Tax Administration and Tax Audits

The Tax Control System in Russia

The Federal Tax Service (FTS) is the main tax administrator. More than 80,000 inspectors. Tax control: desk audits (at the desk, without field visits, all returns are checked automatically), field audits (physically visit the company, no more than 2 months, up to 6 months in exceptional cases).

Digitalization of Tax Control

ASK VAT-2/3: an automated VAT verification system. Compares the returns of the entire chain of suppliers and buyers. A "gap" occurs when the buyer claims a deduction, but the supplier does not report the sale. This automatically generates a request. Russia is one of the world leaders in the degree of digitalization of tax control.

The FTS knows practically everything: bank accounts (through the AML system), money flows, property, real estate transactions, foreign accounts (through CRS — automatic data exchange with 100+ countries).

Types of Tax Violations and Sanctions

Failure to submit a return — fine of 5% of the tax amount for each month, minimum 1,000 rubles.

Understatement of taxable base — fine of 20% of the amount of the understatement (40% in case of intent).

Tax evasion (criminal liability, Articles 198-199 of the Criminal Code of the Russian Federation): individual — large amount: >2.7 million rubles (imprisonment up to 1 year); organization — large amount: >15 million rubles (up to 2 years).

Taxpayer Rights During an Audit

To receive a copy of the audit report; to submit objections; to participate in the review of materials; to appeal the decision (pretrial — to a higher authority, then — to court). Three instances of the arbitration court + cassation.

Practical Assignment

The company received a request from the FTS for explanations on VAT for the quarter: "A gap in the supplier chain has been detected for the counterparty LLC 'Romashka'." (1) What does this mean? (2) What is the company’s proper response? (3) What should be checked in the documents? (4) Within what period should a response be given?