Schemes to Avoid Paying Unified Social Tax
The Administration of the FTS in Moscow sent out to city tax offices a document listing the most common schemes used for avoiding paying the Unified Social Tax (UST). Experts agree that companies indeed actively used the schemes although it will not be easy for tax authorities to prove it in a court. According to the distributed document, the following will raise suspicions with tax authorities:
- excessively high salaries for executives;
- salaries paid from financing received from a founding member;
- wages paid through third parties, such as charity funds;
- salaries paid from finances received as a payment on civil contracts not included in accounting reports.
Explanatory notes of the document thoroughly describe methods of proving violations, and almost all of them are based on witness testimony. In order to calculate what amount of UST has been concealed, tax authorities have only two sources of information: witnesses and the industry average salary index. Although the latter source is easily accessed, the former may present certain problems. Employees may not be willing to testify against their employer, and senior executives – managing directors, chief accountants – may refuse to give evidence according to their right not to testify against themselves.
Furthermore, testimony cannot be considered an unconditional proof of guilt. The final decision will depend on a court ruling. Witness testimony as the one and only proof most likely will not have a significant meaning for the court. First of all, judges require documentary evidence of violations; secondly, while collecting evidence tax authorities often violate laws on handling evidence, which make the evidence inadmissible in court. However, in practice, witness testimony can be effective for out of court settlements. Most of the time, when presented with ten written testimonies from employees about receiving under-the-table salary, the employer prefers to pay his taxes in full rather than take the matter to court – which is just what tax authorities strive for.
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