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In the new issue of the journal "Nalogoved" № 9 for September 2016, there was published an article of the CEO of National Law Company "Mitra" Yury Mirzoev.
Clarified declaration after the on-site inspection: the position of the Supreme Arbitration Court of the Russian Federation needs to be adjusted
Making a decision on field inspection without taking into account the tax return filed after the completion of the control measures, the tax authority deprives the taxpayers of some of the rights. The courts don`t restore these rights, referring to the position of the Supreme Arbitration Court.
Two years after the merger of the higher courts, the degree of discussion that has developed around the abolition of the Supreme Arbitration Court of the Russian Federation has become much lower. The legal community has gradually become accustomed to the idea of a single court, especially since the merger did not lead to revolutionary changes in the sphere of economic justice. The Supreme Court of the Russian Federation does not hurry to change the established practice of resolving tax disputes, although the justification of some legal positions formed by the Supreme Arbitration Court of the Russian Federation raises questions.
One of these positions can be referred to the findings of the Supreme Arbitration Court about how the tax authority should act if the taxpayer submitted an updated declaration after the completion of the on-site tax audit, but before the decision is made on it. The Presidium of the Supreme Arbitration Court of the Russian Federation formulated its point of view in the Resolution on the case of LLC "Dirol Cadbury". This decision predetermined the practice of lower courts on similar disputes.
Legal position of the Supreme Arbitration Court of Russian Federation
In the Decree of the Presidium of the Supreme Arbitration Court of the Russian Federation it is noted that the Tax Code of the Russian Federation doesn`t contain a ban on submission of updated tax declarations for the relevant period in case of the appointment, conduct or termination of a field tax audit of this period. If the revised declaration is submitted after the end of the audit, but before taking a decision on it, the tax authority, subject to the volume and nature of the information to be clarified, has the right to conduct additional control measures or, by making a decision without taking into account the specified declaration, to appoint a repeat field audit in respect of the specified data.
Having assigned the right to issue a decision on verification in the case under consideration, without taking into account the specified information, the Presidium of the Supreme Arbitration Court of the Russian Federation made a catastrophic mistake, which, as practice shows, actually deprived the taxpayers of part of the rights provided for by the Tax Code.
The court didn`t pay attention to the fact that the law does not give the tax authority the right to ignore the content of the revised declaration, even if it is submitted by the taxpayer already after the exit inspection, but before the decision is made on it. From the moment of its submission, the information declared therein shall be deemed reliable until the tax audit establishes otherwise. Moreover, if the inspectorate does not appoint additional control measures or exit (or cameral) verification of the specified declaration, the taxpayer's obligations will be considered equal to the amount that he indicated.
Arbitration practice
Relying on the legal position of the Presidium of the Supreme Arbitration Court of the Russian Federation, the courts don`t see violations of the law in the adoption of the decision by the tax authority for on-site inspection without taking into account the data of the finalized tax return submitted at the end of it, and in fact deny taxpayers the right to reduce the tax base covered by the audit of the tax period by the amount of losses of past years and income tax expense in cases when they are reflected in such declarations.
In this respect, the case of JSC Nurenergo is indicative.
As of January 1, 2007, the Company had a loss of 2,243,065,000 rubles confirmed by the tax authorities during the 2004-2006 field audit for the activities of previous years. The inspection conducted a review of the Company for 2007. In the verification act, it is proposed to add 60 505 915 rubles. tax on profit, 12,370,528 rubles. penalty interest, 11,999,467 rubles. fines and reduce losses received by the Company for 2007 (the profit tax on the initial declaration for the specified year was equal to 0 rubles).
Together with the objections on the act of field tax audit, the Company submitted to the inspectorate an updated declaration of income tax for 2007 and a letter with a request to send a part of the losses of previous years (for 2004-2006) to repay the income added for that year. At the same time, losses of previous years in the initial declaration for 2007 were not announced due to, according to the taxpayer's information, loss-making activities in the said year.
Making a decision on the results of the inspection, the inspection didn`t take into account the amount of the loss under the updated declaration and didn`t reduce the tax. Considered the case by the rules of the court of first instance, the appellate court, referring to the Decree of the Presidium of the Supreme Arbitration Court, considered this approach of the tax authority to be legitimate. The District Court found the appeal of the Company unenforceable. The chamber of Judges of the Supreme Arbitration Court of the Russian Federation didn`t find grounds for reviewing judicial acts in the order of supervision.
