The Federal Tax Service has issued a Review of Legal Positions which was published in Letter No. BV-4-9/12603 dated 03.10.2023. This Review analyzes the circumstances of complaints (appeals) by taxpayers and the approaches of the supervisory authorities in resolving disputed situations. It is important to note that the Review contains complaints which have been considered at the pre-trial stage.

In the article Tax Compliance experts analyzed some legal positions of the CA of the Federal Tax Service of Russia.

Sergey Ivanov, Tax Compliance tax consultant, also commented for EZh-Jurist on the most interesting conclusions of the Review.

The review includes 17 sections organized by a particular topic, where you can find the position of the Federal Tax Service on issues relating to, for example:

• accounting for taxes that are paid by controlled persons in a business split;
• simultaneous prosecution under Articles 126 and 129.1 of the Tax Code of the Russian Federation;
• the legitimacy of claiming invoices when checking VAT refunds, etc.

The CA of the Federal Tax Service begins the letter with one of the most pressing topics for taxpayers - how to properly consider tax liabilities based on the results of tax audits.

1. Tax reconstruction upon receipt of documents from actual sellers

In the course of the inspection, the Inspectorate found that the Company had purchased goods from an importer through controlled problem counterparties ("technical companies"). At the same time, the tax authority considered that the taxpayer had not disclosed information and documents which would have made it possible to determine the taxpayer's actual tax liabilities.

However, the CA of the Federal Tax Service disagreed with the Inspectorate's conclusions, pointing to the following circumstances:

1) The importer's employees confirmed that the interaction with the Company was direct, bypassing the disputed counterparties, indicating its employees as contact persons.

2) Goods from the real supplier were delivered to the Company bypassing the disputed counterparties, which was confirmed by the transportation invoices submitted during the tax audit.

3) The Inspectorate had information (data) on the value of the purchased goods and the amount of VAT paid by the importer when the goods were imported into the customs territory of the Russian Federation.

4) In addition, in the course of the tax audit, the Inspectorate received documents from the importer relating to the sale of goods to problem counterparties.

5) The availability of documents (information) enabling recalculation of the taxpayer's actual tax liabilities is confirmed by the information provided by the Office.

On the basis of the above, the Federal Tax Service of Russia recognized as unjustified the additional charge of VAT and corporate profits tax to the Company without taking into account documents relating to the importer's sales of goods to problem counterparties submitted by the importer.

Following a review of the complaint, the Federal Tax Service partially satisfied the Company's complaint.

2. Tax reconstruction in the presence of information on the Customs Cargo Declaration (hereinafter - Customs Cargo Declaration, CD)

In the course of the audit, the tax authority established that the Company had purchased goods from importers through controlled problem counterparties. In its complaint, the taxpayer referred to the fact that the tax authority had identified the importers who had imported the goods into the territory of the Russian Federation. The information on TD was reflected in the invoices submitted by the taxpayer during the tax audit. However, despite this, the tax authority referred to the fact that the taxpayer had not provided information and documents enabling it to determine its tax liabilities.

In resolving the dispute CA FTS pointed out that, despite the fact that the documents from the importer, allowing to establish the real parameters of the acquisition of problem counterparties (technical companies), in the course of the audit were not received, those in the invoices submitted by the Company reflected information on customs declarations, on the basis of which the goods were imported into the territory of the Russian Federation.

Based on the above, the Federal Tax Service of Russia recognized the additional VAT and corporate income tax charges against the Company as unjustified, since the tax authority's possession of information on customs declarations reflecting the importation of goods into the territory of the Russian Federation makes it possible to determine the amount of the taxpayer's actual tax liabilities

3. Accounting for Taxes Paid by Controlled Persons in a Business Split

The Company and its controlled persons created a scheme called "Business Splitting", which allowed the Company itself and its controlled persons to apply the special tax regime of the simplified taxation system. Based on the results of the tax audit, the Inspectorate considered that the amounts of taxes paid by the controlled persons were refundable and did not reduce the amount of additional tax arrears.

In its complaint, the Company referred to the fact that the amounts of taxes paid by controlled persons reduce the additional tax assessed on profit tax and VAT. However, despite this, the tax authority concluded that the amounts of taxes paid by controlled persons were accounted for as expenses reducing the taxable base for profits tax on organizations.

The Federal Tax Service of Russia, disagreeing with the decision of the tax authority, pointed out that the amount of additional taxes should be reduced as if the taxes paid by elements of the "business split" scheme in connection with the application of special tax regimes had been paid by the organizing taxpayer during the audited periods. In this case, the relevant amounts of corporate profits tax are deemed to have been paid on the respective dates of payment of taxes made by elements of the "business split" scheme, and penalties and fines are recalculated on the basis of the specific dates.

