Tax risks: how to identify and reduce Stanislav Maratovich Dzhaarbekov, 2021

Tax risks of business - is there a list?

The emergence of tax risks for a business is a phenomenon caused primarily by the desire of the taxpayer to reduce the amount of taxes paid by legal or illegal means. Although other factors may also be at play:

• lack of awareness of legal provisions or changes thereto;
• insufficient information about counterparties or the nature of the transactions;
• technical errors.

That is, tax risks occur in situations where legal requirements are ignored or violated. The presence of signs of doing business with tax risks is the basis for the tax authority to initiate an on-site audit procedure. The guide to determining the presence/absence of tax risks for an organization or individual entrepreneur contains order of the Federal Tax Service of Russia dated May 30, 2007 No. MM-3-06/ [email protected] , which contains a list of the main criteria for assessing tax risks (Appendix No. 2). This list is not only not closed to taxpayers, but, on the contrary, is recommended for their own use.

Among the criteria indicating the presence of tax risks for an enterprise are:

• presence of: a low level of tax burden compared to the industry average;
• losses over a number of tax periods;
• high share of VAT deductions;
• discrepancies in the growth of income and expenses, indicating a higher rate of increase in the latter;
• low salary level compared to the average for the industry in the region;
• criteria close to the boundary that give the right to use special regimes;
• a high share of individual entrepreneurs’ expenses that reduce the personal income tax they accrue from business activities;
• unreasonable number of intermediaries in the transaction;
• actions indicating reluctance to provide information necessary for tax control;
• frequent changes of places of tax registration;
• low level of profitability of the activities carried out in comparison with the industry average;

Most of these criteria can be classified as influencing the occurrence of risks at the time of concluding a contract and the calculation of the most significant taxes for the budget (VAT and profit). Despite the fact that only legal entities working on the OSNO pay income tax, many of the rules for accounting for income and expenses for it are applied under the simplified tax system. Therefore, these rules also turn out to be significant for organizations and individual entrepreneurs working on imputation.

The essence of the problem

Tax type risk, or TD for short, most often arises from the desire to save on fiscal burden. It turns out that an enterprise or entrepreneur, due to an interest in a smaller state fee, violates certain rules. But such a moment does not always occur due to a deliberate and independent decision. There are a number of HP factors that may affect the irrelevance of the tax base:

• illiteracy of the subject in the financial and legal sphere;
• the current legislation has received an incorrect form of interpretation;
• fiscal norms and a number of taxation rules have duality;
• information about changes to the legal framework was not received;
• technical errors;
• counterparties are dishonest, which affects the entire system as a whole.

Important! Risks arise both from direct violation of legislative norms and the Tax Code of the Russian Federation, and from indirect violation. Any form of violation has consequences, including in the financial sphere. However, unintentional violations do not relieve liability.

If a violation is detected, the subject comes under the supervision of the Federal Tax Service, in particular, on-site inspections are initiated, which make it possible to assess all risks on the spot.

Risks can arise from various actions, including illegal ones. Among them:

• contractors were selected without preliminary verification;
• employees were registered as individual entrepreneurs and received a civil law contract;
• offshore companies are used in the form of illegal schemes or special companies;
• an illegal division of the business was carried out;
• the staff turned out to be rented, that is, appropriate contracts were not concluded with them for the absence of additional payments;
• use of transfer pricing.

IOs when concluding an agreement may arise if there was a deliberate inclusion of a dubious person in the list of counterparties or if sufficient verification of information about the partner was not carried out. In both cases, liability will be assigned to the person who is the taxpayer. This point is recorded in the order of the Federal Tax Service of the Russian Federation No. MM-3-06333.

Factors determining tax risks

To eliminate IR when making transactions on a contractual basis, you will need to follow several rules:

• collection of comprehensive data on the partner’s activities in the form of a package of documents, rather than oral recommendations;
• the procedure for agreeing on conditions is carried out with evidence of the fulfillment of the agreement and the reality of the transaction;
• with the help of documents, the choice of the counterparty is confirmed on the basis of validity and information on prices and other factors;
• all conditions with payment, deferments and penalties must be justified and included in a disclosed form in the contract.

If the partner violates the agreement, the taxpayer will have evidence in hand indicating an attempt to recover the amount of damages.

Read also: Tax limitation period

If the counterparty is recognized as problematic and the transaction is of dubious form, then the Federal Tax Service excludes data about it from the specified obligation.

