"Liberalizing" the Tax Administration
The State Duma today (30.06.06) approved amendments to the Tax Code of the Russian Federation directed at liberalizing the tax administration.
These amendments were actively debated and revised. Disputes between the Budgetary Committee of the State Duma and the Russian Union of Businessmen (RCPP) ran especially hot last week as state officials from the Ministry of Finance, the Federal Tax Service (FNS), and the Deputies of the State Duma, sought to both make promises to business and retain their ability to pressure businessmen.
So, what did the RCPP actually gain in their efforts to liberalize the tax administration?
1. The organization had fought against amendments that would allow tax inspectors to conduct desk audits on the basis of not only official tax documents and declarations, but also on the basis of “other documentations of tax payer activities.”
The Ministry of Finance will, according to the amendments, issue an explanation stating that these “other documents” may not constitute a reason for beginning an audit. An audit may begin only on the basis of a tax declaration.
2. Initially the amendments would have had the FNS approve a list of instances where tax inspectors could extend audits from two months to four and from four to six.
Now the FNS has promised to involve the RSPP in preparing this list and that only higher organs of government could prolong the terms. If the FNS suddenly forgets about this arrangement, the list could be contested in The Constitutional Court on the basis that such a list must be enacted by government decree and not departmental order.
3. The RSPP also won an increase in the amount of time companies have to prepare objections to the decisions of tax inspectors from 10 to 15 days.
4. The amendments had at first stipulated that the tax inspection would have a three month term to inform companies about back taxes. This would have meant that companies could be charged penalty interest well before they ever learned that they had underpaid their taxes.
Now, this term is to be estimated from the date the notification is issued about back taxes.
There are still basic problems associated with the law:
1. The term of a field audit will begin with the decision to begin it and end when the report is drawn up. So, if tax inspectors decide at the end of the year to begin their audit in the next, the period they have to audit in is increased by one year.
2. The bill allows tax inspectors to prolong field audits indefinitely and can begin with a submission of a declaration reducing a tax sum.
3. An unpleasant surprise also awaits banks. Under the amendments, if tax inspectors suspend a bank account of a company deemed to have underpaid its taxes, and the bank makes a payment from this account, inspectors can seize bank assets to pay for back taxes if these cannot be collected from the client in question.