The Federal Tax Service has published a “Review of Case Law on the Establishment of a Taxpayer’s Actual Tax Obligations” (Federal Tax Service Letter
No. BV-4-7/13450@ of 10 October 2022).
The Review summarises the body of precedent that has emerged since the publication of Federal Tax Service Letter No. BV-4-7/3060@ of 10 March 2021 “Concerning Practice in the Application of Article 54.1 of the Tax Code of the Russian Federation”, which tax authorities must take into account in pursuing their work.
Some of the conclusions set out in the Review are more favourable for taxpayers than those contained in the letter of 10 March 2021.
For instance, it is stated in the Review that, for the purposes of establishing actual tax obligations:
- Tax authorities must consider all available documents detailing the actual parameters of a transaction – both those submitted by the taxpayer and those possessed by the tax authority (items 1 and 2 of the Review).
Previously, the letter of 10 March 2021 indicated a greater dependence on documents furnished by the taxpayer itself in establishing actual tax obligations (clauses 10 and 11 of the letter of 10 March 2021).
- The disclosure of evidence about the actual parameters of a transaction by a taxpayer may take place both in the context of an audit and in the context of an administrative or judicial appeal against the results of an audit (items 3, 4 and 5 of the Review). Such disclosure may be made by submitting revised tax returns for an audited period after the completion of the audit or the entry into force of a decision on the audit.
Previously, the letter of 10 March 2021 stated that the disclosure of evidence must take place in the course of an audit or the submission of objections to an audit report (clause 10 of the letter of 10 March 2021).
To a large extent, however, the case law reaffirms the positions set out by the Federal Tax Service in the letter of 10 March 2021:
- The indirect method of determining tax liability cannot be applied where the taxpayer has created an artificial flow of documents involving shell companies (item 1 of the Review, clause 11 of the letter of 10 March 2021).
- Any part of expenses / VAT deductions attributable to shell company mark-ups constitutes an unjustified tax benefit.
In this respect, taxes must be assessed as if contracts had been concluded directly between the taxpayer and the actual contractors, taking into account their tax status (VAT payer or non-payer, etc.) (items 2, 7 and 8 of the Review, clause 10 of the letter of 10 March 2021).
- A VAT deduction may be denied on the grounds of the absence of an economic source for tax reimbursement if there is proof that a transaction was not genuine and the taxpayer was pursuing the goal of tax evasion (item 6 of the Review, clause 11 of the letter of 10 March 2021).