Order dated May 30, 2007 No. MM-3-06/333

Tax risks for VAT in 2021

When assessing tax risks for VAT in 2021, one should focus on the amount of the share of deductions established by:

• directively as not exceeding 89% for the year as a whole (clause 3 of Appendix No. 2 to the order of the Federal Tax Service of Russia No. MM-3-06 / [email protected] );
• as a regional average on a quarterly basis based on actual reporting data submitted to the tax authorities.

The latter indicator takes into account the peculiarities of taxation in each region. These features may be determined both by the possibility of applying certain tax benefits, and by the predominance of one or another type of activity, which is reflected in the final amount of the deduction.

About the share of deductions acceptable for regions, read the material “What is the safe share of VAT deductions in your region in 2017-2018?”

A taxpayer whose data on the share of deductions involved in determining the amount of VAT payable for the tax period deviates from the average figure for the region will either have to give the tax authority a convincing explanation of the reasons for such a deviation, or take measures to avoid deviations. The latter, in particular, can be achieved using the possibility of applying deferred deductions (clause 1.1 of Article 172 of the Tax Code of the Russian Federation).

Relatively low profitability

The Tax Inspectorate monitors the profitability of each enterprise and entrepreneur, comparing it with the average statistical indicators. If a business shows profits above the industry average, then it will not face inspections by the Federal Tax Service. Otherwise, tax authorities will most likely check the company as planned.

Entrepreneurs can see for themselves the profitability of various types of activities in Appendix No. 4 of the Order of the Federal Tax Service No. MM-3-06/333 dated May 30, 2007.

Store profitability greatly depends on assortment policy

Naturally, not everyone is able to make a profit above the market average. And privileges for successful businessmen are only an incentive for others to work better. Therefore, it is possible to avoid tax audits based on this criterion only by ensuring high profitability of the business.

The ECAM warehouse accounting program can help you grow your profits. It will optimize the assortment, increase the profitability of working capital, simplify accounting and create a loyalty program for customers. In total, this will give a good increase in profits and will allow you to avoid tax audits.

Enterprise income tax risks

If the tax risks arising when concluding an agreement or when working with VAT concern both legal entities and individual entrepreneurs, then exclusively the tax risks of the organization include tax risks for income tax (provided that the organization operates on OSNO).

In connection with income tax, risks arise primarily in relation to the validity of expenses taken into account in reducing the base for this tax. The role here will be played by:

• presence/absence of suppliers classified as problematic counterparties and dubious transactions;
• reasonableness of prices used in transactions with suppliers;
• compliance of costs with the criteria for the possibility of accepting them as expenses, including in terms of reference to the limits established for this;
• the ratio of income and expenses, which is reflected, among other things, in the level of profitability of the activities carried out;
• validity of losses of previous years.

Simplifiers (both legal entities and individual entrepreneurs) working with the “income minus expenses” object will have to focus on similar indicators.

To learn about which expenses under the simplified tax system are taken into account according to the rules of Chapter 25, read the article “List of expenses under the simplified tax system “income minus expenses”.”

Tax risks of the company: interaction with counterparties

Section: Economics

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Tax risks of the company: interaction with counterparties

The article examines the nature of tax risks, types of tax risks, and gives the author's definition of the concept of “tax risk”. The article analyzes examples of tax risks of companies when interacting with suppliers and buyers. Attention is paid to the issues of due diligence when choosing a counterparty, “unscrupulous suppliers” and the criteria for recognizing them as such.

tax risk, value added tax, income tax, dishonest supplier, due diligence.

All business activities of a company, that is, almost every business transaction, entail tax consequences. This applies to both the activities of large corporations and small and medium-sized businesses. Without a competent understanding of the tax consequences of financial and economic activities, there is a possibility that the company will act contrary to the current provisions of tax legislation [3]. At this stage, tax risks arise.

Tax risk is a type of financial and economic risk. In economic theory, the concept of “risk” is defined as accidents or dangers that are possible, not inevitable, and can cause losses [1]. Based on this definition, we can conclude that risk is characterized by possible negative consequences, as well as the likelihood that these negative consequences may not occur.

The company's tax risks are associated with the process of calculating and paying taxes, maintaining tax records, as well as the process of tax optimization. Thus, tax risk can be defined as the probability of the occurrence of tax consequences unfavorable for the taxpayer associated with the process of calculating and paying taxes.

The reasons for the occurrence of tax risks may be errors in taxpayer accounting, lack of information for conducting risk analysis within the company, lack of a systematic approach to risk analysis, ambiguity of legislation, as well as other uncontrollable factors. Uncontrollable factors include changes in judicial practice on controversial issues of legislation, as well as the position of tax authorities.

