Losses in the declaration: what are the dangers and how to explain them to the tax authorities

How to respond to a demand

The time limit for a response is counted from the date of receipt of the request for clarification . If the company reports on paper, the demand will be sent to it by mail. The date of its receipt is considered to be the sixth day from the date of sending the registered letter (paragraph 3, paragraph 4, article 4 of the Tax Code of the Russian Federation).

If an organization or individual entrepreneur is required to report electronically, the requirement from the tax office will be sent to them through the operator. In this case, the deadline for responding to the request is counted from the date of sending the acceptance receipt. But it will not be possible to confirm receipt later in order to gain time: the Tax Code gives the same 6 working days for sending the receipt (clause 5.1 of Art. Tax Code of the Russian Federation). If you do not send the receipt on time, within the next 10 working days the tax authorities may block the taxpayer’s account (clause 2, clause 3, article of the Tax Code of the Russian Federation).

After sending the receipt, the taxpayer has 5 working days to send explanations or an updated declaration (Clause 3 of Article of the Tax Code of the Russian Federation). For being late in responding to a request, the taxpayer may be fined 5,000 rubles, and for a repeated violation within a year - 20,000 rubles (Article 129.1 of the Tax Code of the Russian Federation). The liability of citizens and officials is up to a fine of up to 1,000 or up to 4,000 rubles, respectively (Clause 1 of Article 19.4 of the Code of Administrative Offenses of the Russian Federation).

Extern notifies if the client is threatened with account blocking or a fine, or helps to rectify the situation

Finally, if you ignore the requirement of the Federal Tax Service, this may attract unwanted attention from tax authorities to the organization, up to the appointment of an on-site audit.

We’ll tell you how to proceed further depending on what you decide to do: file an updated declaration or justify losses.

Is it necessary to hide a loss?

If you are not afraid of pressure from the tax commission and your financial result, even unprofitable, is clear and justified, there is no need to “retouch” your reporting. The very fact of a tax loss is understandably alarming, but this does not mean anything.

If there are no other suspicions regarding your company, there may well be a loss in the reporting. And if it is recognized by the tax authorities, and even transferred to the future - this is a separate delight!))

The reasons for the loss are very individual. I have no doubt that your company also has explanations that will satisfy the tax authorities!

Often, an accountant is tasked with “correcting” the numbers on a balance sheet – to obtain a loan or at the “request” of the owners. You can, of course, “scrape the bottom of the barrel” and remove some of the expenses or transfer them to the future. This is the most harmless option. But we must understand that there are no absolutely safe maneuvers for correcting reporting.

A number of “amendments” are generally impossible (for example, excluding mandatory reserves from expenses), some require changes to accounting policies (are you ready to do this at the end of the reporting year?), a number can lead to a lot of inconsistencies with declarations for other taxes (in the case of fictitious additional income ), and part of the expenses can be completely lost (to transfer the loss). For those using PBU18, accounting will have to be redrawn significantly.

Article 15.11 of the Code of Administrative Offenses of the Russian Federation establishes liability for officials of an organization in the form of a fine in the amount of 5,000 to 10,000 rubles for gross violation of accounting requirements, including financial statements.

For a repeated violation - a fine of 10,000 to 20,000 rubles or disqualification for a period of one to two years.

And distortion of reporting to obtain a loan is Article 159.1 “Fraud in the field of lending” already from the Criminal Code.

Option 2. Send explanations

If you are not going to revise the declaration, you need to draw up a convincing justification for the amount of losses. It is drawn up in any form, indicating the reasons that resulted in the losses.

Let's look at typical situations in which the tax office requests clarification and provide sample responses to the request.

Based on the results of the reporting (tax) period, a loss was received

This often happens with newly registered businesses or organizations that are developing a new direction and investing a lot of money in the purchase of equipment, real estate, materials, etc.

“Oldies” are also not insured against losses. The reason may be a seasonal drop in demand, a large one-time expenditure, bankruptcy of a counterparty, changes in contract terms, etc.

If the loss was incurred due to coronavirus and the self-isolation regime, there are no specific explanations. The lack of income is understandable, since many companies could not work, but still paid wages, rent, utilities, etc. In the explanation, describe the circumstances and refer to decisions of federal, regional and local authorities, for example, Presidential decrees on non-working days dated March 25. 2020 No. 206, dated 04/02/2020 No. 239.

Loss from the sale of purchased goods

Explanations may also be requested when the loss in the declaration is shown only on the sale of purchased goods. In this case, the tax authorities suspect that the company violated the rules for accounting for expenses when selling goods (Article 268 of the Tax Code of the Russian Federation) or incorrectly distributed expenses into direct and indirect (Article 320 of the Tax Code of the Russian Federation).

