www.law.pwc.ru Changes in pre-trial settlement of tax disputes and other tax administration issues Flash Report Russia, Issue No. 11 (82),
Changes in pre-trial settlement of tax disputes and other tax administration issues* What's new? In,the Russian President signed the two federal laws [1], which ammend tax legislation with respect to tax administration issues. Substantially, these changes regard the extension of the timeframes for pre-trial settlement of tax disputes and specify various tax administration procedures. Some changes settle relations between taxpayers and tax authorities that had been formed in practice before but were not addressed in the Russian Tax Code. Let s look at these changes in detail. Key changes in pre-trial settlement of tax disputes (according to Law No 153-FZ) Timeframe for preparing appellate appeals extended The law extends the timeframe for bringing into effect tax authorities decisions on holding tax liability (or denying to hold tax liability) for tax offences issued upon the results of tax audits during which taxpayers may file their appellate appeals. Now, instead of previous 10 days (20 days for CGT [2] ), the timeframe has been shifted to one month. Therefore, taxpayers would now have more time to prepare a motivated appellate appeal. This generally is in line with the recent trend of shifting the possibility of resolution of tax disputes towards the pre-trial stage. Obligatory pre-trial appeal of non-regulatory acts of tax authorities and specified procedure for appeal against nonregulatory acts of the Russian FTS Effective 1 January 2014, a mandatory pre-trial procedure will be introduced for all non-regulatory acts issued by tax authorities, actions or omissions (non-actions) of their tax officers. Formerly, the obligatory pre-trial appeal procedure was only applied in respect of tax authorities decision issued upon the results of tax audits. Only non-regulatory acts and actions or omissions (non-actions) of the Russian Federal Tax Service (hereinafter, the FTS) will NOT be subject to the obligatory pre-trial appeal procedure (in particular, the FTS decisions issued upon the results of transferpricing tax audits). Now such decisions of the FTS will take effect immediately after being passed and may be challenged by taxpayers only in arbitrazh court. Timeframe for reviewing appeals revised The timeframe within which a higher tax authority should review an appeal has been revised. The revised timeframe is now one month for tax audit decisions and 15 days for all other decisions. When necessary, these periods can be extended for the same time intervals. * Pre-trial settlement of tax disputes means resolution of tax disputes at the administrative stage before initiation of litigation process. [1] Federal Law No. 153-FZ dated 2 On amending Part One of the Russian Tax Code and Federal Law No. 248-FZ dated 23 On amending Part One and Part Two of the Russian Tax Code and certain other Russian legislative acts, and voiding particular provisions of certain Russian legislative acts. [2] Consolidated group of taxpayers 2
Revised rules for providing documentation The law now expressly states that taxpayers may provide additional documentation to a higher tax authority during the period when their appeal is under consideration but before a decision is passed on such an appeal. However, taxpayers now must explain why such documentation was not provided to the tax authority which has issued the decision being appealed. If a taxpayer fails to provide a reasonable explanation, the higher tax authority may disregard such documentation provided when passing its decision on the appeal. Subsequent pre-trial appeal is codified As now expressly stated, taxpayers may appeal to one level higher tax authority in the hierarchy of tax bodies (the FTS) against a decision passed by a higher tax authority upon an appeal (within three months after the decision on the appeal has been passed). Before, in practice, taxpayers have already applied such a procedure for subsequent pre-trial appeal. This is now expressly stipulated in the Russian Tax Code. Other changes Among other changes, the law introduces obligatory requirements to the contents of appeals and establishes the grounds based on which a higher tax authority may dismiss an appeal filed. Some provisions specify in detail on regular appeals and appellate appeals. The procedures of appeal and appeals consideration are also updated. Entering into force of Law No. 153 -FZ Law No. 153-FZ enters into force in one month from the day of its official publication [3]. This will take place on 3 August 2013. Law No. 153-FZ provides that if an appeal is filed before the date the Law takes effect, the former provisions of the Russian Tax Code should apply. However, the Law lacks any special provisions as to the new terms for tax authorities decisions to come into force. We believe that the new timeframe should apply to such decisions issued after Law No. 153 -FZ enters into force. The FTS is likely to issue clarifications on that matter shortly. The requirement on obligatory pre-trial appeal against all nonregulatory acts of tax authorities, actions and omissions (non-actions) of their officials will be applicable starting from 1 January 2014. [3] The law was published on the official website www.pravo.gov.ru on 3. 3
