At present, the tax administration is marked by a trend to reduce the number of field tax audits while increasing their effectiveness. At the same time, the Federal Tax Service of Russia considers the improvement of methods to encourage taxpayers to voluntarily fulfill their tax obligations as one of the key directions to create a favorable tax environment.
What does it mean in simple words? Going out for an on-site tax audit, in practice, is seen as an extreme measure. Therefore, the tax authorities focus on settling disputes with taxpayers in the framework of pre-inspection measures, encouraging them (if necessary) to clarify their tax obligations voluntarily.
The above conclusions are supported by statistics. According to the Russian Federal Tax Service, in 2016 only 5% of taxpayers were willing to voluntarily clarify their tax obligations at the pre-inspection stage. By 2021 this figure had risen to 52%.
In view of the above, it is important for businesses to understand: (1) when auditors conduct a pre-inspection analysis of a company; and (2) what to do in such a case.
Pre-Validation Analysis. How does it happen?
Pre-verification analysis is a procedure that is not directly prescribed in the tax law. In practice, pre-inspection analysis of a taxpayer is accompanied by the following main activities:
- The sending of information letters.
The tax authority may send a letter of information to the company, notifying it of the presence of risk areas (e.g., transactions with "unscrupulous" counterparties) and suggest an independent analysis of tax risks in order to voluntarily adjust the tax liabilities (if necessary).
- Sending a demand.
The tax authority may send a request to the company for documents (information) on a specific business transaction or on the business relationship with a particular counterparty. The demand may also indicate the necessity to carry out an independent analysis of the tax risks and (if necessary) voluntarily clarify the tax liabilities.
- Call to the commission.
The tax authority may summon representatives of a company to give explanations and participate in a "working" meeting on tax issues. In practice, during such meetings the auditors clarify certain issues of entrepreneurial activities, as well as communicate to the taxpayer (for example, by drawing up the minutes of the workshop) their position on the possibility of accounting of certain transactions for tax purposes.
What is a business to do?
In practice, businesses do not always take a constructive stance at the pre-inspection stage. The result of such an approach may be, for example:
- The company's decision to challenge the tax authority's information letter or the minutes of a "working" meeting.
At the same time, law enforcement practice recognizes that the above documents are informational in nature and do not give rise to any legal consequences for the taxpayer.
- The failure to provide a reasoned legal position on the issues set out in the minutes of the "working" meeting.
The tax legislation does not explicitly provide for the obligation of taxpayers to submit to the tax authorities a legal position on the issues set out in the minutes of the commissions. However, the preparation of such a document makes it possible to clarify to the tax authority disputable issues of accounting of certain operations. This should not be neglected.
- The refusal of company representatives to participate in meetings with tax authorities.
It is important to remember that such actions may entail administrative liability in the form of a fine from 2,000 to 4,000 rubles. In addition, such an approach by the taxpayer entails the risk that the auditors will investigate the company's activities more closely.
- The company's refusal to provide any documents (information) at the request of the tax authority.
Failure to provide documents at the request of a tax authority is a tax offense for which there is liability in the form of a fine. By refusing to submit documents (information) to the tax authority, the taxpayer risks not only facing penalties, but also gives the inspectors a reason to conduct additional control measures against the company.
In view of the above, we believe that businesses should consider interaction with the tax authorities in the framework of pre-inspection analysis as an opportunity to convey to the inspectors the company's position on the accounting of certain business transactions and (if necessary) to adjust their tax obligations (if errors are identified) without conducting an on-site tax audit.
According to the Public Declaration of Goals and Objectives of the Federal Tax Service of Russia for 2022.
The above legal position was outlined, for example, in cases A51-1979/2022 and A41-394/2019