First of all, check whether you really sold the goods for less than you bought. If you find an error, please correct it. If everything in the declaration is correct, prepare an explanation.

Reducing the tax base due to losses from previous years

When checking a profitable declaration, the tax office may also require an explanation of losses. This happens if the tax base is reduced in the report due to losses from previous years. This right of tax authorities is not directly stated in the law, but arbitration practice shows that courts can support the desire of tax authorities to interpret clause 3 of Art. The Tax Code of the Russian Federation is expansive (Resolution of the Arbitration Court of the Eastern Military District dated January 18, 2016 N F01-1806/2015 in case No. A11-372/2015).

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Income tax return if loss

So, you have summed up the results of the year and discovered a loss, two options for the development of events:

3.1 Show actual loss in income tax return

Let's consider what awaits the manager if he was not afraid of additional questions from the tax authorities, decided not to hide the real state of affairs and filed a declaration with a loss. This will be followed by a request for clarification from inspection staff, to which the manager will have to respond within five days in any form. We advise you to describe the expenses in as much detail as possible (provide balance sheets broken down by expense items of accounts 26, 44, 91.2), explain the reason for the financial result and talk about what activities you plan to carry out and take measures to make a profit in the future.

Reasons for the formation of a loss in the income tax return:

Lack of sales revenue or its insignificant volume. Typical for newly created organizations and organizations with a long production cycle.
Development of new sales markets, which requires significant expenses for marketing activities, drawing up business plans, etc.
Reduced prices due to a drop in demand, seasonality of products, etc.
Decrease in sales volumes, for example, due to the loss of large customers.
Large one-time expenses in the reporting period, for example, the acquisition and commissioning of fixed assets, major repairs of premises.
Force majeure, for example, a vehicle burned down during the transportation of products, and a warehouse was flooded.
Accounting policies for tax purposes, for example, the use of bonus depreciation, non-linear depreciation method, creation of reserves.

If an organization submits a “loss-making” declaration for more than two reporting periods in a row, then the tax authorities will offer to reduce the loss and submit adjustments or invite you to a “loss-making” commission. The manager is called, but an accountant or other authorized person can represent his interests instead (take your passport and power of attorney with you). It is better for two representatives of the company to come to a special commission at the Federal Tax Service - the director and the chief accountant, because at such a meeting inspectors ask serious financial questions. There is no need to worry or worry. Try to have a constructive dialogue with the inspector. If the organization is new to the market, then to justify the reasons for the loss, use the arguments “most of the costs are related to advertising and marketing activities that help develop the market” or “large costs for the purchase of equipment.” If the organization has been operating for a long time, then explain the reduction in revenue by the repair or modernization of equipment, as a result of which you expect a positive economic effect in the future.

Employees of the Federal Tax Service analyze such indicators as:

the structure of income and expenses in the context of ordinary and other (unfavorable, according to tax authorities, are higher growth rates of expenses for ordinary activities compared to the growth rate of corresponding income, as well as losses due to non-operating losses);
solvency of the company (the main indicators of insolvency are the lack of funds in the current account and the presence of overdue accounts payable);
balance sheet indicators (according to inspectors, equity capital should exceed borrowed capital, the growth rate of current assets should be higher than the growth rate of non-current assets, the growth rate of receivables and payables should be approximately the same).

Tax authorities are always interested in how a loss-making organization lives. Therefore, be prepared to talk about sources of financing (loans, credits, financial assistance from the owner). If the tax authorities are interested in any documents, then ask them to formalize the request in writing.

3.2 Show profit in the income tax return when there is an actual loss

If a manager decides to protect himself from unnecessary interrogations and trips to the tax office, thereby not attracting the attention of tax authorities to his organization, then he may decide to pay income tax. To do this, you need to adjust the declaration

A. either By increasing income

B. either by reducing (increasing) expenses

Can the tax office require documents to confirm losses?

Along with explanations, tax authorities often require additional information: an itemized breakdown of costs, accounts payable broken down by counterparty, indicating the time and reason for their occurrence, accounting and tax registers, primary documents, and even sometimes a business plan for making a profit. Is the taxpayer obligated to comply with such requirements?

When giving explanations, including regarding losses, the taxpayer has the right to additionally submit to the tax authority extracts from tax and accounting registers and other documents confirming the accuracy of the data included in the tax return (Clause 4 of Article of the Tax Code of the Russian Federation). At the same time, tax authorities do not have the right to request from the taxpayer additional information and documents not provided for in the article of the Tax Code of the Russian Federation (clause 7 of Article of the Tax Code of the Russian Federation).