Thus, the Federal Tax Service of Russia recognized as unreasonable the calculation of the Company's arrears based on the results of the tax audit without taking into account the amounts of taxes paid by controlled persons.

4. Missing the deadline for claiming a VAT tax deduction due to a civil dispute

On 05.08.2021 the company submitted a revised VAT declaration for the 4th quarter of 2020 in which it claimed the right to tax deductions on the basis of invoices dated the 4th quarter of 2017. The taxpayer in the appeal pointed out that without the invoices received from the contractor in January 2021, the right to VAT tax deductions could not arise. However, the tax authority in the decision refers to the fact that the Company had all the necessary documents in Q4 2017, thus the right to a VAT tax deduction could be realized by the Company no later than 31.12.2020.

In resolving the dispute, the Federal Tax Service of Russia pointed out that in connection with the Company's failure to pay for the work performed, the contractor sent invoices dated Q4 2017 after the Arbitration Court's ruling on the civil dispute had entered into force in Q4 2020. On this basis, in accordance with the rules of Chapter 21 of the Tax Code of the Russian Federation, the right to deduct VAT on the disputed transaction arose for the Company not earlier than the court rulings came into force and after the Company received the invoices from the contractor, i.e. in Q4 2020.

Thus, the Federal Tax Service of Russia granted the Company's complaint regarding the application of the right to VAT deductions for Q4 2020 on the basis of invoices dated Q4 2017.

5. Accounting for depreciation after one-time expensing of property costs

In the course of an on-site tax audit, the Inspectorate found that the taxpayer had unlawfully (as a lump sum rather than through depreciation charges) included expenses for the acquisition of depreciable property in profits tax expenses. The taxpayer disagreed with the imputed violation, referring to the fact that during the course of the tax inspection the tax authority should have recalculated tax liabilities by including in expenses for the purposes of calculating corporate profits tax the amount of amortization calculated on the intangible asset during its operation.

The Federal Tax Service of Russia disagreed with the decision of the tax authority and pointed out that the tax authority, in making its decision, was obliged to reduce the tax base for corporate profits tax for the audited period by the amount of depreciation and depreciation premiums to be charged on the disputed object in the audited period by recalculating the tax liabilities of the taxpayer.

Following a review of the complaint, the Federal Tax Service partially satisfied the taxpayer's claims.

6. Three-year period for accounting for expenses for profits tax of organizations

In the course of the tax audit, the Inspectorate found that accounts receivable subject to write-off in 2014 had been unjustifiably written off in 2016, which led to an overstatement of non-operating expenses.

The taxpayer in its appeal refers to the fact that it is lawful to include accounts receivable as bad debt in non-operating expenses until the expiry of the limitation period for resubmitting a writ of execution for the recovery of debt. However, the tax authority pointed out that the date on which bad debt arose was the date of the bailiff's ruling on the termination of enforcement proceedings, so the debt should be included in that period.

In resolving the dispute, the Federal Tax Service of Russia referred to the fact that an error in tax accounting resulting from the untimely inclusion of uncollectible debt in corporate profits tax expenses could be corrected, including by reflecting the expenses in question in the current tax period.

It is assumed that by the time the error is corrected by filing a tax return, the three-year period for the refund (credit) of the overpayment established by Article 78 of the Tax Code has not expired.

Thus, the Federal Tax Service of Russia concluded that the Company did not violate the provisions of Articles 54, 78 and 272 of the Tax Code of the Russian Federation by reflecting in its 2016 non-operating expenses the amount of bad debt to be written off in 2014.

7. Procedure for recording additional insurance premiums as expenses

Based on the results of an on-site tax audit by the Inspectorate, the amounts of insurance premiums that had been additionally assessed for 2017-2018 were taken into account as expenses reducing the tax base for profits tax for 2018-2019. Disagreeing with the tax authority, the Company pointed out that the additional insurance contributions should be recognized as expenses for profits tax in the tax period to which they relate.

In resolving the dispute, the Federal Tax Service of Russia indicated that additional insurance contributions should be taken into account as expenses for the purposes of taxation of profits of organizations in the reporting (tax) period for which they are calculated. Thus, when calculating tax liabilities, the amounts of additional insurance contributions for 2017-2019 were to be included in expenses for 2017-2019.

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Based on the analysis of the decisions referred to in the first section of the Review of Legal Positions of the Central Administration of the Federal Tax Service of Russia, it can be concluded that tax authorities and taxpayers should pay attention to the following circumstances when resolving tax disputes:

1. when calculating the actual tax liability, the tax authorities should take into account all documents provided by the taxpayer, including cargo customs declarations;
2. where a "business splitting" scheme is identified, the amounts of taxes paid by controlled entities should be taken into account in calculating the actual tax liability;
3. when making decisions based on the results of an audit, tax authorities should take into account the circumstances of civil litigation if it affects the interests of the taxpayer being audited.