Of the recent disputes, it is worth mentioning the case of CJSC Irion Science and Production Association. Courts of three instances, also referring to the approach of the Presidium of the Supreme Arbitration Court of the Russian Federation, came to the conclusion that the tax authority has the right to make a decision on the field audit, not taking into account the data submitted after its completion, but before the decision on it is clarified. Refusing to transfer the complaint of the taxpayer to the Court Collegium for Economic Disputes, the Supreme Court didn`t question the references of lower courts to the Decree of the Presidium of the Supreme Arbitration Court and in fact confirmed the relevance of the legal position under consideration.
The illegality of the approach of tax authorities and courts
First, the decision on the results of the on-site inspection without taking into account the updated tax return deprives the taxpayer of the opportunity to postpone the losses or state additional expenses in the period covered by the audit. Moreover, JSC Nurenergo, for example, could not at all take advantage of the right to transfer losses of previous years. Since the activity of the Company for all time of its existence was unprofitable, it was only possible to realize the right to reduce the tax base for the amount of losses of previous years in the period of additional taxation based on the results of the audit. In other words, when the revenues received by it exceeded the amount of expenditures incurred, which are taken into account when determining the basis for the profit tax of organizations.
Secondly, if the audit decision is rendered without taking into account the updated declaration and the profit tax, fines and penalties are added, the taxpayer will be forced to pay these fines and penalties, even after repeated visits (or cameral) checks confirm the data stated in the updated declarations .
Third, in case of the approach formulated by the Presidium of the SAC of Russia, the making decision in such cases should be accompanied by the appointment of a second check in the part of the specified information. However, such appointment is the right of the tax authority. In this connection, the situation can`t be ruled out when the tax authority issued a verdict on verification, not taking into account the indicators of the specified declaration, and a repeated check of this declaration is not assigned, the data contained in this document is ignored.
Some courts, having established the fact of making a decision based on the results of the on-site inspection without taking into account the updated tax declaration and without the appointment in the subsequent re-examination, recognize this decision as invalid. But even such a largely formal approach can`t be considered answering the letter of the law. The tax legislation doesn`t give the controlling body the right to ignore the content of the filed refined declaration, regardless of whether or not a repeat field audit will be appointed thereafter. By virtue of direct indication of the law (Article 80 of the RF Tax Code), the actions of the tax authority that refused to accept the declaration or ignored its content are illegal, regardless of the time it was submitted.
In our opinion, the approach formulated by the Presidium of the Supreme Arbitration Court of the Russian Federation is absolutely inadmissible. Otherwise, without taking into account the indicators submitted after the end of the inspection, but before the decision on the revised declaration is made, the inspection actually takes a decision without establishing the actual obligations of the taxpayer.
The way out
In such cases, the tax authority has the right to go in one of three possible ways:
- on the basis of clause 6 of Article 101 of the Tax Code of the Russian Federation, verify the correctness of the data specified in the revised declaration (designate additional tax control measures) and after their verification make a decision on the on-site inspection, taking into account the assessment of the indicators of the specified tax return (taking into account the assessment of the legitimacy of the taxpayer's transfer of losses of past years, applications for new expenses, deductions, etc.);
- make a decision based on the results of the on-site inspection, taking into account the indicators of the updated tax return without their additional verification (for example, if the data specified in the updated declaration was previously checked by the tax authority in the course of other control measures);
- make a decision based on the results of the on-site tax audit, taking into account the indicators of the specified declaration without their additional verification and appoint a repeated exit (or cameral) check of the specified information on the basis provided for by paragraph 6 of clause 10 of Article 89 or paragraph 2 of Article 88 of the Tax Code.
Any of the proposed variants won`t lead to restriction of the rights of the taxpayer to submit an updated declaration and transfer of losses of previous years, the application of new costs, etc., as well as exclude unreasonable involvement of an economic entity in the commission of a tax offense. In addition, this will not deprive the state of the opportunity to provide its fiscal interests, if the specified declaration is filed without grounds.
The Supreme Court Russian Federation should correct the legal position formulated in the Resolution, because the mistake made by the Presidium of the RF Supreme Arbitration Court is now being reproduced by the tax authorities and courts. And this leads to the deprivation of taxpayers of some of the fundamental rights provided for by the Tax Code. There are also all grounds to believe that the Resolution will continue to have an extremely negative impact on taxpayers and on the development of tax law in Russia.