President Vladimir Putin recently labeled the current process of tax inspections “tax terror” and has demanded that all vagaries in the current process be resolved. At an urgent meeting with the head of the Presidential Administration, tax specialists, businessmen, and Duma deputies worked to remove any contradictions and the bill has passed its first reading in the Duma. The Duma is pass the bill into law at the end of June, and it would take effect starting Jan 01, 2007.

Two years ago, the Constitutional Court granted tax inspectors the right to keep companies in audit almost indefinitely. The tax code limits inspections to two months, but the courts had decided that officials, having interrupted a tax inspection, can chose not to include the interruption as part of the two month limit. The new code lets this power remain, but limits its use to four specific cases: documents must be verified, documents must be compared with those of contracting parties, if an inquiry must be made of another state, or if a document must be translated. Interruptions for each case are limited to nine months, except for the last, which allows a maximum of 12 months’ interruption. During any interruption, the tax authorities must return all documents to the taxpayer. The tax authorities, however, will have two additional months to check in branch offices or subsidiaries of the company.

Repeated Field Audits: Tax specialists continue to hold the right to conduct repeated audits, but can not add additional fines, even if new errors are found. However, this can requirement can be bypassed if it can be shown that some impropriety has occurred that would invalidate the first audit.

A question still remains as to how far a tax audit can go. Often audits can multiply into audits of several companies at once as documents are verified. The following solution has been proposed: to allow tax inspectors to only verify specific documents, but not begin a new audit at another company.

Chamber Audits: For taxpayer inspection, it will now be enough to show only those declarations and other documents mentioned in the tax law. The tax payer will have to also showing any supporting documentation for those documents. Finally, the tax inspection will have to issue a final report on any conclusions so that the tax payer can appeal on the basis of this report. Currently, the inspection can inform the company of any infringements via any means and at its own discretion.

Source: Vedemosti Jun 01, 2006