Based on the results of ongoing research [2] in the field of tax risks, we can conclude that the most risky taxes in Russia are income tax and VAT. This situation naturally arises due to the fact that most companies pay these taxes, and the legislation establishing the rules for their calculation and payment are more complex than those that apply to other taxes.

For each specific company, tax risks will be individual. However, in practice, there are tax risks that are inherent to all companies. The most common tax risks in the activities of companies are the following [4]:

· the risk of additional accrual of arrears and penalties;

· the risk of a fine (reaches 40% of arrears);

· the risk of an increase in the tax burden (directly affects the economic performance of the company, and can indirectly affect its investment attractiveness);

· risk of seizure of assets (under certain circumstances, the tax authority has the right to seize the current accounts of companies);

· risks arising from the general uncertainty of the company’s external environment (such as risks of interaction with suppliers and customers).

One of the most unpredictable types of tax risks is the latter, since it is difficult for the taxpayer to predict the variability of the external environment. Even if a company keeps its tax records fully in accordance with the law and does not take risky tax decisions, such a company is still exposed to tax risks.

Situations that require special attention of the company in interaction with buyers are the receipt of advances (with regard to issues of calculating VAT and income tax on advances, issues of VAT deduction in case of return of the advance to the buyer, etc.), as well as export transactions, for which there is a special procedure for calculating and paying VAT.

Another area of ​​tax risk is interaction with suppliers. When interacting with suppliers, when choosing them, the company must be sure that it is building relationships with reputable companies. This behavior of the company is called [5] the manifestation of sufficient (due) diligence when choosing a counterparty.

The concept of “due diligence” is not enshrined in the Tax Code, but it has long appeared in judicial practice in tax disputes. The criteria for recognizing a counterparty as dishonest have been developed at the level of arbitration practice, and tax authorities actively use these criteria to assess the activities of taxpayers when conducting tax audits for income tax and VAT.

The requirements of the tax authorities regarding manifestation when choosing counterparties are due to objective reasons. Tax authorities believe that companies engaged in real business activities cannot have any other reason to conduct transactions with unscrupulous counterparties, except for the purpose of obtaining an unjustified tax benefit in the form of a refund from the budget of “input” VAT and accounting for expenses for income tax purposes without performing relevant operations.

The above position of the tax authorities is formed in the light of the fight against “fly-by-night companies.” Transactions of a taxpayer with such counterparties are recognized by the courts as “formal” transactions aimed solely at reimbursement of VAT from the budget, as well as accounting for income tax expenses without the participants actually carrying out relevant business transactions.

In accordance with current judicial practice, tax authorities successfully refuse to reduce the income tax base by the corresponding amount of expenses with unscrupulous suppliers, and also refuse to accept for deduction VAT amounts in relation to transactions with such suppliers.

The most frequently analyzed criteria for “supplier dishonesty” by tax authorities are:

· Exclusion of suppliers from the Unified State Register of Legal Entities;

· Registration of the supplier at the mass registration address;

· Registration of the supplier as a debtor according to the data of the Federal Bailiff Service of Russia;

· Registration of the supplier as “unfair” according to the Federal Antimonopoly Service of the Russian Federation;

· Lack of real possibility to carry out deliveries or carry out work (for example, lack of necessary vehicles or personnel) and some others.

The point of view of the tax authorities, which is expressed in disputes on tax issues in the courts, is that before entering into contractual relations with suppliers of goods (works, services), the company must independently verify the “conscientiousness” of the counterparty by checking it for several criteria described above. By concluding agreements with counterparties under which there is a risk of being considered “unfair”, the company takes on tax risks.

From July 1, 2021, part of the information about the company, which until then was a tax secret, ceases to be a tax secret [6], for example, the average headcount, accounting data, information on taxes and fees paid, as well as tax debts to company budget.

This means that when deciding to work with suppliers, any company will be able to assess the risk of them being recognized as dishonest, also, for example, by the presence of debts on taxes and duties, and as a result reduce the tax risks of interaction with such a counterparty.

A taxpayer in his financial and economic activities can reduce his tax risks, that is, minimize them, for example, by exercising “due diligence.” However, as practice shows, it is impossible to completely get rid of tax risks, because this type of risk, like any other, depends not on one, but on several economic entities.

Thus, based on the above, we can conclude that tax risks are an objective reality of companies’ activities at the present stage of economic development.

