1. Effective Handling of Tax Disputes in Russia
Seungjin Lee
ALRUD Law Firm (Moscow)

2. Regulator’s approach to tax audits
Russia’s tax authority is reshaping its approach from formalistic to professional one
Substance over forms
Analysis on substance and bona fide nature of a transaction
Check actual participants, purpose and benefit of the transaction
Digitalized inspectors
Electronic data processing by analytics groups (VAT payment tracking systems, registers, etc.)
Data exchange with banks / foreign tax services (BEPS ratified in May 2019)
Criminalization
Broad application of a fraud concept and cooperation with law enforcement officers
Collection of tax arrears from company’s officers (CEO, chief accountant, etc.)

3. Regulator’s approach to tax audits
Typical process of conducting a tax audit
Internal Analysis
DESK AUDIT
(3 months)
Informal contact with taxpayer
FIELD ADUIT
(2 – 6 months)
Request for clarification of declared tax
Payment of tax arrears (but no imposition of penalty)
Additional events
Request of documents or information to the taxpayer / taxpayer’s business partners
Interview, interrogation, seizure of documents, inventory tracking, engagement of outside experts, etc.
Payment of tax arrears and imposition of penalty
Post-audit paperwork takes about 2-3 months for finalization of an audit decision to be delivered to the auditee.

4. Key areas of tax audits What is checked: Special attention to:
Cross-border deals and payments
Lawfulness of applying incentives comforted by international treaties
Place of realization for the VAT purpose
Related-party transactions
Contracts with companies incorporated in tax havens
Economic justification of expenses
Economic rationale of a transaction
Utility of a transaction
Transaction price compared to that of similar one
Related-party transactions
Contracts entered with involvement of intermediaries whose good faith is not confirmed
Split of businesses for unjustified tax benefit
De-facto affiliated contract parties who enjoy tax incentives
Intragroup restructuring of business
Contracts with individual entrepreneurs with regular payments
Single IP address, workers hired by multiple employers

5. Tax disputes resolution: process
Pre-trial administrative procedure is prerequisite for filing a motion to court
Administrative appeal* against
Motion to court
Audit decision by way of filing an appeal addressed to tax authority, which rendered the disputed decision, within 1 month from the date such decision is issued.
Neither entry into force nor enforcement will take place
But no effect on injunctive measures taken by tax authority
Audit decision in full force by way of filing a petition addressed to tax authority superior than one, which rendered the disputed decision, within 1 year from the date such decision is issued.
No effect on enforcement procedure and injunctive measures
3 months of limitation period from the date of acceptance of the administrative appeal / petition
Commercial (Arbitrazh) courts except for tax disputes arising out of individual’s income tax, which are tried before the courts of general jurisdiction
Fast-track procedure: 3 months - 1st instance / 1 year - final decision
4 instances (1st, 2nd, cassation, supervisory)
*No more than 1 month of assessment (up to 2 months)

6. Behavioral strategy
against a request for information, tax officers’ calls for interrogations, tax committee, etc.
As per RfI, respond fast, but delay submitting requested documents
During interrogation, do not say what is beyond the area of competence. It is ok to say “I do not own such information“
Claim the right of making corrections to drafted protocols/minutes to avoid dangerous wordings or distortions

7. Recommendations
How to cope with a new tax environment?
Choose a business model / sector which will attract less attention from tax authority
Train employees to be capable of explaining business logics of controversial deals before tax authority
Accumulate documentary evidence to prove economic feasibility of the transaction
Implement a Compliance Policy for KYC checks
Work on transfer pricing methods prior to intragroup transactions
Apply for the benefit of DTT incentives only when documentarily ready
Agriculture, forestry

8. Contact details: Seungjin Lee | Attorney seungjin.lee@alrud.com
ALRUD Law Firm
Skakovaya st., 17, bld. 2, 6th fl.
Moscow, Russia, Т: F: E: