Your counterparty will go bankrupt tomorrow. How to determine it

Your counterparty will go bankrupt tomorrow. How to determine it

In March 2021, the Federal Tax Service clarified the application of Article 54.1 of the Tax Code (limits on the exercise of rights to calculate the tax base and (or) the amount of tax, fee, insurance premiums). The tax service described the algorithm of its actions during verification and the signs that inspectors pay attention to when adding taxes

Remember, the effectiveness of both remote and office employees is evaluated by how well the task is completed with minimal resources. The work of remote employees is monitored not by the time spent, but by performance.

In judicial practice, the number of cases related to the interaction of business with counterparties is rapidly growing. In particular, the fight against illegal deductions and VAT refunds is gaining momentum. Viktor Batsiev, deputy head of the Federal Tax Service, told RBC at the end of 2020 that the court decides in favor of the tax authorities in 85% of cases about the reality of economic relations of organizations with counterparties. The inspectors manage to convince the courts that the taxpayer's counterparties are technical, that is, they do not conduct real activities, do not have assets and staff, do not pay taxes, and sometimes are completely controlled by the organizer of the tax scheme

Entrepreneurs are asking a fair question how to exercise sufficient prudence, because information from open sources may not be enough to confirm the integrity of a business partner

What the tax service pays attention to

To begin with, let's figure out by what criteria the inspectors prove the unreliability of the counterparty and the receipt of tax benefits from working with him:

  1. The coincidence of the managers/founders of the company and its counterparty.So, the Federal Tax Service added value added tax to Ventprom-Region in the amount of 2.5 million rubles (case N A53-32405/2018). The tax authorities concluded that the company received an unjustified benefit by applying tax deductions for transactions with counterparties of LLC "Vensbyt" and LLC "Ventcomlect". The proof was the presence of one manager and the same employees at the counterparties.
  2. Submitting reports or logging into banking services from a single IP address.
    An example is the case of the company "Fortuna", which the court ordered to pay 4.5 million rubles of additional taxes for understating the leased area (case N A60-13255/2018). "Fortuna" rented the premises together with the counterparty. During the audit, the tax service found out that the companies are interdependent — they have the same IP address, and the reports are sent by the same accountant from the same computer.
  3. Finding partners at the same address.
    The tax authority has doubts about the situation when the company and its counterparty are located at the same legal address. The tax authorities may assume that the counterparty does not actually supply the company with any goods / does not provide any services, and the entire document flow is created to justify the withdrawal of funds (case N A76-11398/2018).
  4. Detection of the counterparty's seals or documents drawn up on his behalf in the office and on the computers of the taxpayer being checked.
    The Federal Tax Service has added 27 million rubles of taxes to the Energy Technologies company for interaction with contractors Profenergok and Energostroy. The courts of all instances agreed with the conclusions that the documents submitted by the company do not confirm the reality of the applicant's disputed business transactions with these counterparties and are aimed at creating a fictitious document flow in order to obtain unjustified tax benefits (case N A40-254321/2018). The company provided supervision services at the facilities on its own, and filled out the documents on behalf of contractors.
  5. Transit movement of money from a company to individual entrepreneurs for the purpose of cashing them out, withdrawal of funds to low-tax jurisdictions or the issuance of loans without the expectation of their return.
    For example, the Arbitration Court of Moscow rejected the complaint of the company "Brigadier Technologies" about additional taxes (case N A40-314065/2018). The tax authority considered that when interacting with the counterparty, the company overestimated the cost of work for the formal justification of the transit movement of funds. There was no evidence that the company had completed the work. The Supreme Court agreed with the Arbitration.
  6. Signs of the taxpayer's affiliation with its counterparties and subsequent links in the supply chain.
    Articles 20 and 105.3 of the Tax Code of the Russian Federation define the main criteria of interdependence. These include the tax service: relationship of kinship, subordination by position, participation in the capital of the organization. Despite this, the list of grounds is not closed: the court is free to establish interdependencies on other grounds (case N A55-31640/2017).
  7. The results of handwriting examinations confirming that the employees and management of the counterparty did not sign the primary documents.
    The examination of the signature is popular with the tax authorities, since it is the signature that gives the document a legal value. The handwriting expert determines the specific author of the signature and the conditions under which the documents were signed. For example, an expert can establish the imitation of the signature, the physical condition of the signatory, and others. If your counterparty has signs of questionable, and you have not shown proper commercial prudence before starting work with him, negative tax consequences are highly likely to occur for you.

Signs of unstable counterparties

Although the Federal Tax Service and the Ministry of Finance have been issuing official letters explaining the measures of prudence in choosing a counterparty since 2010, many entrepreneurs still have difficulties in proving both their own integrity and the reliability of their counterparty. A superficial choice of a counterparty and the lack of regular monitoring can lead to your business being involved in litigation and incur significant financial losses.
When interacting with a business partner, the following signs should alert you:

When interacting with a business partner, the following signs should alert you:

  • false information about the registration of a legal entity;
  • lack of information about the payment of taxes to the budget;
  • the presence of "mass" managers and founders during the conclusion of the contract or execution;
  • obligations under the contract (participation and management in companies of more than 7-10 legal entities);
  • absence of full-time employees according to 2-personal income tax certificates;
  • lack of business reputation or registration of the counterparty shortly before the conclusion of the contract with the analyzed taxpayer;
  • low tax burden with high turnover at the same time.

How to check a counterparty
Detailed instructions on what should be the procedure for checking counterparties
Read more

How to secure your company:

In order to reduce the risks of additional tax charges, do the following:

  • Regularly evaluate the authority of the counterparty's manager. Request the identity documents of the director from the supplier, check the scope of his powers under the constituent and registration documents.
  • Ask the counterparty to provide you with information about taxes paid, tax audits conducted and their results.
  • Ask the counterparty for information confirming that he can fulfill contractual obligations. For example, find out how many employees he has on staff, whether there is an office, warehouses and transport. It is worth noting that the size of the staff and the amount of assets that are necessary to minimize the risk of challenging transactions with a counterparty are individual for each industry, counterparty and business transaction. Therefore, before checking, study this issue in relation to the scope and type of activity of your counterparty. If the inspection or the court decides that the supplier could not deliver the goods or perform the work due to the lack of employees or special equipment, you may be charged with obtaining unjustified tax benefits.
  • Check the accuracy of information about the activities of organizations. This can be done online using software products such as SPARK, Contour.
  • Check whether the counterparty is involved in arbitration disputes. This may indicate the actual conduct of activities and the partner's interest in protecting their interests. In order to find all arbitration cases in which your counterparty turned out to be a party to the dispute, use the Arbitration Case File. Pay attention to the existence of cases against your counterparty, as well as their nature. Before the audit, you will be able to find out about the criteria that cause the tax authority to doubt the integrity of the counterparty, and request information that can protect you. In addition, if the court ruled in favor of your partner, you will be able to use this for your defense.
  • For additional insurance, include a "tax clause" in the standard form of contracts — a guarantee that the counterparty has fulfilled all obligations to the budget, as well as its obligation to compensate you for additional tax charges in case of claims.

Mikhail Begunov Mikhail Begunov

Mikhail Begunov

Member of the Chamber of Tax Consultants, Lawyer at the Moscow Chamber of Advocates

Manufacturing, IT business, Pharmaceuticals, Retail, Real Estate and Construction