Actual problems of subsequent tax control conducted in form of field tax audits

In accordance with the Article 89(6) of the Tax Code of the Russian Federation [1] (hereinafter – the Russian Tax Code, the Tax Code), the grounds and procedure for extending the period of field tax audit are established by the federal executive body authorized to control and supervise taxes and fees. It is worth noting that constitutionality of the Tax Code provision was considered by the Constitutional Court of the Russian Federation in 2010. In the definition dated November 9, 2010 № 1434-O-O the Constitutional Court pointed out that the ban provided for in the Article 4(2) of the Tax Code of the Russian Federation prohibiting the federal executive body authorized to control and supervise in the field of taxes and fees, as well as its territorial bodies to issue regulations on taxes, fees and insurance premiums does not mean that the federal legislator is deprived of the right to empower the federal executive body with certain powers to issue by-laws on a particular issue relating to taxation, by directly specifying such powers in the Russian Tax Code. Such legislative regulation does not go beyond the discretionary powers of the federal legislator in the tax sphere and cannot be regarded as violating the constitutional rights of taxpayers [2]. Currently, the grounds and procedure for extending the deadline for a field tax audit are established by the Order of the Federal Tax Service of Russia dated November 7, 2018 № MMV-7-2-628@.

The term of a field tax audit should be specified. Generally, according to the Article 89(6) of the Tax Code, a field tax audit cannot last more than two months. The period may be extended up to four or six months. Also it is necessary to consider the legal position of the Constitutional Court of the Russian Federation, set out in the judgment dated February 17, 2015 № 2-P, according to which any tax audit - field or cameral (the procedure for calculating the duration of which may vary depending on the nature and level of impact of specific verification activities on the activities of the auditee) - must be limited in time, otherwise the different nature of the audit would be incompatible with the following from the Article 55(3) of the Constitution of the Russian Federation [3].

Extension of the tax audit is applied in extraordinary cases, which in accordance with paragraph 2 of Appendix № 6 to the Order of the Federal Tax Service of Russia № MMV-7-2/628@ include:

• •    carrying out a field tax audit of an organization classified as a major taxpayer;

• •    obtaining information from law enforcement, supervisory authorities or other sources in the course of a field tax audit, indicating that the taxpayer has violated the legis-

• lation on taxes and fees, and this information requires additional verification;

• •    carrying out a field tax audit of an organization that has several separate branches;

• •    failure to submit in due time documents required for a field tax audit made by the person in respect of whom a fieldsuch an audit is carried out ;

• •    active opposition to the performance of a field tax audit by the person in respect of whom the field taxsuch an audit is carried out;

• •    drawing up an act of obstruction of access of tax authorities' officials conducting a field tax audit to the territory or premises of the audited entity;

• •    failure made by a credit institution to provide information within three days after the receipt of a tax authority’s motivated request;

• •    non-submission by the counterparty or other person of the activity documents within five days from the date of receipt of the request to present such documents (information) or within ten days from the date of receipt of the request to present information on the specific transaction or information on property, property rights and obligations in case of non-execution of the decision on collection of arrears exceeding 1 million rubles;

• •    failure to appear or evasion to appear without a valid excuse made by the person called as a witness in a tax offence case

• •    failure made by the expert to submit the expert opinion within the term specified in the contract

• •    failure made by an interpreter to appear in order to carry out a translation assigned to him;

• •    occurrence of a natural or man-made emergency.

The list of grounds for extending a field tax audit is confidential. It should be noted that the list of grounds for extending a field tax audit was not confidential until 2018. In the order of the Federal Tax Service of Russia dated May 9, 2015 № MMV-7-2/189@ other circumstances were specified among such grounds: according to this order, the need and timing of the extension of a field tax audit was determined based on the duration of the audited period, the volume of documents be- ing audited and analyzed, the number of taxes and fees for which the audit is assigned, the number of activities performed by the audited entity, the breadth of the organizational and economic structure of the audited entity, the complexity of technological processes and other circumstances. Prior to the adoption of the Order № MMV-7-2/628@ of the Federal Tax Service of Russia, the tax authority was guided by the internal conviction based on the aggregate of available information (documents) while making a decision to extend the deadline for a field tax audit [4]. Regulatory consolidation of the closed list of grounds contributes to the limitation of powers of the tax authority in determining the relevant grounds, and as a consequence, the implementation of the basic principles of the legislation on taxes and fees.

According to paragraph 3 of Appendix 6 to the Order of the Federal Tax Service of Russia № MMV-7-2/628@, a request to extend the deadline for the field tax audit is communicated by the tax authority conducting the audit to a higher tax authority. If a field tax audit is conducted by the Federal Tax Service of Russia, such a request is submitted by the head of the auditing team to the head (deputy head) of the Federal Tax Service of Russia (paragraph 4 of Appendix № 6 to Order № MMV-7-2/628@ of the Federal Tax Service).

The decision to extend the deadline for a field tax audit is taken by the head or deputy of head of the tax authority, which sent a reasoned request to extend the period of the field tax audit (paragraph 5 of Order № MNV-7-2/628@).

The list of grounds for extending a field tax audit is much wider than the one for its suspension. According to the Article 89(9) of the Tax Code, the head (deputy of head) of the tax authority has the right to suspend a field tax audit for:

• •    requesting documents (information) from a counterparty or other persons who have documents (information) related to the activities of the taxpayer under audit (in this case the suspension is allowed not more than once for each person from whom the documents are requested);

• •    obtaining information from foreign state bodies under the international treaties of the Russian Federation;

• •    conduction of expert examinations;

• •    translation into Russian of the documents submitted by the taxpayer in a foreign language.

