On May 1, 2016 Russia's President signed Federal Law No. 130-FZ on Amendments to Part One of the Russian Federation Tax Code (the "Law"). The Law was published on May 2, 2016.
The Law is generally intended to improve communication between taxpayers and the tax authorities during tax audits, including in the tax monitoring format, and when appealing the tax authorities' actions.
For example, when an appeal is filed after June 2, 2016:
- taxpayers will have the opportunity to be present when the appeal is considered by the higher tax authority, if there are contradictions in the audit materials or the materials are inconsistent with the evidence submitted by taxpayers. However this rule is worded in such a manner that, in fact, a taxpayer's participation in the consideration depends on the will of the management of the higher tax authority considering the appeal ;
- in order to stay execution of, for example, a decision on a tax audit or a demand for payment of tax, it will be necessary to provide a bank guarantee that is valid for at least six months and the amount of which covers the additional tax assessments.
For tax audits completed after June 2, 2016, taxpayers will be entitled, before decisions on audits are rendered:
- to review the materials of the audit and additional tax control measures at the office of the tax authority not later than two days after the taxpayer files the relevant application;
- to assert objections to the results of tax control measures.
In addition, entities that are required to file returns only electronically, in particular, those consisting of more than 100 people, must arrange for electronic document exchange with the tax authority during a tax audit.
- As of July 1, 2016, movement on accounts of entities that do not perform this obligation and cannot receive documents sent by the tax authority may be suspended;
- As of January 1, 2017, explanations sent by a taxpayer during an office tax audit will be filed only electronically via telecommunications channels; explanations submitted on paper will not be considered submitted.
Finally, as of June 2, 2016, entities for which tax monitoring is carried out may receive the tax authority's reasoned opinion not only on business transactions that have already been completed, but on planned business transactions (similar to an "advance tax ruling" in a number of foreign states).
As there are fewer than 10 such entities in Russia today, this and other related innovations are apparently intended to both make tax monitoring more attractive for big business, and to demonstrate to investors that the Russian tax legislation has modern tools. To this end:
- The structure of the request for a reasoned opinion has been spelled out in detail. In addition to the entity's position on the unclear issue, the request must also contain a description of the business objective, the basic terms of business transactions, and a functional analysis of counterparties' activities.
- The procedure for submitting information needed to prepare a clarification has been prescribed: the taxpayer may submit, and the tax authority may request information that each of them considers necessary for the tax authority to prepare a reasoned opinion.
However, there are a number of unclear points in the regulation of issues related to providing advance reasoned opinions:
- the taxpayer is now obligated to
notify the tax authority about the completion of planned
transactions for which a reasoned opinion was issued, attaching
documents (if any) confirming that the reasoned opinion was
In other words, failure to follow the reasoned opinion may increase the risks of a tax audit and dispute as compared to a situation where the taxpayer has not requested a reasoned opinion.
- there are exceptions to the general
rule that the reasoned opinion is binding on tax authorities and
the entity: first of all, if the information provided by the
taxpayer and on which the tax authority's reasoned opinion is
based is not true; and, secondly, if the legislation has changed by
the time of the transaction.
This essentially means that in order to get a reasoned opinion it is necessary to describe the situation to the tax authority in as much detail as possible and to not deviate from those details when completing the transaction. However, frequently the market situation and, consequently, the contractual terms change considerably in the process of clearing transactions and performing operations. The Law's lack of protection against additional tax assessment in the event of "good faith" deviations from the initial information may become an additional tax risk factor.
Based on extensive experience in supporting tax audits at the pretrial stage, the lawyers of Dentons' Tax practice are ready to help your business take best advantage of legislative innovations.
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