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ACCOUNTORSadovnicheskaya nab. 79115035 Moscow, Russia
+7 495 788 00 [email protected]
07/09/141
PROCEDURE, TIME LIMITS FOR PERFORMING IN-HOUSE TAX AUDITS OF TAX DECLARATIONS WITH REGARD TO VAT
APPEALING AGAINST THE RESULTS OF IN-HOUSE TAX AUDITS
Conditions for VAT Reimbursements
1. a taxpayer entity is registered with the tax authorities and is the payer of VAT (paragraph 2, clause 3, Article 171 of the Tax Code of the Russian Federation).
2. a taxpayer entity has payment documents which confirm the actual payment of VAT (paragraph 3, clause 3, Article 171; clause 1, Article 172 of the Tax Code of the Russian Federation;
3. a taxpayer entity has a properly prepared VAT invoice (paragraph 2, clause 3, Article 168 of the Tax Code of the Russian Federation)
4. acquired goods (work, services) have been entered in accounting records (paragraph 2, clause 1, Article 172, Tax Code of the Russian Federation).
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Procedure and Grounds for a Tax Audit
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Even though the reimbursement of VAT is governed by Article 176 of the Tax Code of the Russian
Federation, a taxpayer entity applying for VAT reimbursement will be audited by the tax inspectorate as
per general rules as all matters related to the tax audit procedure, review of its results and the adoption of
a decision on reimbursement are governed by the provisions of Articles 88, 100 and 101 of the Tax
Code of Russia.
The main thing that will be required at this stage is the presentation of documents confirming tax
deductions (the right of the tax authorities to demand presentation of such documents is established by
clause 8, Article 88 of the Tax Code of Russia).
Non-compliance with requests by the tax auditors for presentation of documents undermines the right to
submit documents thereafter during a court hearing.
The decision of the tax authorities to deny the reimbursement of VAT for reason of absence of documents
confirming deductions will be upheld by courts (paras 5 & 6, clause 2 & 3, Enactment No. 65 of
December 18, 2007, Plenum, Supreme Commercial Court, Russian Federation).
It is necessary to comply with a request by providing documents which, pursuant to Articles 165 and 172
of the Tax Code, confirm the correctness of deductions and other circumstances linked by applicable law
with the right for reimbursement of tax.
Requests for Documents During In-House Tax Audits
- As per general rule, a tax authority does not have the right to require a taxpayer to provide additional documents while performing an in-house audit (clause 7, Article 88, Tax Code of Russia).
- However in certain instances, a taxpayer may be required to provide additional documents during an in-house tax audit and namely upon submission of a tax declaration for VAT, in which the right to a tax reimbursement is claimed (paragraph 2, clause 8, Article 88; paragraph 2, clause 1, Article 176, clauses 1, 11, Article 176.1, Tax Code of the Russian Federation).
- In view of the above, a tax authority may require a taxpayer to provide specified documents only where the taxpayer claims a VAT reimbursement (clause 8, Article 88, Tax Code of Russia, Letter of the Ministry of Finance of Russia dated 27.12.2007 No. 03-02-07/2-209).
07/09/144
Duration of Tax Audits and Presentation of Objections Relating to Tax Audit Results
- A tax audit is performed within three months. Within seven days upon completion of a tax audit a tax authority must adopt a decision for the reimbursement of VAT if it found no violations of tax or levy legislation.
- In the event that violations are found, the tax authority officials performing the audit must prepare a tax audit report. The Tax Code provides five more days for the report to be delivered to the taxpayer.
- Within a month after receiving a tax audit report, the taxpayer may submit written objections relating to the report (clause 6, Article 100 of the Tax Code). In the event a company is unable to prepare reasoned objections, such objections may be presented directly during the examination of the tax audit materials in the tax authority.
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Examination of Tax Audit Materials
- Materials relating to an in-house tax audit and objections by a taxpayer are examined by the director or the deputy director of the tax authority (in a procedure set out in Article 101 of the Tax Code).
- The Code provides for such examination to be completed within ten days but also allows the tax authority to extend the period by no more than one month (clause 6, Article 101 of the Tax Code of the Russian Federation). Thereafter the director issues a decision either on the imposition of sanctions for commission of a tax offense or on the non-imposition of sanctions.
- At the same time the director decides the question of whether to provide a VAT reimbursement (in full or in part) or to reject a tax reimbursement. In this way, the results of a tax audit are these two decisions.
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Types of Decisions Adopted Based on the Results of Tax Audits
If the tax authority believes that a taxpayer has no right for a VAT
reimbursement, it issues two decisions:
- first – to reject the provision of a tax reimbursement in full or in part,
- second – on the imposition of sanctions for the commission of a tax
offence or on the non-imposition of sanctions for the commission of a
tax offence (clause 3, Article 176 of the Tax Code of the Russian
Federation)
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Procedure for Issuing to a Taxpayer of a Decision Based on the Results of a Tax Audit
Issued decisions are handed to the taxpayer within five days (clause 9, Article 101 of the Tax Code). Within five days upon its adoption a decision must be delivered to the taxpayer, to whom it relates (or to his representative), under signature, or can be transmitted using any other method making it possible to establish the date on which the decision is received by the taxpayer (or his representative).