In accordance with the Article 89(9) of the Tax Code, the total period of suspension of a field tax audit may not exceed six months. If the field tax audit was suspended on the grounds specified in the Article 89(2) of the Tax Code (obtaining information from foreign government agencies under the international treaties of the Russian Federation) and such information was not received within six months, the period of suspension of an audit may be extended to three months. The legislative definition does not imply a limit on the maximum possible number of suspensions of one field tax audit.

The fundamental difference between the extension and suspension of a field tax audit is the lack of powers of tax officials conducting a field tax audit to familiarize themselves with documents related to the calculation and payment of taxes in the taxpayer`s territory, to inspect the premises of the organization and carry out seizure. In addition, in the case of suspension of field tax audit staff cannot request documents from the audited organization and interview employees on its territory (Article 89(9) of the Tax Code). If the deadline for the fulfillment of the requirement to submit documents based on a tax authority request issued before the suspension of a field tax audit occurs in the period of the decision to suspend, the taxpayer has the right not to submit the documents demanded by the tax authority [5].

The inspection activities both at the extension and at the suspension of the inspection are not terminated. According to paragraph 4 of the letter of the Federal Tax Service of Russia of July 25, 2013 № AS-4-2/13622 suspension of a field tax audit on one of the grounds provided for by Article 89(9) of the Tax Code does not prevent tax control measures that are other grounds for suspending an audit, as well as tax control measures that are not grounds for suspending an audit, except for tax control measures involving ac- tions of the tax authority in the taxpayer's territory (familiarization with the original documents). For example, the suspension of a field tax audit in connection with the need to conduct an examination will not be an obstacle for the request to the taxpayer to translate documents submitted in a foreign language into Russian. The Plenum of the Supreme Arbitration Court in paragraph 26 of Resolution № 57 dated July 30, 2013 stated that the tax authority is not deprived of the right to take action outside the territory of the taxpayer, if they are not related to the demand for documents from taxpayers [6]. It is legitimate to call a witness to testify during the period of suspension of a field tax audit in the premises of the tax authority [7].

According to Article 89(9) of the Tax Code, the suspension and resumption of field tax audit, formalized by the decision of a head (a deputy of a head) of the tax authority, conducting the audit.

According to the Articles 137, 138 of the Tax Code everyone has the right to appeal against the acts of tax authorities of non-normative nature, action or inaction of their officials, if the person finds that these acts, actions or inaction violate his rights. Such an appeal is made to a higher tax authority and (or) to a court. The issue of protection of taxpayers' rights during the suspension and resumption of field tax audits often arises in court practice. 15 Arbitration Court of Appeal in the Decision dated August 25, 2016 in case № 15AP-11654/2016 pointed out that the Tax Code does not directly provide for mandatory familiarization of taxpayers with these decisions. Based on analysis of the above normative provisions in their systemic relationship it can be concluded that the tax authority must familiarize the taxpayer with the decisions to suspend and resume the field tax audit, and to deliver copies of these decisions, but the legislator has not established the order and term of service of such decisions. Thus, the fact that the decision’s delivery date is later than the date of its issuance is not a significant violation of procedure and is not a basis for cancellation of the decision on the results of a field tax audit [8].

The vulnerability of the legal entities’ (in respect of which a field tax audit is conduct- ed) situation can be traced from this court decision because in case of violation of the tax authority's obligation to communicate information about the decisions taken to the taxpayer, including the suspension and resumption of a field tax audit, the taxpayer has no appropriate remedy to challenge these decisions. Moreover, the Federal Arbitration Court of the Moscow District in its ruling of October 7, 2013 in case № A134474/12 noted that the courts reasonably considered untenable the argument of the taxpayer on mandatory familiarization and delivery of decisions on the suspension (resumption) of a field tax audit to the company before suspension (resumption) of the field tax audit. This conclusion is consistent with the Article 89(9) of the Tax Code, which contains no reference to the obligation of the tax authority to deliver to the taxpayer a decision to suspend, resume the tax audit. [9]. It can be concluded that judicial practice gives different answers to the question whether the tax authorities are obliged to inform the taxpayer about the suspension and (or) the resumption of a field tax audit. Undoubtedly, the relevant gap in the legislation significantly worsens the position of a taxpayer. In the analysis of judicial practice on the issue of the legality of decisions of tax authorities to extend the deadline for a field audit, the following conclusions can be made.

If the decision to extend the deadline for a field tax audit violates the rights and legitimate interests of legal entity in the field of business and other economic activities, illegally impose obligations on it, creates obstacles to the implementation of business and other economic activities, which is expressed in the implementation of excessive and unreasonable tax administration, provision of conditions for inspectors to work, fulfillment of the requirements of the tax authority to provide documents, therefore such decision is illegal [10]. In considering cases of challenging the tax authority's decision to suspend a field tax audit, the court evaluates, for example, the motivation of the need to obtain the relevant documents from counterparties in accordance with the Article 93.1(1) of the Tax Code, the total period of suspension of an audit, evidence of a violation of the rights and legitimate interests of the taxpayer and delaying the audit by the tax authority. If there are no violations of federal law, including delaying the inspection, the court will deny the claimed claims [11]. Based on the cited court decisions it can be concluded that the courts resolve the issue of the legality of the tax authority's decision to extend the field tax audit not based on legally formulated criteria, but on a foundation of general principles of law, including the principle of good faith.