In 2016, we were approached by a well-known regional company established in the early 1990s and had since become a leader in the field of IT both in Altai Krai and Siberia.
Our firm joined in the on-site tax audit to provide legal support almost at the start. The solicited documents and preliminary analysis made it clear that the taxpayer is going to be accused of working with mala fide counterparties.
At this stage, it is crucial not to let the audit run its course and supervise the taxpayer's actions, namely: to give thorough reading to the list of documents required by tax officials for inspection and not make their job easier by providing documents not listed in the requirements; to attend witness interviews whenever possible to ensure they do not say anything that could later be used against the taxpayer.
The Federal Tax Service Inspectorate followed a standard procedure: witness interviews; handwriting analysis; office inspections; checking legal addresses of sketchy counterparties, etc.
The following was achieved during the audit:
- all taxpayer's witnesses testified in favour of the taxpayer;
- even though handwriting analysis was not in favour of the taxpayer, we have pointed out to serious procedure violations committed by the analyst that discredited the findings;
- tax authorities did not receive the documents they wanted to see but had no right to solicit (summary sheets, legible 1C:AccountingSuite data roll-outs).
These arguments were used as the basis of the taxpayer's response to the claim. The taxpayer also consistently referred to recent law enforcement practices in addition to procedure violations, specifically court order No. 305-КГ16-10399. This court order was issued by the Supreme Court in late 2016 on account of Tsentrregionugol (Central Region Coal Company) Case, where the court explicitly stated that the taxpayer was not to be held accountable for the violations committed by the second-tier counterparty.
The taxpayer's arguments were ignored by the Federal Tax Service Inspectorate, and it held the taxpayer liable.
The taxpayer filed an appeal to the Federal Tax Service Department for Altai Krai, emphasizing its key aspects again and facilitating the arguments on the illegality of their liability.
The Federal Tax Service Department considered the taxpayer's arguments and settled the appeal, albeit partially, cutting the amount of additional tax assessment in half. The taxpayer decided against appealing the decision any further.
According to Andrei Bezrukov, "Every tax audit is based on the correct drafting of documents on the Federal Tax Service Inspectorate's part as well as the Inspectorate following all formal procedures. If a lawyer joins in during the tax control procedures, their task is to make the Inspectorate comply with all formalities since they guarantee that the taxpayer's rights are respected. At the same time, the taxpayer's actions towards the Inspectorate's illegal demands must be as tough as possible: there are no "friends" in FTS, and they are not going to "look the other way" for the taxpayer. Upon our recommendation, the taxpayer did not provide any documents that were not on the required list despite the Inspectorate's asking for them. As a result, some of the arguments put forward by the Interdistrict Inspectorate of the FTS No.15 in Altai Krai were rather weak. All of the arguments were eventually used to the taxpayer's advantage."