In the event that it is impossible to deliver or hand over a decision using any method confirming the date of its receipt, it shall be sent by registered letter to the location of the taxpayer company (or its autonomous subdivision).
In the event a decision is sent by registered letter, it will be deemed received on the sixth day upon the sending of a registered letter.
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Prejudicial Appeals Against Decisions by Tax Authorities
A mandatory prejudicial procedure is provided for appealing against decisions made by a tax authority: a taxpayer must lodge an appeal with a Higher Tax Authority within a month following the receipt of the decision.
An appeal is lodged through the tax authority which adopted the disputed decision which must then forward the appeal to the addressee within three days, that is, to the Directorate of the Federal Tax Service for the constituent entity of the Russian Federation (clause 2, Article 139.1 of the Tax Code). The decision will not become effective until the process has been exhausted (clause 9, Article 101; clause 2, Article 101.2; paragraph 3, clause 2, Article 139 of the Tax Code).
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Prejudicial Appeals Against Decisions by Tax Authorities
Pursuant to clause 3, Article 101.2 and clause 2, Article 139 of the Tax Code, a decision of a tax authority not appealed against in the appeal procedure may be appealed against to the Directorate of the Federal Tax Service within one year upon its adoption.
That is, the appeal is not the only form of prejudicial dispute settlement, and a failure to observe its time limits does not prevent one from lodging with the Federal Tax Service Directorate an appeal against a decision which has come into effect. Meanwhile, the right to apply to a court of law arises only after appealing the disputed decision with a Higher Tax Authority (5, Article 101.2, Tax Code).
07/09/1410
Judicial Appeals Against Tax Audit Results
An arbitration appeal is only possible after the prejudicial appeal
procedure has been exhausted (clause 5, Article 101.2 of the Tax
Code). However you can submit a claim to a court before the decision is
adopted by a higher tax authority.
In submitting an application to an arbitration court, it is required to attach
documents supporting compliance with “a claim review or a prejudicial
procedure if so provided by law…” (paragraph 7, Article 126, Arbitration
Procedural Code). The consequences of non-compliance with any
prejudicial procedure is the rejection by the court of the application and
the termination of court proceedings (paragraph 2, clause 1, Article 148;
and clause 1, Article 149, Arbitration Procedural Code). An approximate
time for a court to complete such a case is 6 months.
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Submission of a
declaration for
tax
reimbursement
Start of an in-
house tax audit
Within 3 months
(clause 2,
Article 88, Tax
Code)
Tax audit
completion
Within 7 days
(clause 2,
Article 176, TC)
Tax
reimbursement
decision
Within 10 days
upon
completion (cl.
1, Art. 100)
In-house tax
audit report
Not more than 1
month and 10
days (clause 1,
Art. 101, TC)
Objections to
an audit report
Within 1 month
(clause 6, Art.
100 TC) Report
delivered to
taxpayer
Within 5 days
(clause 5, Art.
100, TC)
Examination of
audit materials
and adoption of
a decision (incl.
time for add.
measures)
VAT
reimbursement
(in full, in part)
Denial of
reimbursement
Imposition of
tax sanctions or
non-imposition
of tax sanctions
1 month (clause
2, Article 139.1,
TC)
Appeal to a
higher authority
against the
decision not yet
in effect
Decision in effect
may be appealed
against within a
year from adoption
by the Federal Tax
Service
Directorate
Submit an application to an
arbitration court within 3
months. An application is
generally reviewed by courts of
three instances within 6 months
Stages of Tax Audits and Appeals Against Results Thereof
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Duration of a Process Relating to a VAT Remuneration
Stage 1
In-house tax audit
3 months + 7 days
Stage 2
In-house tax audit +
examination of
objections
5 months + 15 days
Stage 3
In-house tax audit +
prejudicial appeal
6 months + 15 days
Stage 4
In-house tax audit,
prejudicial and judicial
appeals
12 months
- At each stage, the matter may be resolved fully which means that it is not always required to go through the entire procedure.
- Time limits expressed in days do not include days-off or public holidays.
Interest Charged for Overdue Tax Reimbursement
- In accordance with clauses 2, 8, Article 176 of the Tax Code of the
Russian Federation, where there is overdue tax reimbursement,
interest will be charged, that is upon the expiration of 12 days (7 days
plus 5 days) upon submission of an application for a tax refund.
- Interest is the compensation of a taxpayer’s losses caused by an
untimely and overdue refund of amounts due in cases where a tax
authority fails to perform in time its responsibilities in connection with
the refund of tax deductions. A similar position was expressed by the
Supreme Commercial Court of the Russian Federation in its
Enactment No. 11484/06 dated 27.02.07.
07/09/1414
Successfully Completed Projects Related to Appeals Against Decisions To Reject Tax Reimbursements- Bibirevo-Nedvizhimost, LLC. The reimbursement of VAT in a court
procedure for the amount of RUB 5,684,437, charging interest on
overdue VAT refunds.
- Promenad LLC. Representation of the company’s interests in a court,
a Tax Service Inspectorate and the Tax Service Directorate for the
Moscow Region related to the reimbursement of VAT for the period of
2007 to 2011. VAT refunds for the amount exceeding RUB 90 million.
07/09/1415
07/09/1416
Contact: Vladimir Ryvkin
Phone: +7(495) 788 00 05 (237)
cell: +7(903) 688 66 43
07/09/1417
Thank you!