The law clearly states that the taxpayer may submit additional documents, but is not required to do so. The official website of the Federal Tax Service states: “On this basis, we will consider it proven that within the framework of the procedure for requesting explanations in accordance with paragraph 3 of Art. Tax authorities of the Russian Federation do not have the right to demand the provision of any documents.”

Nevertheless, clause 8.3 of Art. The Tax Code of the Russian Federation establishes the right of the tax authority to request primary documents and tax accounting registers during a desk audit of an updated declaration filed two years after the deadline for filing the declaration, if it reduces the amount of tax or increases the amount of loss.

Comments

09/02/2015 Donatella
Good day, dear colleagues! I have the following question for you regarding losses: tell me, isn’t it dangerous to show Appendix 5 to Sheet 2 of the Income Tax Return if the current return contains losses? If it is not dangerous, then please tell me whether the specified Appendix must be filled out both in the declaration for the 1st quarter and for the year, or can we limit ourselves to the annual declaration? Thanks for your answer in advance.
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09/03/2015 Elena Kurbatova, Lead Auditor, GSL Law & Consulting
Good afternoon, Donatella! Appendix No. 5 to Sheet 02 of the Tax Declaration for Corporate Profit Tax provides a calculation of the distribution of advance payments and corporate profit tax to the budget of a constituent entity of the Russian Federation by an organization that has separate divisions. In clause 1.1. Appendix No. 2 to the order of the Federal Tax Service of Russia dated November 26, 2014 No. MMB-7-3/ [email protected] “On approval of the form of the tax return for corporate income tax, the procedure for filling it out, as well as the format for submitting the tax return for corporate income tax in electronic form" it is stated that, in particular, Appendix No. 5 to Sheet 02 is included in the Declaration and is submitted to the tax authority only if the taxpayer has separate divisions. Thus, the submission of Appendix No. 5 to Sheet 02 depends on the presence/absence of separate divisions of the taxpayer, and not on the period for which the Tax Return is submitted and not on the financial result obtained in the reporting period.
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What happens if the explanations do not seem convincing to the tax authorities?

In this situation there are three options:

The taxpayer's official will be called to the “loss commission” (clause 4, clause 1, article of the Tax Code of the Russian Federation).
Based on the results of the desk audit, additional taxes will be assessed.
They will come to the taxpayer with an on-site inspection. An audit can be scheduled even after one unprofitable declaration, despite the fact that in the “Concept of the planning system for on-site tax audits” the criterion for assigning an audit in connection with losses is the reflection of losses in the reporting over several tax periods. But such a development is unlikely.

What to write

When drawing up the document, state the reasons for the excess of expenses over income in the requested period. It can be:

a drop in revenue due to the general economic situation in the region, when the company’s counterparties refuse transactions;
force majeure circumstances for the taxpayer (accidents, natural disasters, etc.);
international sanctions, etc.

But revenue may also exceed the planned increase in expenses associated with the construction of new facilities, the development of new technologies, etc. Here, special attention must be paid to the rules for recognizing expenses for tax accounting purposes, set out in Art. 252 of the Tax Code of the Russian Federation - you will need to present documents and prove economic feasibility.

The Federal Tax Service will also be interested in the criteria for classifying a company’s expenses as direct or indirect, since the latter are recognized in accounting as they arise (clause 2 of Article 318 of the Tax Code of the Russian Federation), and the former are distributed (clause 2 of Article 318, Article 319 of the Tax Code of the Russian Federation) . You also need to remember about regulated expenses. These include:

representative (clause 2 of article 264 of the Tax Code of the Russian Federation);
Voluntary health insurance for employees (clause 16 of article 255 of the Tax Code of the Russian Federation);
part of R&D expenses (clause 2 of Article 262 of the Tax Code of the Russian Federation);
reserves for doubtful debts and repairs of fixed assets (clause 4 of article 266 and clause 2 of article 262 of the Tax Code of the Russian Federation);
advertising (clause 4 of article 264 of the Tax Code of the Russian Federation);
losses from damage or shortages (clause 7 of article 254 of the Tax Code of the Russian Federation);
interest on loans if the transaction is controlled (Article 269 of the Tax Code of the Russian Federation);
compensation for an employee’s personal car (clause 1 of Article 264 of the Tax Code of the Russian Federation), etc.

Before drawing up the explanations, it would not be amiss to remember the list of expenses that are not accepted for profit purposes (Article 270 of the Tax Code of the Russian Federation) and check them for correct reflection in accounting. Then you can outline your approaches to reporting in any form.