Ekaterina Kopylova, junior tax consultant of Tax Compliance, told about the problem of procedural opportunities of potential TACs to challenge the results of tax control measures.

As a general rule, a taxpayer personally and (or) through his representative is empowered to participate in tax control measures, as well as in the process of appealing their results in appeal and in court.[1] 

At the same time, the legal representatives of a taxpayer-organization are persons authorized to represent the said organization on the basis of the law or its constituent documents.[2] So the sole executive body of the company (general director, president and others) may act on behalf of the company without power of attorney.[3]

Other persons who are not legal representatives of the taxpayer must document the relevant powers with a power of attorney.

Arguments that the actions and decisions of the tax authority affect the rights and interests of the persons controlling the debtor (hereinafter - KDL) due to possible negative consequences in the form of bringing to one of the types of responsibility provided for by the legislation, are rejected by the tax authorities and courts.

The mentioned problem is quite widespread in practice and is relevant to all individuals who:

1. by virtue of their official position (e.g., former general directors) or other position (founders, including former, ultimate beneficiaries) may potentially be held liable for subsidiary, criminal and other types of liability as a result of a tax offence committed by the organization, but at the same time
2. are not representatives of the taxpayer organization by virtue of law or power of attorney.

Current legislation, established court practice, as well as law enforcement practice of tax authorities proceed from the fact that such persons have no right:

• Acquaintance with the materials of a tax audit and other participation in control measures[4]
• Pre-trial appeal of actions and decisions of the tax authority on the basis of articles 137-138 of the Tax Code of the Russian Federation[5]
• Judicial appeal against decisions based on Art.42, 198, 200 of the APC RF[6]
• Participation in the tax dispute as third parties on the basis of Art. 51 of the APC RF[7]

Arguments are based on the fact that "the applicant is not a party to disputed tax legal relations" and "actions and decisions of the tax authority in the framework of control measures in relation to the organization do not directly affect the rights of such persons, do not impose on them any obligations and do not create for them any restrictions or prohibitions, including for the implementation of business or other economic activities". 

The courts also proceed from the fact that the possibility of bringing individuals to subsidiary and/or criminal liability "indicates the presence of a person's interest in the outcome of a judicial dispute, but by itself does not confirm the fact of the court (tax authority) decision on their rights and obligations, whereas exactly with this circumstance procedural legislation links procedural rights to be involved in the consideration of a tax dispute and to appeal judicial acts".

Therefore the persons concerned have the right to state their position (objections, arguments, evidence) only during consideration of separate cases on bringing to responsibility (subsidiary or criminal responsibility, as well as, for example, in a dispute on recovery of losses, etc.), in which they participate. 

At the same time, the subject of proof in such cases is different from the tax dispute. It is practically impossible to obtain the recognition of the decision of a tax authority as invalid, to change it, to challenge individual episodes at this stage.

Thus, in the absence of official powers and power of attorney, such individuals are actually deprived of any opportunity to influence the qualification of the offense (intentional/unintentional), the amount of additional tax charges and other facts reflected in the decision of the tax authority.

It remains to concentrate their efforts on proving the absence of grounds for bringing to responsibility, which is significantly complicated by the presumptions established by law.

In view of the above, many experts believe that this state of affairs is contrary to the Constitution, because in essence the former head, as well as the founder, are deprived of absolutely any procedural means to protect their rights in this part.

However, so far the judicial practice is predominantly formed in this way, not allowing potential CEOs to independently challenge the claims of the tax authority.

[2] Item 1 of article 27 of the Tax Code of the Russian Federation 

[3] Article 40 of the Federal Law as of 08.02.1998 N 14-FZ "On limited liability companies".

[4] See, for example, Letter of the Ministry of Finance of Russia dated October 27, 2014 N 03-02-08/54326

[5] For example, Rulings of the Supreme Court of the Russian Federation of 13.09.2018 № 305-KG18-14400 in case № A41-32034/2017 and of 15.04.2019 № 305-ES19-3535 in case № A41-93789/2017

[6] For example, Ruling of the Tenth Arbitration Court of Appeal of 09.10.2018 in case No. A41-93789.2017, Ruling of the Supreme Court of the Russian Federation of 15.04.2019 No. 305-ES19-3535 in case No. A41-93789/2017

[7] For example, Determination of the Arbitration Court of the City of Moscow of 28.07.2020 in case No. A40-100160/2020 

[8] Clause 4 of Article 61.10, subparagraphs. 3 p. 2 of Article 61.11 of the Federal Law of 26.10.2002 N 127-FZ "On Insolvency (Bankruptcy)"