On 4 November 2014 Russian President Vladimir Putin signed Federal Law No. 348-FZ, and thus introduced a tax monitoring system for Russian businesses. This new means of tax control is optional, rather than mandatory. By opting in to this system, a business agrees to provide the tax authorities with remote online access to its financial statements in return for certain privileges.
The new system in question was tested through a pilot scheme back in 2012, when the tax authorities engaged in the tax monitoring of several big companies. As the results of this scheme were satisfactory for both sides, the decision was made to implement it nation-wide. Relevant legislation was therefore adopted and will now enter into force in early 2015.
If a business taxpayer chooses to take part in the tax monitoring scheme and therefore provides the authorities access to its financial statements, it will not be subject to any tax inspections (whether documentary or on-site) so long as it continues to fulfil certain conditions. Moreover, the tax authorities will inform this business of its potential violations of tax legislation and will allow the business to obtain their reasoned opinion on controversial issues. Reasoned opinions of the tax authorities are similar to “tax rulings” in certain foreign countries. They reflect the official position of the tax authorities and act as official confirmation of whether the tax was calculated accurately, and whether it was paid fully and in due time. A reasoned opinion can be sent to the business either at the request of the business, or on the initiative of the tax inspectorate.
Consequently, tax monitoring can be considered a great boon for businesses – though not for all – as only significant market players may enjoy the benefits outlined above. Indeed, the tax monitoring option is only open to companies whose asset value as of 31 December of the preceding year and revenues for that year respectively exceeded RUB 3 billion (approx. EUR 52 million), provided that the total amount of federal taxes paid by that company during that same year exceeded RUB 300 million (approx. EUR 5.2 million).
The new tax monitoring system is based on the mutual exchange of information between a business and the tax authorities. This level of cooperation should, in theory, afford the business with some protection against a large number of risks. Opting to join this system – despite the fact that in exchange the business taxpayer must provide the tax authorities with access to its financial statements – should help introduce an element of mutual trust in their relationship as well as a certain degree of predictability in the interaction with the tax authorities. Being exempt from tax audits is a real plus as they have always been a source of stress for business top executives and staff, as well as leading to increased costs, whatever their outcome may be.