The Federal Tax Service has developed a letter on the practical application of article 54.1 of the Tax Code of the Russian Federation and aimed at combating tax evasion using fictitious companies and transactions.
The application of article 54.1 of the Tax Code of the Russian Federation is aimed at counteracting tax abuse and obtaining unjustified tax benefits (UTB) through tax evasion. Such abuses may include illegal reduction of the taxation base or the amount of the tax itself as a result of making transactions with the contractor company.
Taking into account the published explanations, the tax authorities will be guided by the following criteria during the inspection, proving that the taxpayer has received the UTB:
The fact of operations
During the inspection, the tax authorities should determine whether the transaction was actually performed and whether the taxpayer received the execution of the transaction made.
If the transaction is recognized as unreal, then it is not necessary to take it into account for profits taxation purposes and there is no need to check it according to other criteria.
If the transaction is recognized as real, it will be checked according to the remaining criteria. As a result of the inspection, the following distortions of information about the facts of economic life can be revealed:
Execution by a proper person;
When checking for this criterion, the tax authorities identify “theoretical” companies among the contractors. These organizations do not conduct real activities and do not perform real functions. Their task is only to document the concluded transactions.
The explanations of the Federal Tax Service contain the following circumstances that exclude the fact that the contractor fulfils their obligations under the contract:
If the company is recognized as “theoretical”, then one of the conditions, that gives the taxpayer the right to account for expenses for taxation purposes and use tax deductions, will be violated – the performance of obligations under the transaction by the proper person (contractor) in accordance with the concluded contract.
Identifying the economic validity of an economic transaction, the tax inspectorate seeks to detect false transactions using the approach No. 53 of the Plenum of the Supreme Commercial Court of the Russian Federation.
According to the approach, the scope of the rights and obligations of the taxpayer will be determined based on the true economic content of the transaction, if the taxpayer for taxation purposes did not take into account the transactions in accordance with their economic rationale.
During the inspection, the tax authorities determine the main purpose of the operation. To do this, it is necessary to assess whether the taxpayer would have made the transaction if there were no other transactions, and whether its main purpose was to obtain tax benefits. At the same time, the unprofitability of the transaction for the taxpayer itself cannot be equated with the absence of a business purpose.
If the result is negative, the tax inspectorate will need to additionally prove that the ultimate business purpose could have been achieved without the controversial operation.
For more information about the other criteria for conducting an audit by the tax authorities in order to identify UTB, see the Letter No. BV-4-7/3060 of the Federal Tax Service of Russia dated March 10, 2021.
Tax violations can be avoided if the taxpayer company shows due diligence and carefully checks the contractor for the absence of signs of a “theoretical company”.
In order to determine the good faith of the company with which you are connected by a chain of transactions, it is necessary to enter the data of its taxpayer ID number (Russian acronym – INN) in the line of the corresponding register.
The organization can also use the unified service “Transparent Business”, which brings together the information provided:
2. The results of the inspection should be documented.
3. It is recommended to pay due attention to the process of concluding a contract with a contractor, where it is necessary to take into account the requirements listed in article 54.1 of the Tax Code of the Russian Federation, and to assess possible risks.
In the matters of checking contractors and compliance with the requirements of tax legislation, please contact Acsour specialists.