On-site tax audit: criteria and risks
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The Federal Tax Service (FTS) regular checks business for complying of tax legislation.
The regulator may conduct one of two types of audit: off-site and on-site.
On-site audit is conducted at the location of a taxpayer, and off-site one is performed in the tax service's office.
It is physically impossible for the specialists of the tax service to visit every address, that is why off-site audit is most common. After all, the violations detected when conducting any type of audit may be resulted in imposing fines, additional taxes and refusal of tax refunds.
According to the data on September 1, 2023 The Federal Tax Service has carried out 719 on-site audits, and violations were identified in 697 of them. Based on the audits result, 65,6 billion RUB were charged. As of the same period on the previous year, there were 1,537 audits with violations, and the amount of additional charges was to 123,1 billion RUB.
The tax authority associated the doubled decrease in audits with the effect of the high base of the last year due to the moratorium on audits introduced during the COVID-19 pandemic. The experts believe that the authorities’ emphasis has shifted to preventive work with violators.
Despite the decrease in on-site audits, any company can still face it. But, if you aware about the factors increasing the likelihood of an audit, you can reduce the risk of a visit from tax inspectors by eliminating these factors.
It is impossible to find out in advance about the audit planned by the tax inspector; under current laws, such information is considered as a tax secret. The exception is companies that organize lotteries and gambling. The FTS publishes a calendar of tax audits for these kind of companies.
For all other taxpayers, the Federal Tax Service has determined a certain set of criteria for independent risk assessment. Moreover, the FTS uses these criteria to identify tax irregularities at the company. The criteria for self-assessment of risks are approved by the Concept of the planning system for on-site tax audits in the Order of the Federal Tax Service of Russia dated May 30, 2007 No. MM-3-06/333.

Circumstances that increase the risk of an on-site tax audit

A high probability of an audit occurs for companies with the largest number of identified criteria based on the Concept of the system for planning on-site tax audits. Among the 12 main criteria, we highlight those that can be identified using open and publicly available tools:
  • tax burden is below the industry average;
  • losses over several tax periods;
  • the growth rate of expenses exceeding the growth rate of income;
  • salary is below the industry average;
  • repeated approaching of indicators to the maximum values under special tax regimes;
  • financial and economic activities with shell companies;
  • "migration" between tax authorities;
  • failure to provide information and explanations to the tax authorities;
  • significant deviation of profitability indicators from industry average ones.
Also, business split can lead to an on-site audit and additional taxes. Split is one of the frequent reasons when a company receives attention from the Federal Tax Service.
It is not legally prohibited to divide business between different legal entities, but the reason for additional charges is split, the only purpose of which is to save on taxes or understate the tax base.
The letter of the Federal Tax Service of Russia dated August 11, 2017 N SA-4-7/15895@ contains 17 signs of illegal splitting. Here are the main ones:
  • interdependence of company's shareholders;
  • unified base of counterparties;
  • the same employees working in companies;
  • splitting of the production process between several persons applying special tax regimes;
  • establishment of legal entities in a short period of time with an increase in personnel;
  • use of the same signs, labels, contacts, website on the Internet, addresses, premises, banks in which current accounts are opened and serviced;
  • joint accounting, personnel or legal services;
  • approaching economic indicators closer to the maximum values under special tax regimes.
It should be remembered that if certain signs are detected, it does not mean that the organization is illegally splitting up its business or deliberately underestimating the tax base. The mentioned signs are cumulatively assessed, and documentary evidences may be required if necessary. If the counterparty refuses to provide clarifications, it is necessary to terminate cooperation or establish interaction in another way.

Globas capabilities for identifying the risk of an on-site tax audit of a counterparty

The main difficulties that may arise when identifying tax deviations are the lack of a single source of data.
Each item on the list for self-checking or checking for illegal splitting requires analysis of data from different sources. If there are a large number of counterparties, checking against the checklist will take much time. In such cases, automation of the verification process is necessary.
The Information and Analytical System Globas will help solve the problem. For example, the Reports functionality allows you to configure an unlimited number of your own verification scripts to further automate the process. You set the inspection criteria and measures yourself, and then Globas automatically checks the company for risks - every time you open a report.
In addition to its own custom scripts, Globas has a number of pre-installed operational checks. Among them, the Report on the Federal Tax Service Criteria is available. It is compiled in accordance with the recommendations of the tax service, in order to check the existence of the counterparty and exercise commercial diligence. This Report also takes into account the criteria from the checklist for self-assessment of the risks and illegal splitting.
Sanctions Compliance. Globas Solution
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For companies operating on the international market, protection against sanctions risks plays a key role in checking counterparties. Insufficient attention to the sanctions screening can have negative consequences: from legal and financial to reputational ones.
Despite the changing global conditions, economic and information battles, Russian companies are actively developing international cooperation, exploring new markets and building alternative routes and supply chains.

