We’ve submitted an amended return — will we still be fined?

9 January 2024
Tax Messenger
The Federal Tax Service has issued Letter No. BV-4-7/16343@ of 27.12.2023 (“the Letter”) clarifying how Article 122 of the Tax Code should be implemented where an amended tax return showing an additional amount of tax due to the budget is filed by a taxpayer in accordance with Article 81 of the Tax Code after the expiry of the time limit for the filing of a return and the payment of tax.

We are pleased to share a first glance at the letter, and we will monitor the development of relevant practice. The Federal Tax Service makes the following points:

1. Intent: if the taxpayer is found to have acted intentionally, a fine will be imposed even if the taxpayer has a positive unified tax account (UTA) balance (Article 122(4) of the Tax Code);

2. Period of a continuous positive UTA balance (for the purposes of deciding whether a penalty exemption applies under Article 122(4) of the Tax Code): to be determined from the tax due date to the date of submission of the amended tax return. For arrears indicated by an amended tax return for tax periods:
  • before 01.01.2023 – any overpayment of the relevant tax which continuously existed from the tax due date until 01.01.2023 should be taken into account (clause 20 of Ruling No. 57 of the Plenum of the Supreme Arbitration Court of the Russian Federation of 30.07.2013);
  • from 01.01.2023 onwards – a continuous positive UTA balance should be taken into account;

3. Penalties: not charged for days on which arrears do not exceed the positive UTA balance plus amounts credited towards future obligations (clause 2 of Decree No. 500 of the Government of the Russian Federation of 29.03.2023);

4. Mitigating circumstances:
  • a fine may be reduced:
— if there is a positive UTA balance (in proportion to the ratio of the amount of additional tax to be paid to the amount of the current positive UTA balance – it is not quite clear from the Letter how the reduction of the fine is actually to be determined);
— if the taxpayer discovered the error and filed the amended return of its own accord, even if it did not pay tax and penalties on time prior to filing the amended return;
  • in any event, mitigating circumstances cannot reduce a fine to zero;

5. Other points:
  • if an amended return is filed after a field tax audit was carried out for the taxes concerned and that audit found no violations, this may be a basis for release from liability (Article 81(4)(2) of the Tax Code;
  • the discovery by a tax authority of errors / omissions / misstatements resulting in the understatement of tax (as a factor in determining whether the imposition of penalties is precluded according to Article 81(4) of the Tax Code) is confirmed by a tax audit report. In other words, if the taxpayer receives a request for explanations which “hints” at potential offences, the errors cannot yet be considered to have been discovered (this position has already previously been expressed by the tax authorities).

B1 has an extensive track record of successfully representing companies’ interests in disputes with the tax authorities over tax penalties (including securing exemption from liability and reducing amounts of fines).

Authors:
  • Evgenii Kuznetsov
    Senior Manager
    Tax Controversy Services
  • Igor Iampolskii
    Assistant Manager
    Tax Controversy Services
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