Sometimes companies striving to defend their interests - whether it is the return of overpaid taxes or VAT refunds - are faced with excessive zeal of inspectors to justify claims or to bring data into a more favourable form for the tax authorities.
Find out in the article how not to fall for common manipulations.
Requirements for unprofitable tax returns
It is no secret that tax offices are very attentive to companies that claim incurred losses. However, as elsewhere, human factor and inspector’s loyalty are difficult to predict, which means that a taxpayer should be ready to stand fast when filing unprofitable tax rerurns.
The first thing worth paying attention to is the list of required documents. Very often, a tax authority, when sending requirements for loss, asks not only to fill out a questionnaire (this is one of the mandatory procedures where indicators for the current and previous periods are indicated in order to track dynamics), but also to submit a business plan or action plan to achieve profitability. If the company has already described a model that predicts the break-even point, it can be provided to the inspectors, but do not forget that this document is optional: a taxpayer may declare the absence of such a plan in the explanations or not give any comments at all.
In rare cases, at personal meetings with tax authorities, you may be faced with direct demands to replace tax returns with break-even or zero ones. If you refuse to change data in reports, inspectors may even threaten your company with field or office audits. In this situation, it is very important that the taxpayer assesses their potential risks correctly.
If the company is confident in the accuracy of the submitted figures and in compliance with the legislation - for example, if temporary losses in the organization are related to the loss of key customers - you should not yield to manipulation and pressure. It is enough to explain that the taxpayer understands that any organization is created for the purpose of generating income, but the current situation is temporary and caused by objective reasons.
If the company recognizes some risks, for example, it has a nominee director, mass registration address, the data in the Unified State Register of Legal Entities does not coincide with the actual location, or there are doubts about the figures, it is better to make concessions. For example, you can agree to show a zero tax return for the reported quarter, but be sure to show the amount of loss at the year-end.
When filing a break-even annual return, a taxpayer loses the preference of tax reduction in the subsequent period (within 10 years and no more than 50% of the amount of the loss). Of course, it is possible to submit adjustments, but this comes with additional attention from the tax service.
Unreasonable information requests
One of the most common practices of the tax service is the request for additional documents, which, at first glance, have nothing to do with the audit or even relate to another reporting period. These situations are especially common when companies are trying to recover large amounts of VAT. In this case, taxpayer can act in two ways:
Defend their position within the limits of legislation, indicating to the tax authorities that the requested documents do not relate to the tax audit period;
Request additional clarifications from the inspectors, reflecting the cause-and-effect relationship between the required information and the audit subject and period.
It is also necessary not to be afraid to defend your position in relation to persons whom inspectors may plan to call for interrogation to confirm the transactions performed, if the taxpayer considers this to be an excessive or unjustified action in the light of the evidence provided earlier.
For example, a retail and wholesale company faced a situation where the tax service planned to question drivers who delivered goods from a warehouse to customers. Due to the fact that earlier the company submitted documents confirming the goods transfer by a warehouse employee, delivery and acceptance certificates, routes, names of drivers and vehicle numbers, a counter-objection was sent with a request to clarify the need for the procedure. As a result, the tax inspector agreed with the company that the interrogation was outside the framework of tax procedures.
If the tax service insists on providing third-party documents or conducting such interrogations, you can file a complaint with the Federal Tax Service, which quite often takes the side of the taxpayer.
Failure to comply with response deadlines
Previously, a lot was written about how the tax authorities violate the terms prescribed by law in case of office and field audits, what to do and how to resist violations. Now these situations occur much less frequently. Probably now the most common violation of deadlines by the tax service concerns offsetting or refunding due to tax overpayment, or submission of adjustments.
Unfortunately, in most cases the taxpayers has to track overpayment on their own, despite the tax authorities’ responsibility to inform. According to the current legislation, it is possible to exercise the right to refund overpaid amounts or offset against another tax within three years after the overpayment, and the decision to refund must be made by the tax authority within 10 days from the date of receipt of the application for offset or refund.
If the tax authority fails to comply with response deadlines, it is worth filing a complaint with the Federal Tax Service in electronic or paper form - for this, you need to fill out an application in the approved form and attach documents confirming the deadline for submission (a printed application with a tax office mark of acceptance, or electronic acknowledgment of sending and acceptance).
Electronic document exchange
It is worth noting that issues associated with electronic document management are quite rare, but sometimes situations arise in which tax inspectors ask a taxpayer to meet them halfway.
According to the rules, all documents in the electronic system must be sent through a special form "reply to request", but sometimes people complain that documents are distorted due to software problems. Most often, inspectors ask to duplicate information using a system analogue of e-mail. Sometimes there are requirements to send documents in paper form by courier due to the inconvenience of working with their electronic substitutes.
Taxpayers must understand that by sending electronic documents to the system, they fulfilled their obligations, and tax representatives cannot insist on providing information in a different format.