Russia has started to form and actively use the Federal Register of Presumed Beneficiaries (hereinafter - the "FRPB"), which includes companies suspected by the Federal Tax Service of Russia (hereinafter - the "FTS") of illegally optimizing their tax liabilities.

This concerns beneficiary companies which, in the opinion of the Federal Tax Service, have obtained an unjustified tax benefit from the use of schemes with dubious counterparties. A company which has unlawfully applied VAT deductions in respect of transactions with unreliable suppliers is at risk of falling into the TPIF.

The objectives of the formation of the VWRF:

• Singling out taxpayers who systematically claim disputed VAT deductions;
• Prompt suppression of VAT evasion schemes;
• Organization of effective "end-to-end" control of beneficiaries.

Procedure for selection of companies to the VWDF

In order to form the FRPF, the FTS analyzes tax returns beginning in the first quarter of 2019.

First, the program complex finds a tax gap in a chain of counterparties. Next, a beneficiary is identified within that chain.

For this purpose, all companies in the chain are analyzed according to predetermined criteria on the basis of a point system established by the internal regulations of the Federal Tax Service on interaction between tax authorities when working out discrepancies (hereinafter - the Federal Tax Service Regulations). In determining the beneficiary, the indicators for the year in which the inspectors found a VAT discrepancy are taken into account. The number of points exhibited determines the category into which companies which have fallen under suspicion will be determined:

Based on the criteria presented in the graph, we can conclude that any companies with real economic activity are at risk of being recognized as a beneficiary, even if they fulfill their tax obligations in good faith.

Consequences of inclusion in the ERDF

In such cases, as a rule, the department responsible for control over the workout of the beneficiary and the formation of reliable information, sends to the department of field tax audits (hereinafter - FTA) a motivated request for a decision to conduct an audit.

Based on the above, it is important to keep in mind that:

• In order to prevent companies from falling into the EIF, they should be more careful in selecting counterparties, collect, systematize and store documents and information confirming the reality of interaction and fulfillment of contractual obligations;
• Companies should take a proactive approach at the initial stages of communication with the tax authority (during commissions), which often allows them to convince the tax authority of the incorrect identification of the company as a beneficiary, as well as the lack of expediency of the appointment of a VNP.

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Tax Compliance provides tax compliance services in terms of analyzing the effectiveness of the company's internal system for selecting and interacting with counterparties, preparing recommendations aimed at reducing the risks of cooperation with "unscrupulous" organizations, as well as services to protect interests in communications with the tax authority.