Key changes in tax administration (according to Law No. 248-FZ) Extended timeframe for submitting written objections The timeframe for taxpayers to submit their written objections to tax audit reports issued by tax authorities are extended from 15 days to one month, and those for objections to reports issued under the procedure specified in Art. 101.4 of the Russian Tax Code are extended from 10 days to one month. The approach for providing taxpayers with the opportunity to familiarise with tax audit materials (additional tax control measures) is changed. Now, such familiarisation is possible only upon a request of a taxpayer based on which the tax authority should familiarise the applicant (its representative) with tax audit materials no later than within two days before they are to be reviewed. Excessive tax refunds are recognised as tax arrears The changes now expressly provide that if during conduction of a tax audit excessive amounts of tax refunds are identified, tax authorities can declare them as tax arrears in a tax audit decision. Thus, excessive tax refund is now actually recognised as a tax arrear. Therefore, tax authorities are now more likely to charge late payment interest and penalties on such amounts. Before, in practice, while late payment interest imposed on excessive amounts of tax refunds were found by courts to be justified, charging penalties was held by courts to be illegal due to the absence of taxpayer s fault. Now such practice may be changed. Tax liability for failure to produce data has changed Tax liability for refusal to provide documents or information about a taxpayer (a third party) required by tax authorities is to change from 1 January 2014 (Art. 93.1 of the Russian Tax Code). Earlier, such an offence entailed tax liability specified in Art. 129.1 of the Russian Tax Code (RUB 5,000). Now, it is punishable under Art. 126 of the Russian Tax Code (RUB 200 per each document). Meanwhile, tax liability under Art. 129.1 of the Russian Tax Code is still imposed for the purposes of Art. 93.1 (6) of the Russian Tax Code for taxpayer s failure to communicate properly (or in time) the information requested by tax authorities. Provisions on bank guarantee specified A bank guarantee is now explicitly treated in Art. 72 of the Russian Tax Code as a mean of ensuring fulfilment of tax payment obligations. The extent to which it is applied in tax relations is now expanded (in particular, in cases of providing tax deferment or tax payment by instalments, or granting an investment tax credit). The Russian Tax Code is also complemented with special Art. 74.1 comprising the provisions on the bank guarantee that were previously contained in Art. 176.1 of the Russian Tax Code (on declarative procedure of VAT refund) and Art. 204 of the Russian Tax Code (on excise duties payment). In particular, the new article specifically provides for the function of a bank guarantee for tax purposes, the terms and conditions to grant it, the rights and obligations of the parties under a bank guarantee, and the qualifications for a bank to be put in the list of banks that meet the requirements to accept and issue bank guarantees for tax purposes (currently developed by the Russian Ministry of Finance). 4
Timeframe for sending tax payment requests extended The timeframe during which a tax payment request can be sent to a taxpayer upon the results of a tax audit is now extended from 10 days to 20 days after this decision comes into force. The timeframe during which a payment request for arrears in respect of taxes and respective late payment interest and penalties can be sent to a taxpayer is also extended to one year in case the amount of such a request is less than RUB 500. The changes now require that the information about the timeframe for tax payment should be contained only in the requests sent to individuals. The changes also specify the option to send a tax payment request not only by a tax office within which a taxpayer is registered, but also by a tax office that issued a decision under the procedure specified in Art. 101.4 of the Russian Tax Code. Other changes made by Law No. 248 -FZ The issues of applying Articles 78 and 176 of the Russian Tax Code on the procedure of set-off (refund) of VAT claimed for recovery are specified; The procedure for tax authorities to arrest taxpayers property for tax payments collection purposes is made more complex; The