Tax risks are a pressing problem for both large enterprises and representatives of small and medium-sized businesses. In addition, it is more difficult for small and medium-sized businesses to build a system for tracking tax risks within the company, since such companies often have limited resources.

To properly manage tax risks, companies need to implement in practice a company tax risk management system - an effective system for maintaining tax policy and rationalizing the work of the company’s tax department.

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Tax risk management

The tax risk management process involves:

• organizing work only with trusted counterparties;
• following rules that do not go beyond the current legislation in matters of determining tax bases and total amounts of tax payments;
• compliance with digital indicators considered acceptable by the tax authority for a tax/expense of a certain type;
• systematic analysis of business results and its tax consequences.

A taxpayer who doubts the possibility of accepting the results of any transactions for tax accounting is recommended to exclude them from tax calculations (clause 12 of Appendix No. 2 to the order of the Federal Tax Service of Russia No. MM-3-06 / [email protected] ). If such transactions were taken into account when preparing tax reporting, this reporting should be clarified, accompanied by an explanatory note. Such actions will reduce the risk of conducting an on-site tax audit.

Relatively low tax deductions

The tax office, through the use of online cash registers, tracks gross revenue for each trading company. And if, on average, a store owner with an income of 1 million per quarter pays 30 thousand rubles in taxes, and the analyzed individual entrepreneur with similar revenue pays 10 thousand rubles, then the likelihood of such a taxpayer having an audit will increase sharply. After all, the Federal Tax Service has suspicions of concealing profits.

A stingy entrepreneur pays twice: taxes and fines based on the results of an audit

The average tax burden for different industries is given in Appendix No. 3 of the Order of the Federal Tax Service No. MM-3-06/333 dated May 30, 2007.

For example, for regular retail trade the rate is 3.6%. That is, the state expects that for every 100 thousand rubles passed through the online cash register, the entrepreneur will pay 3,600 rubles in taxes. If this indicator deviates significantly downwards, then a tax audit should be expected in the near future.

Results

Conducting commercial activities is accompanied by tax risks resulting from non-compliance with tax laws. The list of signs indicating the presence of risks is given in the order of the Federal Tax Service of Russia No. MM-3-06 / [email protected] The main of these signs relate to the issues of concluding contracts, calculating VAT and income tax.
Risks can be managed, including reduced by submitting updated tax reporting to the tax authority. You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.

Limitation on carry forward of losses

From 2021, amendments have been introduced regarding the limitation on the amount of carry forward of income tax losses. Based on clause 2.1. Art. 283 of the Tax Code of the Russian Federation, it is impossible to reduce the amount of losses of previous periods by more than 50%. This restriction is introduced temporarily from January 1, 2021 to December 31, 2021.

Consequently, companies that have quite large losses due to crisis phenomena in the economy, as well as companies that are currently carrying out construction and investment projects, have significant risks, since they cannot bear the full amount of losses. Also, losses cannot be completely written off to companies that, during the crisis, acquired unprofitable companies that are part of a group or individual companies with losses.

This type of risk is quite difficult to reduce, since in order to reduce risks it is necessary either to wait for the end of the moratorium on the transfer of losses, or to plan your activities taking into account the possibility of transferring business and losses to other jurisdictions where there are no such restrictions. Despite the lifting of the restriction on carrying forward losses from previous years, the ability to carry forward losses in the amount of only 50% is a significant limitation and risk for companies.

Risk of criminal liability

The Criminal Code of the Russian Federation has several articles that provide for liability for economic crimes, including imprisonment. To whom and when can this happen?

For example, according to Article 199, liability arises for tax evasion on a large and especially large scale . In other words, a criminal case can be opened if the amount of violations exceeds 5 million rubles. In this case, tax authorities must prove the intentionality of actions to evade taxes. It is understood that some schemes were used only to avoid paying taxes or reduce their size.

Tax consulting experts say that in reality criminal cases are not opened so often, and the amount of the violation for this to happen must be tens of millions of rubles . At the same time, there is a practice of holding individuals accountable and assigning huge sums of money to pay taxes for their company.

Dynamics of liability for tax violations

Another feature is that many criminal cases are closed during the investigation process, that is, before trial. This occurs due to the fact that taxpayers voluntarily pay off debts , due to which a criminal case is initiated. And if they return the entire amount of the arrears to the budget, then the case will be dropped.

Often, criminal liability is a kind of pressure tool from the tax service, which forces violators to pay arrears to the budget.

Business risks: Check yourself and your counterparty

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