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Starting this year, Article 231 of the Tax Code has been amended. The changes to the Article have specified procedures for refunding excess personal income tax (PIT) withheld by a tax agent. However, many questions still remain. Some of them have been answered in the Letter of the Ministry of Finance (MinFin) #03-04-06/6-112 from May 16, 2011.

The first question that was considered by MinFin is related to procedures for notifying an employee about the amount of excess PIT paid: is it possible to do via email or is it mandatory to send a paper notification?

The tax agent must notify the employee about each known instance of excess PIT withheld and the amount of the excess tax paid within 10 days after the overpayment is detected (Paragraph 2, Point 1, Article 231 of the TC). However, the form and method of employee notification are not stated in the TC.

In MinFin's opinion, the tax agent may notify an individual of excess PIT paid and amount of tax to be refunded in any form. The form must be previously discussed and determined with the employee. If the employee is not opposed to it, the notification may be sent via email. In this case, in our opinion, the company must take care to obtain a delivery confirmation for the notification sent.

The tax agent must refund excess PIT withheld within three months from the day the employee submits an appropriate request. To refund the excess tax, the tax agent may decrease the upcoming payments of all employees whose profit tax payments will be collected in the three month period following the submitted refund request.

However, this amount may not be sufficient for the refund due within the three month period. In this case, within ten days after submission of the refund request, the tax agent must send a request for the refund to the local tax inspection (Paragraph 6, Point 1, Article 231 of the TC).

The three month term specified in Article 231 of Part 1 of the TC, is the maximum term allowed the tax agent to refund the excess tax paid. After receiving the employee refund request, the tax agent must make a decision to refund the excess amount from collected funds or to request a refund from the tax authorities. The agent’s financial capability to refund the necessary amount within the prescribed three month period must be determined by expertise evaluation. If company’s accountant does not deem the request possible to be fulfilled within three months, the company must immediately request a refund from the tax authorities.

Point 1, Article 231 of the TC regulates procedures for refund of PIT by company not only to its employees, but also to other individuals from whom PIT payments were withheld. Therefore, procedure for refund of excess PIT is not determined by existence of labor contract or civil law contract between an individual and the tax agent.

Termination of employment relations also does not affect possibility of excess tax refund.

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