Tax authorities move to collect what they charge as a result of tax audits

14 July 2023
Tax Messenger
What is new?

Recently, the tax authorities have been increasingly focusing on improving the collection of additional taxes and levies resulting from conducted tax audits. Various tools and approaches are practiced throughout the tax administration process to collect the requisite information; preventive measures ensuring subsequent collection are taken; and room for collection of additionally assessed amounts has been expanding, including via bankruptcy procedures, both from organizations and / or executives (general managers, chief accountants and shareholders) in the form of subsidiary liability from controlling persons.
The principle "tax liability follows along with cash, other assets and ownership rights" is also being implemented.

The tax authorities' control measures involve several stages. The first is a "surface cut" (collection of information) as part of a pre-audit analysis during when the tax authorities request information on the taxpayer’s financial position, analyze it and conclude on if there is a risk of failure to pay future taxes owed.

The second stage, in the event there are such risks, involves a comprehensive analysis of financial and commercial operations.

In our view, this stage is more critical, since, in the reasoning part of on-site tax audit report, the tax authorities analyze the taxpayer’s financial and tax reporting, information on assets, receivables, subdivisions and subsidiaries, liquidity and conclude if there are sufficient funds to settle both the anticipated tax debt and potential liability of the company’s controlling persons and executives.

In fact, the tax authorities analyze the possibility of collection at a "deeper" level and inform the taxpayer about possible negative consequences, thereby setting down in procedural documents (including a tax audit report) facts concerning the taxpayer’s financial position, the nature of carried out transactions and the operation structuring that will subsequently be used for purposes of collecting taxes.

Why is this important and what to do?

Based on our practical experience, we trust that, already at the initial control stages, a taxpayer should closely consider certain issues on potential additional tax assessments and their settlement as well as take steps to maximally safeguard its business against negative financial consequences:

  • Assess stability and sustainability of the company’s financial position
  • React appropriately to the tax authorities' "signals" and expound issues on the company’s solvency
  • Develop a defense strategy for protecting the company’s management and controlling persons from subsidiary and criminal liability
  • Analyze the possibility of an amicable agreement, deferral or installment plan for tax payments
  • Maintain a defense plan for bankruptcy cases and civil litigation to obtain compensation of damages related to tax issues

How can B1 help?

B1 draws on experts with many years of experience in the related areas, including in the Federal Tax Service, to provide support at all stages of the tax authorities' actions, in particular:

  • Preliminary analysis of the possibility of above risks
  • Analysis of the tax authorities' request addressed during a pre-audit analysis for initial information on the company’s financial position (including an analysis of documentation) as well as preparation of responses
  • Support on drafting objections to an on-site tax audit report or written explanations involving an analysis of the company’s financial position to minimize the risks that:

1) bankruptcy procedures will be initiated
2) impute of subsidiary liability to the company’s executives and / or controlling persons
3) a transaction will be challenged

  • Communication with the tax authorities to replace injunctive measures (e.g., prohibition on the divestment of assets, suspension of operations on bank accounts, etc.) with other measures / mechanisms stipulated in the Tax Code of the Russian Federation
  • Support in restructuring tax arrears (obtaining an installment plan or deferral, concluding an amicable agreement), developing a position and requisite package of documentation as well as organizing communication with the tax authorities on professional platforms

Should you need further information please contact the authors of this publication.

  • Dmitry Knizhentsev
    Associate Partner
    Tax & Law, Tax Controversy
  • Marina Arakelova
    Senior Manager
    Tax & Law, Tax Controversy
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