28.07.04

The Tax Code of the Russian Federation (Article 89, Part 2) allows tax inspectors to carry out tax audits. And, if during the audit they find something in the company’s activity that seems suspicious, the inspectors have the right to look into the “tax conscientiousness” of the company for the three years prior to the beginning of that audit. During this procedure, however, they "may encounter difficulties trying to find certain documents" and suspend the audit process for some time. And then, say in 10 years or so, they may continue the audit of the same time period, i.e search for tax arrears of 13 years’ prior.

The claimants, citizens of the Russian Federation, doubted that such an interpretation of the Tax Code is constitutional. But they did not win this argument: the Constitutional Court stated that the unlimited term of tax audits does not affect in any way the rights and freedom of citizens.

One of the Tax Department officials considers the decision of the court to be quite valid, as according to the law the tax authorities cannot legally apply fines and penalties more then three years after the tax period in question. Indeed, according to Article 113 of the Tax Code (№ 146-FZ of 31.07.1998) "a person cannot be called to account for a tax offence if from the date of the offence, or the day after the tax period (during which the offence takes place) ends, three year have expired (statute of limitations)."

But everyone still remembers the illustrious decision of the Moscow Arbitration Court in charging YUKOS extra taxes, fines and penalties for a total 99,4 billion rubles (arrears were demanded from YUKOS for the year 2000, and the case was accepted for consideration in April, 2004). And the explanation of this decision is remarkable too: " … the norm concerning the statute of limitations is applicable to only diligent taxpayers."

So, there are now clear opportunities for situations where the tax inspectorate’s actions can not only thoroughly discredit a company, but also stop its activity for a long period of time. This especially puts on on guard in view of the latest "fashionable" trends in the Tax Department - the struggle against "inefficient" audits. We recommend keeping this in mind, and when in doubt turn to independent advisers and auditors for assistance. Timely detection of mistakes allows them to be corrected competently and in time.