Having changed the strategy of field audits, The Russian Federal Tax Service (FTS) began operations for prevention of tax abuse and motivating tax payers to voluntarily abandonment of tax minimization schemes.
In 2011 the scope of coverage of field tax audits (hereafter – FTA) amounted to less than 1% of total number of taxpayers. For the small business sector this figure is even lower – 0.5%. However, in comparison with 2004 the effectiveness of one FTA increased in 4.5 times. As reported by the FTS, in 2011 an average “result” countrywide equaled less than 13 million rubles, and for the Moscow region – less than 9 million rubles. The average countrywide “cost” of one FTA on corporate income tax or VAT is approximately 3 million rubles, FTA on corporate property tax – 0.2 million rubles, on tax paid by companies under Simplified Taxation System – 0.3 million rubles. Every twentieth FTA reveals tax schemes with fly-by-night companies.
Taxpayers selected for planned FTA are concentrated in “risk zones” revealed by pre-audit analysis among:
- the largest taxpayers registered in interregional inspectorates (the plan is formed based on holding companies) (altogether 600 taxpayers);
- large taxpayers (and their branches) registered in interregional inspectorates (1600 taxpayers). This is the largest controlled group because 2200 taxpayers provide over 70% of budget revenue.
- Other taxpayers based on twelve risk criteria (twelve criteria of independent risk evaluation are taken into account; in accordance with the Concept of Planning of Field Tax Audits, approved by the Decree of the Federal Tax Service # ММ-3-06/333@ from May 30, 2007).
The Russian Federal Tax Service distinguishes the following criteria based on their significance for planning field tax audits:
- Significant tax deductions over a defined period of time;
- Losses (for two or more calendar years);
- Average monthly salary below the average level for the type of business activity in the region;
- Tax burden below the average level for the industry sector or for the type of business activity;
- Rate of growth of company’s expenses exceeds the revenue growth rate;
- Level of profitability significantly lower than in other companies in the same field (deviation exceeding 10%).
The following criteria may serve as additional reasons for including company into FTA plan:
- Decrease in the total amount of tax while profits are growing or unchanged;
- “VAT Credit” Index exceeding indicator value established by the regional department of the Federal Tax Service;
- Exceeding share of VAT deductions established by a regional department of the Federal Tax Service for several fiscal periods;
- regular use of tax exemptions which cannot be examined via an in-office tax audit;
- offering employee property-related tax deductions above the amount established by the regional FTS authority;
- organizations working in the field from the list compiled by the regional FTS authority (retail, manufacturing, real estate operations, holdings, energy companies, pharmaceutical companies);
- delayed response to a tax authority’s demand for providing additional documents;
- significant additional charges as a result of previous FTA.
The FTA examines period not exceeding three calendar years preceding the year when the decision of the FTA was made; on the taxpayer’s territory (office) or in the tax office, if taxpayer is not able to provide space (office) for conducting FTA. The duration of the FTA must not exceed two months.
The Tax Code does not contain regulations requiring tax authorities to notify taxpayer in advance about scheduling and conducting the field audit.
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