provisions of Articles 83 and 84 of the Russian Tax Code specify the procedure of tax registration and deregistration of management companies of closed unit investment funds (in part of managing real estate), responsible participants of CGT, parties of investment partnership agreements (managing partner), and foreign nationals and stateless individuals (apatrides); The list of violators liable under tax offences specified in Articles 120 and 126 of the Russian Tax Code is extended; The procedure of documentation flow between tax authorities and taxpayers is now more specified; The changes introduce a direct duty of tax authorities to provide not only certificates on the status of tax, levy, late payment interest and penalty payments but also those for interests, as well as certificates on fulfilment of the said payments obligations; The changes explicitly define the cases when tax authority s order to debit and transfer funds from taxpayer s bank accounts is suspended and resumed, and when non-fulfilled orders are to be withdrawn; New grounds for recognizing arrears in respect of taxes, levies, late payment interest and penalties as non-recoverable are introduced (namely, when an enforcement officer (bailiff) issues a resolution on termination of enforcement proceeding); Certain provisions of the Russian Tax Code are supplemented with new provisions regarding interest arising due to alteration of timeframes for tax payments; The changes specify the obligations and the procedure for providing tax authorities with information related to tax registration of individuals by migration authorities, civil registry offices, diplomatic missions and consular offices; The changes fix a five-day timeframe for tax authorities to deregister a Russian entity or an individual entrepreneur based on the data contained in the Unified State Register of Legal Entities (the EGRYUL ) and the Unified State Register of Individual Entrepreneurs (the EGRIP ) in case their location has changed; Tax authorities are now directly obliged to provide extracts from the Unified State Register of Taxpayers (the EGRN ) to its users. 5
Entering into force of Law No. 248-FZ Law No. 248-FZ enters into force in one month from the day of its official publication [4]. This will take place on 24 August 2013. Changes which concern the procedure of set-off (refund) of VAT claimed for recovery and bank guarantees (in particular, entry into force of Art. 74.1 of the Russian Tax Code) will take effect on 1 October 2013. The changes made by Law No. 248-FZ apply to bank guarantees and investments tax credit agreements which will be issued and concluded after the Law comes into force. However, as for decisions on VAT recovery the new provisions will only apply to those passed after 1 October 2013. In respect of the timeframes for filing written objections, if the new timeframe (i.e. one month) does not elapse by the day Law No. 248-FZ enters into force, such timeframe should be calculated according to the new rules. The new provisions on tax offences (including the new procedure of imposing tax liability for the offence stipulated in Art. 93.1 of the Russian Tax Code), on the powers of tax authorities, and tax registration and submitting to tax authorities the relevant information shall take effect on 1 January 2014. What does this mean for you? The new changes made to the Russian Tax Code contain both advantageous and not entirely favourable provisions for taxpayers. However, in any event, assessment of the consequences of their practical application will be possible only once time has passed. Given that the Laws provide for a transition period, we recommend to analyse any possible consequences of the changes application made in 2013. Thus, the procedural issues of interaction with tax authorities have now been revised. Now we have to live by these new rules. [4] The law was published on the official website www.pravo.gov.ru on 24 6
Contacts Yana Proskurina Director +7 (495) 232 5757 yana.proskurina@ru.pwc.com Vladislav Bozhenkov Senior Associate vladislav.bozhenkov@ru.pwc.com Maria Mikhaylova Senior Associate maria.mikhaylova@ru.pwc.com Moscow 10, Butyrsky Val Moscow 125047, Russia Tel.: +7 (495) 967 6480 Fax: +7 (495) 967 6001 St Petersburg BolloevCenter Business Centre 4, Pereulok Grivtsova, Saint Petersburg, Russia, 190000 Tel: +7 (812) 326 6969 Fax: +7 (812) 326 6699 Yuzhno-Sakhalinsk (GMT +10) 6, A. Buyukly St., 5th Floor, East Block, Yuzhno-Sakhalinsk, 693007 Russia Tel.: +7 (4242) 727-344, +7 (4242) 727-463 Fax: +7 (4242) 727-344 2013 PricewaterhouseCoopers Legal CIS B.V. All rights reserved. and PricewaterhouseCoopers refer to PricewaterhouseCoopers Russia B.V. or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Information contained in this flash report does not constitute a professional consultation, which our specialists provide only on a case-by-case basis