Specialist of the business development department
At the beginning of spring, Russian business was provided with state support measures in connection with the coronavirus, namely, deferred tax payments, submission of reporting and cancellation of tax inspections for the period of self-isolation. Time has passed, and now there is a legitimate question: what will happen later, and what companies should pay special attention to? Today we will tell you how to prepare for a meeting with revenue officers and what errors in tax reporting are most common in practice.
The purpose of the desk audit is to make sure that the company’s tax reporting complies with requirements of the legislation and do not contain distorted data. Such inspection begins after the submission of the declaration or calculations to the Federal Tax Service and is carried out within three months from the date of submission of reports. At the same time, notification of the beginning of the inspection is not send to a taxpayer, however, if errors are detected, the company will be notified with a requirement to provide explanations or make changes to the declaration. It is necessary to respond to such a notification quickly: to provide explanations to the Federal Tax Service or to send a corrected declaration within 5 days from when the request was received. The rules and procedure for conducting a desk audit can be found in article 88 of the Tax Code of the Russian Federation.
Please note that in case of delay in submission of a tax declaration for a desk audit for 10 or more days, the Federal Tax Service has the right to block the company’s bank accounts.
In contrast to on-site tax audits, inspectors have the right to request documents and explanations during desk audits only in certain cases, for example:
– If errors and contradictions are found in the declarations, the tax agency will request explanations or adjustment;
– If you submit an updated declaration with an increased amount of loss or reduced tax payable. In this case, the revenue officers can request an initial return, invoices, tax ledgers, etc.;
– If a company has used any benefits, the Federal Tax Service Inspectorate may request documents confirming the right to this benefit;
– If you submit a profits tax declaration with a loss;
– If you submit documents for VAT recovery from the budget. In this case, documents are always requested, and not only in case of disagreement.
When checking a declaration or calculation, the Federal Tax Service analyses and identifies violations in all the company’s reporting for the period to which the document being checked relates. The tax agency checks all data, including those obtained from external sources, from contractors, as well as information about previous desk audits. What are the most common errors in reporting found by revenue officers?
One of the most common errors during the check is understatement of the base for calculating tax. In the table, we have provided examples of violations that lead to an erroneous understatement of the VAT tax base:
|The essence of the violation||Rule of the Tax Code|
|The property transferred free of charge is not reflected.||clause 1 of article 146|
|The amounts of preliminary payment on account of forthcoming deliveries are not included||clause 1 of article 154|
Error in the numbers of invoices that are registered with the sale ledgers and purchase ledgers
The Federal Tax Service conducts a reconciliation check of invoice numbers, and there are often situations when the supplier has one invoice number in the sale ledger and the buyer has another in the purchase ledger. In this case, it is necessary to submit the updated declaration again, correcting the invoice number and date, or present a response with adjustments made
Error in the transaction type code
There may be an error not only in the invoice number, but also in the transaction type code in the purchase ledger. For example, for transactions with contractors that pay VAT, the transaction type code 26 is often specified. In this case, it is necessary to submit a “tax return update” and replace code 26 with code 01. In addition, the seller can provide a formalized report with these corrections.
Revenue officers have the right to request explanations from companies if the VAT and profits tax declarations contain discrepancies in the tax base figures for the sale of goods (works, services). Despite the fact that the figures in these databases should not be the same, the inspectorate may require explanations in order to eliminate doubts about possible errors in the reporting. This conclusion was also confirmed by the Supreme Court of the Russian Federation in ruling No. 307-KG18-10196.
Pay attention to typical situations in which companies erroneously do not calculate VAT:
|VAT is not accrued on goods delivered for own consumption, and expenses for which are not included in profit.||sub-clause 2, clause 1, article 146|
|An organization that is not a VAT payer issued an invoice to the buyer with the specified amount of tax, but did not pay it.||clause 5, article 173|
|The tax is not accrued, since the good sold is not subject to VAT, but the documents confirming the sale are not provided.||article 149|
In order to take advantage of the tax deduction, the company needs certain grounds. If a taxpayer cannot document the reasonableness of applying VAT deductions, they face additional accrual of tax amounts and punitive sanctions. It should be noted that desk audit of VAT recoverable is particularly deep, detailed and difficult for the taxpayer compared to any other tax, since VAT is recovered from the budget, and most tax crimes are associated with illegal VAT recovery. VAT recovery check almost never is performed without additional requirements for explanation from the Federal Tax Service, especially if we are talking about large amounts. That is why specialists of our company help clients to prepare their reporting properly and reimburse significant amounts of taxes paid.
In some cases, established by the legislation of the Russian Federation, the VAT previously accepted for deduction should be recovered (all cases are listed in clause 3 of article 170 of the Tax Code of the Russian Federation). A common error is not to recover tax amounts in the following situations:
In the first case, VAT on goods and services, including on property, plant and equipment and intangible assets, should be recovered in the period preceding the switching to a special tax regime. In the second case, VAT is recovered in the period when the company can claim a deduction for goods for which an advance payment was received, i.e., as they are sold.
Before preparing a response to a requirement to provide explanations on the VAT declaration, it is necessary to send a record of receipt to the tax authorities. The deadline for submission is six working days from when the inspectors sent the request (clause 5.1 of article 23, clause 6 of article 6.1 of the Tax Code of the Russian Federation). As we mentioned at the beginning of the article, if the record of receipt is delayed for 10 days, the tax agency may block your settlement account (clause 11 of article 76 of the Tax Code of the Russian Federation).
Then it is necessary to double-check submitted VAT declaration. When checking, pay attention to the details of records where there are discrepancies from the requirements for provision of VAT explanations: dates, numbers, amounts.
Even if everything is in order, the response to the request of tax agency should be provided in any case. If you leave the inspectorate’s doubts in the current form, it can include your company in the on-site tax audits plan. If this happens, your entire accounting for the previous three years will be subject to inspection (not only the quarter).
Acsour’s experts recommend paying special attention to tax reporting. After all, if you ignore the tax agency’s requirements for explanations, or delay the deadline, established by law, the inspectors will accrue the organization a fine of 5,000 rubles (clause 1 of article 129.1 of the Tax Code). For repeated violation within a calendar year, the fine will amount to 20,000 rubles.
It is important to note that starting from 2019, companies have to send responses to VAT requirements in electronic form (paragraph 4, clause 3, article 88 of the Tax Code). Therefore, if an organization submits explanations on paper, it will receive the same fine, because such explanations will be considered unsubmitted. Consequently, the liability will be the same as if the organization did not submit explanations at all.
The financial well-being of your company directly depends on the qualitative preparation for tax inspections. A nice bonus is that when you submit a well-prepared tax reporting, you will not need to carry on exculpatory correspondence with the Federal Tax Service Inspectorate, give explanations to tax commissions and submit updated declarations after the in-house audit report. Unfortunately, we can now assume that after the coronavirus pandemic in 2020, the tax authorities will tighten control: the coronavirus has significantly reduced tax revenues to the budget, and the main goal of the tax agency is to replenish it. Our experts are ready to provide comprehensive support in preparing the organization for tax inspection, analyse the requirements from the Federal Tax Service Inspectorate, give recommendations on further actions, or represent the interests of your business in the tax inspectorate.