Currently, more than 30 countries around the world have moved or are moving from traditional tax control methods to an approach based on the principles of transparency, trust and cooperation - the "extended cooperation" regime. In Russia, the Tax Monitoring Regime ("TM"), a voluntary tax control regime for large taxpayers, which replaces regular tax audits by providing the tax authority with online access to the accounting data of companies, has been in place since 2015 as such regime.
Organizations have the right to switch to NM under a number of conditions:
- 100 million - annual amount of taxes and insurance premiums per year;
- 1 billion rubles. - annual amount of revenues;
- 1 billion rubles. - value of assets;
- Compliance of the Internal Control System (ICS) with the requirements of the Federal Tax Service of Russia.
In order to switch to NM, you must submit an application along with a package of documents to the tax authority by September 1 in accordance with the requirements of the Federal Tax Service of Russia.
Consider the key advantages of tax control in the form of tax monitoring:
- Public and official recognition of the Company as a reliable and responsible taxpayer - image component.
- Exemption from on-site and in-camera tax audits during the tax monitoring period (except as stipulated in para. 1.1. art. 88 and cl. 5.1. Art. 89 of the Tax Code).
- Possibility to request a motivated opinion, execution of which exempts the taxpayer from fines and penalties. Errors and violations detected by tax authority in the process of tax monitoring, also in a mandatory manner brought to the taxpayers through a reasoned opinion in order to provide an opportunity to correct errors.
- The possibility of entering into the Agreement on Protection and Promotion of Capital Investments (APPI), a new method of state support for large investors.
- Development and refinement of the Internal Control System for the purpose of tax monitoring in the future can be used for the development of the overall internal control system in the organization.
- Reducing labor costs to support tax audits due to the minimization of tax disputes and claims.
The most significant limitations include compliance with the Requirements of the Federal Tax Service of Russia for the organization of the internal control system and the organization of information interaction (which may require high labor costs, in particular for the automation (improvement) of accounting and (or) tax accounting system, connection to a data window, etc.), as well as maintaining the possibility of tax audits on transfer pricing issues.
One of the key steps in preparing to join tax monitoring is to check (assess) the organization's readiness to join. The transition to tax monitoring imposes higher requirements on the taxpayer in terms of risks, controls, IT systems and their data. It creates the need to disclose information to the tax authority on controversial tax issues, increasing the probability of detection (detection) of tax risks and overall transparency for the tax authorities. In parallel, it is necessary to organize an expanded information exchange with the tax authority - the data are transmitted more often and in greater volume, with one of the ways of information interaction - providing the tax authority with access to the accounting system. In this regard, the following typical questions arise in preparation for tax monitoring:
- What areas of accounting and tax accounting require rechecking before deciding to switch to tax monitoring? What is the level of automation of accounting and reporting processes?
- What and how to disclose to the tax authority? What changes to current processes and systems will be required?
- What methodological issues unresolved during tax audits need to be resolved?
- What can be done in-house and what can be done with the help of a contractor? How are similar issues handled in other companies?
All of the above puts the organization to the fact that it is necessary to conduct an assessment of readiness to enter into tax monitoring. Such an assessment is usually performed by an external independent tax consultant.
The next steps include:
- Preparation of a road map for entry into tax monitoring.
- Preparation of documents for joining tax monitoring, including:
- application for tax monitoring;
- regulations of information interaction;
- information on interdependent persons;
- accounting policy for tax purposes;
- documents on internal control system;
- submission of an application for tax monitoring and documents to the tax authority;
- subsequent implementation of the selected method of information interaction.
During the period of tax monitoring, the organization is required to submit quarterly reports on risks and control procedures in the format required by the requirements of the Russian Federal Tax Service. For correct and, at the same time, detailed documentation of risks and control procedures, the organization must apply the methods (approaches) to identify and assess the risks of distortion of tax accounting and reporting, as well as the rules for documenting control procedures. These components are an integral part of the internal control system, and such methodologies (approaches) can be reflected in documents on the internal control system.
Obviously, tax monitoring has gained its popularity and will only continue to spread to a wider range of taxpayers, developing, improving and automating its mechanisms. At the moment the regime represents the least conflict and the most effective way of interaction between the taxpayer and the tax authority.
Tax Compliance actively monitors the current development of the regime's practices and is ready to offer comprehensive support to the organization during the transition to tax monitoring.
Order of the Federal Tax Service of Russia of 25.05.2021 № ED-7-23/518@ "On Approval of the Requirements for the organization of the internal control system", Order of the Federal Tax Service of Russia of 11.05.2021 № ED-7-23/476@ "On approval of forms of documents used in tax monitoring, and requirements for them".