Are sanctions important?

Some companies may avoid direct interaction with organizations or individuals against whom sanctions have been imposed. However, this does not mean that the issue of sanctions is not relevant for them.
For example, imagine that the company "N" exports goods to a country that is not under sanctions. However, these goods are then re-exported to the country that is under sanctions. In such a situation, the company "N" becomes a part of the supply chain that violates the sanctions. It is also possible that one of the parties to the supply chain may actually or indirectly be under the control of an individual or organization subject to sanctions.
Ignoring in-depth sanctions checks may lead to unintentional "involvement" of the company in situations related to violations of sanctions regimes. When doing business at the international level, compliance procedures must be carried out not only with respect to direct counterparties, but also with respect to all levels of ownership of partners and related persons.
Independent manual verification of the counterparty for sanctions risks is an extremely difficult task. This is due to the variety and complexity of sanctions. One of the main problems is the lack of a single consolidated source that would combine all the sanctions imposed by various countries, organizations and departments. Some initiators of sanctions may not keep a general list of their restrictive measures, but post information about sanctions in legislative acts. In addition, information about sanctions is often presented in national languages, is unstructured and requires detailed analysis, ranging from identifying the person who has fallen under sanctions to understanding the characteristics of restrictions, such as the period of sanctions, the type of restrictions and the program.
Sanctions Compliance in Globas will help you simplify the process of sanctions screening, avoid errors that may occur during manual verification, and save significant resources.

The module makes it possible to check Russian and international companies, persons, water and air transport according to the consolidated sanctions list, including the 50% Rule. Persons associated with companies are also checked: beneficiaries, owners, managers, affiliates and subsidiaries.

Sanctions in action

Sanctions, as a means of foreign policy, are applied in various situations, and their effectiveness and impact can be extremely diverse. Regardless of which side of the world arena you are on, ignoring the sanctions restrictions can lead to serious consequences.
Let's look at examples of "sanctions in action".
1) Penalty of Standard Chartered Bank for lending to a bank owned by Sberbank PJSC
Standard Chartered Bank issued 102 loans to DenizBank in the period from April 2015 to January 2018.
This transaction came under the microscope of the UK authorities, and the British bank was subjected to two fines totaling GBP 20.47 million. The reason for this penalty was that Standard Chartered Bank provided financing to Turkish DenizBank, which at the time of the transaction was a subsidiary of Sberbank PJSC. PJSC Sberbank, in turn, is included in the sanctions lists of the European Union.
Standard Chartered Bank admitted that it had violated the sanctions regime, so in the end the amount of the fine was reduced by 30%.
2) A fine for violating Iranian sanctions
OFAC issued a fine of USD 9.6 million to 3M Company for violating Iranian sanctions.
The violations occurred from 2016 to 2018, when the Swiss company 3M East, a subsidiary of 3M Company, carried out an export operation through the German organization Bonyad Taavon Naja, an organization controlled by Iranian law enforcement agencies.
3) Assistance in circumventing sanctions through transactions in the currency of the initiator of sanctions
Turkish citizens Mehmet Tokdemir and Alaaddin Aykut have fallen under secondary US sanctions for assisting Iranian enterprises in conducting financial transactions in US dollars and euros, for the purchase of weapons from a number of foreign suppliers.
4) Sanctions against transport
Bangladesh has refused permission for a Russian vessel to enter its ports due to US sanctions. The American authorities actively monitor the traffic of sub-sanctioned water and air transport, requiring local authorities to comply with extraterritorial restrictions.
Such sanctions tools led to a ban on entry into the territorial waters of Bangladesh for the Ursa Major vessel, which was transporting equipment of Rosatom Corporation for the construction of the Ruppur nuclear power plant. Since Ursa Major, the water transport, is on the SDN list, it was forbidden to enter the Bangladeshi port.
Later, the Bangladeshi authorities told local media that the Russian side mistakenly sent the cargo by this vessel and promised to replace it with another one in order to deliver the cargo to the Bangladeshi port.
These cases clearly demonstrate how important it is to thoroughly check your clients and counterparties for sanctions risks.

Sanctions. Globas Solution

Sanctions Compliance in Globas contains detailed information about sanctions and restrictions, including the 50% Rule, as well as additional sources and a deeper analysis of companies, persons and objects under restrictions.
Sanctions Compliance facilitates the process of sanctions screening, providing many opportunities.


Sanctions Compliance

A module for in-depth sanctions screening of counterparties. The check is conducted by over than 40 new criteria. Sanctions Compliance provides an opportunity to check Russian and foreign companies, persons, water and air transport. Persons associated with companies are also checked: beneficiaries, owners, managers, affiliates and subsidiaries. The module contains extensive information about the imposed sanctions and restrictions, including the 50% Rule, additional sources and deeper analytics on companies, persons and objects that have fallen under restrictions and in various risk registries.