The website of the newspaper "Ekonomika i Zhizn-Lawyer" published an article devoted to fixing the concept of "due diligence" at the legislative level. In this article, Ekaterina Kopylova, Associate Consultant of the Tax Compliance Dispute Resolution Practice, provided expert commentary.

In a letter dated 25.04.2023 ¹ BV-19-7/126@ Federal Tax Service (FTS) stated that the criteria of due diligence can not be clearly defined in the law, because they are evaluative in nature and depend on the specific circumstances of each case. In addition, the Federal Tax Service notes that the consolidation of due diligence criteria in the legislation may create problems with the interpretation and application of these criteria, which may lead to litigation and uncertainty in law enforcement.

"This issue has been a hot topic for many years. Although we have not advanced in the issue of legislative consolidation of "due diligence" during this time, the concept itself has developed in law enforcement practice, in particular in the explanations of the Supreme Arbitration Court and the Federal Tax Service mentioned in the letter under consideration, as well as in the decisions of the Supreme Court of the Russian Federation in a number of high-profile cases.

It should be noted that a clear concept of prudence in the law is further complicated by the fact that it is objectively impossible to determine an exhaustive list of criteria due to the diversity of business activities, the difficulty of confirming the relevant status for newly established organizations and other circumstances.

In the letter under consideration the Federal Tax Service also draws attention to the inadmissibility of formalistic approach and the need to take into account the business environment in which the disputed transaction was concluded", said Ekaterina Kopylova, Junior Consultant of the Tax Compliance Practice

The full text of the article is available here.