Business entity should know its counterparty

On July 18, 2017, the President of the RF has signed the Federal Law «On amendments to Part One of the Russian Tax Code» (№163-FZ). This statutory instrument is also called the «law on tax abuses». According to the developers, the main objectives of this law are the identifying of common and understandable signs that testify to the facts of abuse, the uniform application of the developed law-enforcement approaches and thereby the creation of fair business environment and exclusion of unfair competition.

According to the law, the signs, which testify to the facts of abuse:

• distortion of information about facts of business life (a combination of such facts), about objects of taxation that are to be recorded in tax accounting and/or bookkeeping or in tax reporting of a taxpayer;
• non-payment (partial payment) and/or set-off (refund) of a tax amount considered as the main objectives of the transaction (operation);
• fulfillment of the obligation for a transaction (operation) by the person, who is not the party to the contract concluded with a taxpayer and/or a person, to whom the obligation to execute the transaction (operation) under the contract or the law has not been transferred.

In addition, the law determines that the following facts should not be considered as illegal as the ground for recognizing the fact that the taxpayer decreases the tax base and/or the amount of tax payable:

• signing of primary accounting documents by an unidentified or unauthorized person;
• violation by a counterparty of a taxpayer of the legislation on taxes and fees;
• possibility of a taxpayer to receive the same result of economic activity when making other transactions (operations) that are not prohibited by the law.

All mentioned above is equally applicable to payers of fees, insurance payments and tax agents. It is crucially that the law imposes the duty on tax authorities to prove facts of abuse by a taxpayer.

The developers believe that the law requires to proceed only from the reality of transactions (operations) carried out by a taxpayer. It makes possible to avoid the use of vague notions such as «business purpose», «impossibility of real performance of transactions», «lack of necessary conditions», «non-exercise of due diligence».

Experts of the Information agency Credinform believe that the notion of «due diligence and caution» will not disappear from the practice of the business. This concept is much broader than it is considered and used by tax authorities, assessing a taxpayer for the existence of facts of unjustified tax benefit.

«Due diligence and caution» from the point of view of doing business means, first of all, a comprehensive check of a counterparty by business entity and proceeds from an assessment of possible risks from cooperation with him, his experience, understanding of the ability to perform the contract by the contractor. As the ultimate goal of such inspection is considered the necessity to avoid signing a contract with a fly-by-night company or with a firm that has problems with solvency, or an organization that undergoes bankruptcy proceedings or uses fraudulent schemes etc.

In its letter from March 23, 2017 (№ED-5-9/547@) the tax service pays attention to this in the course of inspection by requesting documents from the taxpayer that record the results of the search, monitoring and selection of a counterparty; results of market monitoring of the relevant goods (works, services); study and evaluation of potential counterparties, their business reputation, solvency, availability of necessary resources, experience; including documented rationale for choosing a particular counterparty and other aspects.

The Information and Analytical system Globas will make it possible to report to the tax service on all the positions mentioned in the letter. The system has an intellectual search for information on business entities both in Russia and abroad, the corresponding analytical capabilities for the diagnostics of the business of a counterparty, assessment of the state of industries, of the competitive environment, solution of business problems, making managerial decisions to prevent (reduce) entrepreneurial risks and factors of their influence.