BGP Litigation partner Alexander Golikov shares his recommendations with Chief Financial Officer magazine on how to get through a tax audit painlessly

Alexander Golikov, partner, BGP Litigation:

"The tax legislation doesn't envisage any possibility of suspending or prolonging desk tax audits – unlike field tax audits. And the three-month time frame is usually insufficient to perform all measures required, especially for desk audits of returns reclaiming VAT". 

"The taxpayer has one month to lodge an appeal with the higher tax authority. According to Mr. Golikov, "once that period has elapsed, the decision that has entered into force can be appealed with the same body up to one year from the date of issue", and subsequently in court, if necessary".

"In practice, inspectors tend to accommodate taxpayers and work with account for their working hours. If a taxpayer is unable to provide inspectors access to its premises due to non-standard working hours, it must notify the inspectorate of this. In that case the audit may be carried out on the premises of the tax authority". 

Expanding on those comments, Alexander Golikov notes that the 3-month period is established for desk tax audits. It can be less, but in practice such cases are rare. For field tax audits, the time frame is 2 months. But the tax legislation envisages that it can be extended up to four months, and in rare cases up to six months. A field tax audit can also be suspended for up to six months (or up to nine months if information is requested from foreign governmental authorities under international treaties to which the RF is a party). So a field tax audit can last a maximum of one year and three months. 

In practice, the time limits established by the RF Tax Code for field audits are usually observed, notes the BGP Litigation partner.

If not, says Alexander Golikov, a letter raising the issue can be sent to the inspectorate or a complaint can be filed. However, practice has shown that this is not treated as a material violation or a technicality based on which the resultant decision can be overturned.

The firm's partner notes that in cases where a desk tax audit identifies violations and the taxpayer plans to appeal, this does not necessarily mean a field tax audit will follow. Since a taxpayer cannot be penalized twice for the same offence, violations identified in the course of a desk audit will not be considered in the course of a field audit. 

Before going to court, the taxpayer should appeal the inspectorate's decision with the higher tax authority, as this pre-action procedure is obligatory, says Alexander Golikov. Taxpayers have 1 month from the date of the decision to file an appeal with the higher tax authority. 

If there are discrepancies between a taxpayer's documents and its counterparty's documents, appropriate explanations and all underlying documents should be provided to the tax inspectorate, warns the BGP Litigation partner. If the inspectorate does not accept them and renders a decision imposing penalties or declining to impose penalties for a tax offence, that decision should be appealed with the higher tax authority, and subsequently in court.

The tax legislation does not stipulate that inspectors can make on-site visits only during a taxpayer's working hours, notes Alexander Golikov. 

The full article (in Russian) is available here: "Налоговые проверки: как пройти безболезненно". 

Further reading: "Досудебное обжалование налоговых претензий: как самостоятельно подготовить возражения на акт налоговой проверки и обжаловать решение налоговой инспекции в вышестоящий налоговый орган?" (BGP Litigation whitepapers).