax authorities, including the reimbursement of tax overpayments[3]. Probably, it would be prudent to include in this draft law an administrative procedure for restoring the period.
The introduction of the aggregate tax obligation eliminates the need to offset tax overpayment against debt: now the inspectorate does not need to draw up a resolution for this purpose.
However, several cases still persist when an offset is performed. In a slightly altered form an offset is kept against future payments: it is possible on account of a future obligation under a specific tax which the taxpayer needs to describe in the application. If the future obligation does not occur, an application can be filed to cancel such offset. A debt can also be offset in accordance with a decision of the tax authority that has not come into force or that the court has suspended, as well as debt that is to be recovered through court proceedings or that is awarded by the court after the inspectorate misses the deadline for recovery. Such offset does not deprive the taxpayer of the right to challenge the debt in court.
The reimbursement and offset of overpayments have been simplified, but the text of the law is more complex than before. The legal technique of the law is more typical of intra-departmental instructions. The law contains the name of the application to reimburse an overpayment that consists of sixteen words that are abbreviated to a fairly vague phrase - “an application to have at one's disposal by means of reimbursement”. In order to understand what can be offset and reimbursed and how this can be done, one should use the references provided only in the form of the numbers of articles and clauses of the Tax Code. Nevertheless, a brief description of the rule to which a reference is made would clarify its meaning much quicker.
The law provides that the opening balance of the unified account should be determined as at 1 January 2023. This requires closer attention to be paid to the accumulated overpayments so that the deadline for their reimbursement or offset is not missed. An approach has formed in court practice whereby the current 3-year period starts not earlier than the deadline for a tax return to be filed[4]. Since the taxpayer is obliged to calculate tax within this deadline based on the results of the tax period, the taxpayer cannot become aware of the overpayment of advance payments earlier. This means that, for example, with respect to profit tax the period expires at the end of March of the third year that follows the reporting year. For overpayments that are carried over, the law provides for a 3-year period from the “payment” date that expires on 31 December 2022. Applications for the offset or reimbursement of overpayments that have not been examined during this period are not examined subsequently and another application will need to be filed already in accordance with the new procedure.
On the one hand, the wording “from the payment date” reiterates the current law, which the court practice interprets broadly. On the other hand, it is highly likely that the transitional rule will still be interpreted literally. In such a case, for example, an overpayment of profit tax that resulted from advance payments of the first half a year of 2019 should better be claimed as soon as possible, in 2022.
One of the new developments of the law is an offset of an overpayment of one person against the debt of another person. It supplements the existing possibility to pay tax for another person. Among the changes improving the position of taxpayers we should point out that it will be easier to reimburse an overpayment of tax on the income of foreign companies: there is no need to provide copies of payment documents regarding the transfer of the overpayment.
How will the procedure change for recovering tax debt?
The law significantly simplifies the procedures for recovering tax debt.The new procedure is based on a unified register of resolutions for recovery to which banks will be connected. Based on the data of the register banks will suspend transactions on accounts and recover the existing balances to the treasury, which will reduce the amount of debt in the register. Subsequently, the remaining debt will be recovered in the same manner until it has been repaid.
Having additionally assessed the tax debt following an audit, the tax authorities now may also carry out recovery other than immediately after the resolution for an additional assessment comes into force. However, the automation of the performance of resolutions for recovery does not rule out the probability that the handing down of such decisions will become automated. It is still possible to terminate recovery. For example, a request may be submitted to the court to suspend the resolution in dispute for an additional assessment by providing a bank guarantee. However, the application of such measures may be delayed.
Funds recovered in excess will be reimbursed with interest to any account about which the tax authority has information, rather than to the account from which they have been recovered or to an account specified by the taxpayer. Therefore, the reimbursement of recovered funds is less convenient for taxpayers than reimbursement of a voluntary overpayment. As part of the existing court practice, an overpayment that is to be reimbursed by virtue of a court decision cannot be offset by the inspectorate itself against arrears that are additionally assessed in accordance with an administrative procedure: the tax authority should submit to the court an application to change the procedure for enforcing the court decision[5]. Under the new conditions this approach is likely to stop being used, since a resolution for offset is no longer required, and the overpayment confirmed by the court is not allocated to the balance of the tax account and is not subject to a specific protection.
An approach has formed in court practice whereby funds a taxpayer independently transferred under a payment order but on account of debt additionally assessed are treated specifically as recovered in excess if the additional assessments were subsequently recognised as unlawful[6]. These funds accrue interest from the day of recovery. As part of the new procedure such payment will probably not be considered recovery, since it will be recorded as a unified tax payment, rather than as a repayment of specific additional assessments. It remains unclear whether an offset of an overpayment will be considered recovery based on the taxpayer's application against additional assessments that subsequently turned out to be unlawful. Nonetheless, in such a case, funds can be identified, and therefore, there is no reason not to retain the legal approach that was devised previously.
Incidental changes
The law at hand makes several more changes to the Tax Code that do not directly relate to the unified account. In particular, when personal income tax is calculated the following will no longer be in force: the booking of income in the form of salary as assessed on the last day of a month, a prohibition on paying tax at the expense of a tax agent as well as a prohibition on including tax clauses in contracts.What to think about and what to do
Using a unified tax account will require taxpayers to spend significant amounts of financial and labour resources on the reconfiguration of the tax function. Switching to the new procedure may be complicated by technical flaws (as was the case, for example, when powers were transferred to collect social contributions). The application of the new procedure makes it practically impossible for taxpayers to apply the personal account and an enhanced qualified electronic signature, although in formal terms these tools remain voluntary.When switching to the new rules, we recommend paying the most careful attention to possible tax overpayments by claiming for them to be reimbursed or offset in 2022 so that the examination period for the application expires before the year ends. There may be no technical difficulties with the application of the new procedure; however, the risk would better be avoided.
Help from your adviser
Pepeliaev Group’s legal team is ready to provide assistance with the practical application of the new rules, in particular with confirming overpayments and reconciling the opening balance of the unified tax account.[1] Federal Law No. 263-FZ dated 14 July 2022.
[2] State duty and personal income tax are imposed separately on migrants working on the basis of a patent (article 227.1 of the Tax Code). Separate accounting at the discretion of the payer will be kept for tax on professional income and levies on hunting and fishing (chapter 25.1 of the Tax Code). State duty that the court has awarded to the state budget (in any, not only a tax, case) is included in the aggregate obligation. As for such duty and “procedural” fines, the legislature is likely to have considered that the convenience of recovery is more important than the differences in the nature of the payments.
[3] http://regulation.gov.ru/p/124239
[4]The Resolution of the Presidium of the Russian Supreme Commercial Court dated 28 June 2011 in case No. А32-10520/10-59/165 of Gulkevichigorelectro OJSC.
[5] Clause 35 of Resolution No. 57 of the Plenum of the Russian Supreme Commercial Court dated 30 July 2013.
[6]The Resolution of the Presidium of the Russian Supreme Commercial Court dated 24 April 2012 in case No. А41-36076/10 of Apis LLC.