Signs of shell companies

The Letter of the Federal Tax Service of Russia (hereinafter “the FTS”) #ED-4-15/13247 from July 10, 2018 “On preventive control of tax legislation” contains updated criteria of identification of legal entities and individual entrepreneurs acting as shell.

While tax statements checking, it will be made a point of signs of reasonable suspicion of taxpayers in the absence of real activity or signing documents by unauthorized or unidentified persons.

According to the FTS Letter, these signs are:

• submission of corrective tax statements with false order number;
• avoidance of legal entities’ executives and individual entrepreneurs of presence in questioning more than twice;
• residing of executives or individual entrepreneurs not at the place of registration;
• absence of legal entities at the place of registration;
• representation of taxpayers’ interest by trustees registered or resided in another subject of Russia;
• organizations established or registered after 2017;
• submission of zero accounting for several reporting periods;
• income amount recorded in the tax statement is close to amount of expenses;
• share of VAT offset is over 98%;
• absence of lease agreements for occupied premises;
• average number of employees - 1 employee;
• lack of employees;
• lack of income of executives, including from companies they manage;
• change of places of tax registration;
• replacement of management with the introduction of relevant information shortly before reporting;
• absence of current accounts within 3 months from the date of establishment or registration;
• presence of closed current accounts;
• opening or closing more than 10 current accounts;
• transit of funds through current accounts;
• presence of bank accounts not at the place of registration;
• proved facts of cash withdrawals;
• not resolved discrepancies with previous reporting periods;
• presence of unreliable data on the address, executive, shareholder of company in the Unified State Register of Legal Entities (EGRUL);
• executives or shareholders are non-residents of Russia.

When there is a complex of the above signs, tax statements may be considered unreliable. In this case, the withdrawal of tax statements is possible upon observance of legal procedures prescribed by law.

It should be noted that the above list of grounds for the cancellation of tax statements is open for replenishment and other criteria.

Provisions of this letter cannot be applied to tax statements with ended period of the office audits.