20.07.2017 — Transparent Business: Federal Tax Service Launches New Service to Facilitate Counterparty Due Diligence
The new service “Transparent Business” launched by the Federal Fax Service provides on-line access to the important information on any company, in particular, information on its revenue and expenses, liabilities due to the budget, the amount of tax payable, and the quantity of the company’s employees. The service enhances the transparency of business and allows assessing the reliability of the counterparties in advance.
Experts appreciate a new mechanism, which not only ensure greater transparency with respect to entrepreneurship, but also gives an opportunity to assess the risks in concluding contracts in advance and to conduct due diligence when selecting the counterparties in accordance with the requirements of tax legislation. Taking advantage of this service, the following information can be found:
- registration address and the amount of other organizations at that address;
- tax profile applied to a company;
- information on imposition of tax liability;
- liability of taxes, penalties and fines;
- amount of taxes paid (VAT and corporate profits tax);
- revenues and expenses of the company;
- average number of employees.
The amendments to the Tax Code aimed at establishing this service were adopted in 2016, but the service has recently become available and at this moment it works only in test mode (see link: https://pb.nalog.ru/). Moreover, not all the information has been included in “Transparent business” service. According to the Federal Tax Service, the information will be further updated and added to the system.
19.07.2017 — Ministry of Economy Has Prepared Draft Bill for Reform of Governmental Permits System
The Ministry of Economy has developed a draft bill “On the principles of governmental permits system”. The bill is intended to establish an exhaustive list of 438 types of activities that require permits or licenses. It also aims to unify the procedure of obtaining licenses, particularly by envisaging an exhaustive list of grounds for the refusal to issue a license and the procedure for challenging such refusals.
The primary aim of the bill is to implement transparent rules for activities that require special permits. This bill does not only deal with economic activities, but also governs political, migration and public activities. Apart from establishing an exhaustive list of activities that require licenses, this bill will list those types of activities that are guaranteed not to require any permits, and for which the company merely has to comply with the notification procedure. If the bill is adopted, it will enter into force in 2020, whereas the separate list of activities not requiring a permit is planned to be implemented in 2019.
The bill also provides for a number of safeguards to protect the applicants and companies that received permits or licenses. For instance, some permits will only be revocable through judicial action, and all irremediable doubts in the legality of their issuance will be interpreted in favor of the applicant. Another important safeguard is the introduction of sanctions to public authorities for missing deadlines for taking decisions on the documents submitted by applicants in the framework of the permits procedure: in this case the permit will be deemed issued in accordance with the application despite the lack of governmental action.
18.07.2017 — Amendments to Tax Code on Prohibition of Tax Evasion Have Been Adopted
On 19 August 2017 amendments to the Tax Code will enter into force. Under these amendments, a formal prohibition of tax evasion schemes will be introduced. The amendments will also provide for a list of taxpayers’ unlawful actions, which may form ground for the tax authorities’ refusal to acknowledge the taxpayer’s expenses or deductions from the tax base. After the amendments enter into force, formal criteria will no longer be used as the primary criteria for determining a tax payer’s bad faith conduct. Instead, the authorities will verify whether the underlying transaction was actually performed.
On 19 July, the President of Russia has signed into law the legislative amendments to the Tax Code, which are aimed at preventing unfair practices of taxpayers related to reducing the taxable base. We announced these amendments earlier. These amendments have been developed for quite a long time: starting from 2000s the court practice coined the concept of “unsubstantiated tax benefit” and “tax abuse”.
On the one hand, the amendments are aimed at protecting the taxpayers from the Federal Tax Service’s allegations related to assessment of the reality of economic transactions and the reasonability of the declared expenses. In accordance with the amendments, the tax authorities are not entitled to reject deductions or refuse to take into account a taxpayer’s expenses if the following conditions are met simultaneously:
- transaction is not aimed, as its primary purpose, at non-payment of taxes in full and/or at the crediting (reimbursement) of already paid taxes;
- transaction has been actually performed by the parties.
Consequently, the Federal Tax Service will no longer be able to refuse providing a deduction on formal grounds, such as improper formalization of accounting documents, violation of the legislation by the counterparty to the transaction, contract conclusion by an unknown person. Instead of the formal principle of due diligence, the principle of actual performance of the transaction by the counterparty is introduced.
Therefore, the amendments will make it impossible to lower the tax base by using “fly-by-night” companies created only to evade tax payments, which do not actually perform the concluded transactions. Such transactions with the said companies will not lead to the desired tax consequences and will not permit to count the related expenses towards the reduction of tax base.
17.07.2017 — Illegal Refusal To Issue Construction Permit Releases Developer from Obligation to Pay Rent
In July 2017 the Supreme Court published the third Case-Law Digest. Among other explanations the Supreme Court stated that the lessee which leased the land plot from the public authorities for the purposes of construction is entitled not to pay the rent for the period when he was unable to use the land plot because of the circumstances beyond his control, in particular, if the public authorities illegally refused to issue the construction permit. Otherwise, the reciprocal nature of obligations under the lease contract would be violated.
In the case No. 89-КГ16-7, resolved by the Supreme Court, which became a part of the Case-Law Digest No. 3, the local authorities initiated the lawsuit against the lessee on the recovery of the rental payments under the lease contract of the land plot for the private housing construction. Still, the respondent argued that he stopped paying after he received the refusal to issue the construction permit from the local authorities, which was declared illegal afterwards.
The courts of the first and of the appellate instance ruled for the lessor with reference to the fact that the obligation to make rental payments was provided by the contract, the terms and the amount of the payment were established by the contract, therefore the local authorities’ refusal to issue the construction permit was irrelevant.
Still, when the Supreme Court adjudicated the case in cassation procedure disagreed with the decision of the lower instances. The Supreme Court noted that the lease contract is of reciprocal nature, therefore the fact that the lessee was unable to use the rented property due to the lessor’s illegal conduct releases the lessor from the obligation to make rental payments. The courts determined that in accordance with the terms of the contract the leased land plot was designated for the private housing construction. Still, after the local administration illegally refused to issue the construction permit, the lessee was deprived of the opportunity to use the leased land plot in accordance with the designated purpose, what releases the lessee from the obligation to make rental payments.