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How To Avoid Being Qualified As Unconscientious Taxpayer


Tax officials regulate tax payments via tax audits, receiving explanations of taxpayers, tax agents and levy payers, inspections of books and records, revision of business property and premises.

Article 89 Paragraph 4 of the Tax Code states that field audit inspections may apply only to a period not exceeding three years preceding the year of the audit.

It is obvious that the growth of the number of companies significantly exceeds the increase of number of tax department employees.

Moreover, the duration of a field audit is limited to two months under regular circumstances. Thus, the effectiveness of field audits is decreasing.

Therefore, tax authorities decided to radically change their approach to field audits.

M. Mishustin, head of the Federal Tax Service, promised to discontinue field audits, stating, “Our intent is not just to decrease [field audits], but to focus on analytics and office audits.”

A direct extension of this plan of action is the Conceptual Framework for the On-Site Tax Audit Planning System. Briefly, its essence is as follows:

  • Intensify in-office audits and detect abusive taxpayers;
  • Conduct field audits of unconscientious taxpayers.

So, how do tax authorities distinguish between conscientious and unconscientious taxpayers? The Conceptual Framework states that taxpayers will be differentiated based on information received by tax authorities from internal and external sources. Internal sources include well-known in-office audits, and external – all other information.

Taxpayers subject to field audits may be selected based on the following criteria:

  1. The payer’s tax burden is lower than average for the industry sector (type of economic activity);
  2. Losses in accounting and/or tax records for several fiscal periods.

    If you are conducting business with a long-term outlook, expecting a long period of recoupment, and your business plan provides for financial losses, make sure you are confident in your position. Most likely, you will be invited to the fiscal commission to which you will have to argue your plan and your position.
  3. Significant tax deductions in a defined period.

    Remember, that all recorded tax deductions, ie. VAT offset, must be substantiated by real invoices.
  4. Rate of increase of expenses exceeds rate of increase of profits.
  5. Employee’s average monthly salary lower than average for industry sector in this constituent entity.
  6. Financial and economic activity is based on contracts with dealers or brokers-mediators (chains of contract partners) without a reasonable business goal.

    This information may be submitted by your competitors, offended employees, law enforcement agents.
  7. Failure to submit an explanation and/or additional documents in response to a request from tax authorities, and/or information about destruction and spoliation of documents.
  8. Significant deviation of accounting breakeven level from average for the type of economic activity.

Taxpayers conducting business activity with the abovementioned criteria will be included in the list of field audits.

Thus, based on results of business activity, every taxpayer is now able to determine for themselves the tax risks, confirm their tax liability and understand their probability of becoming a subject of a field audit.

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