N. KORNIENKO, E. MITROFANOVA ON SOME MEASURES OF SUPPORT OF BUSINESS IN TAX ADMINISTRATION AMID THE PANDEMIC
Lots of countries support their business community in various fields, including tax administration. The most important measures are tax deferrals and the reduction of the number of tax audits or imposition of the moratorium on such audits.
Undoubtedly, under the lockdown which has been declared in most countries it is infeasible for revenue authorities to carry out on-site tax audits and, in some cases, cameral tax inspections. Most countries introduced a moratorium on tax audits for various groups of taxpayers and some countries keep expanding the range of conditions for such measures. International organizations, in particular, the OECD as a leading organization on promotion of tax cooperation between countries issued within the framework of measures in the wake of the pandemic two information documents on the temporary fiscal policy and tax administration measures of the government of participant-countries. The importance of activities of national tax administrations has increased not only because of the need of suspension of active networking between taxpayers and tax administrations in the wake of the lockdown, but also due to the fact that in the past few months in most countries the accounting period for the 2019 fiscal year started.
The analysis of the OECD’s information documents and novations of governments of different countries makes it feasible to single out a few main trends and weighted national decisions:
extension of the period of submission of tax returns and notices of appeal. For example, the Government of Austria proposed measures aimed at extension of the period of submission of notices of appeal until May 1, 2020 in cases where the deadline set by the law was March 16, 2020, included; in our view, this measure is neither quite effective, nor reduces the tax administration for taxpayers, and it should be taken in a package of measures aimed at deferral of the annual income tax and the advance payment in Q1 2020;
suspension of planned tax audits and/or a ban on initiation of new ones are the most popular decisions taken by most countries. The French tax authorities declared that new tax audits would not be started during the “blocking period”, while new procedural activities (notices and appraisals) were not to be initiated except for special cases. Such a scenario was adopted in Poland within the framework of “upgrading the flexibility of handling anti-crisis management issues”, Greece [1] and Ukraine [2], which simplified tax audits in the period fr om March 18 till May 31, 2020 (except for the VAT reimbursement audit);
support measures for specific groups of taxpayers. One of the best decisions was taken by the Canadian tax authorities. They stopped all tax audits of small and mid-sized businesses as regards goods and services tax and personal income tax until April 17, 2020. In respect of most enterprises (including large ones), the Canadian tax authorities temporarily suspended audit networking with taxpayers and their representatives. Also, Canada adopted other tax administration measures. In our opinion, such a scenario is the most consistent and comprehensive; it reflects the most important line of tax administration in this calendar year and meets the needs of each group of taxpayers in state support.
Among all countries, the US is an exception because it did not suspend all tax audits, but switched them as much as possible into the online format, while the initiation of new audits was reduced. More importantly, the IRS (US Internal Revenue Service) may begin new audits if it deems it necessary for protection of the government’s interests in maintaining the applied period of limitation. Such a decision is probably relevant provided that tax procedures are completely digitalized, however, the reduction of the tax administration burden for taxpayers specifically within the framework of audits seems to be doubtful.
Russia is not a member-state of the OECD, but it took immediately a number of fiscal measures to ease tax administration and keeps developing such measures remaining within rather restrained frameworks in terms of general trends of the world practice. It is to be reminded that it is envisaged by Federal Law No.102-FZ of April 1, 2020 that the RF Government is in a position to issue statutes and regulations providing for suspension, cancelation and postponement to a later period of tax control measures, including transfer pricing audits and suspension of validity periods provided for by the Tax Code of the Russian Federation, including setting of the deadlines for audits in the period from January 1 till December 31, 2020.
Until now, cameral tax inspections (Article 88 of the RF Tax Code), discovery of documents within the framework of cameral tax inspections (Article 88 and Article 93 of the RF Tax Code) and discovery of documents and information beyond the framework of tax inspections (Article 93.1 of the RF Tax Code) have not been stopped. Obviously, in the frameworks wh ere state support is granted only to a limited circle of sectors and most taxpayers are still obligated to file a tax return there is no point of cancelling cameral tax inspections. On the other side, it is clear that for most taxpayers it is infeasible to meet such requirements to provide accounting source documents because of the lockdown introduced in most Russian regions and people do not necessarily have a direct physical access to these documents in this situation. So, though the moratorium has not been introduced, these requirements cannot be met anyway.
In our view, in this situation the reduction of the tax administration burden on taxpayers is an important timely measure of support of the business and individuals on the part of the state. Russia is among those countries which suspended on-site audits and postponed the initiation of new ones. Contrary to the international experience, the measures of reduction of tax administration adopted in Russia are aimed, on one side, at not all groups of taxpayers – they even create additional problems for some taxpayers owing to a partial suspension of tax audits (for example, it is infeasible to submit some documents requested in the course of a cameral tax inspection because executives may work online), while, on the other side, permit to reduce the load on the tax authorities, which factor in terms of solution of other current objectives is very important and complies with the trends set by the world practice. The only system-based approach which can be found in the package of Russian tax measures is the determination and expansion of the list of sectors which were hit the worst. With a comprehensive approach in place, each group of taxpayers would receive its adequate measures of support in the field of tax administration.
Natalia Kornienko, Head of the Tax System Development Department
Yekaterian Mitrofanova, Researcher of the Tax System Development Department
The analysis of the OECD’s information documents and novations of governments of different countries makes it feasible to single out a few main trends and weighted national decisions:
extension of the period of submission of tax returns and notices of appeal. For example, the Government of Austria proposed measures aimed at extension of the period of submission of notices of appeal until May 1, 2020 in cases where the deadline set by the law was March 16, 2020, included; in our view, this measure is neither quite effective, nor reduces the tax administration for taxpayers, and it should be taken in a package of measures aimed at deferral of the annual income tax and the advance payment in Q1 2020;
suspension of planned tax audits and/or a ban on initiation of new ones are the most popular decisions taken by most countries. The French tax authorities declared that new tax audits would not be started during the “blocking period”, while new procedural activities (notices and appraisals) were not to be initiated except for special cases. Such a scenario was adopted in Poland within the framework of “upgrading the flexibility of handling anti-crisis management issues”, Greece [1] and Ukraine [2], which simplified tax audits in the period fr om March 18 till May 31, 2020 (except for the VAT reimbursement audit);
support measures for specific groups of taxpayers. One of the best decisions was taken by the Canadian tax authorities. They stopped all tax audits of small and mid-sized businesses as regards goods and services tax and personal income tax until April 17, 2020. In respect of most enterprises (including large ones), the Canadian tax authorities temporarily suspended audit networking with taxpayers and their representatives. Also, Canada adopted other tax administration measures. In our opinion, such a scenario is the most consistent and comprehensive; it reflects the most important line of tax administration in this calendar year and meets the needs of each group of taxpayers in state support.
Among all countries, the US is an exception because it did not suspend all tax audits, but switched them as much as possible into the online format, while the initiation of new audits was reduced. More importantly, the IRS (US Internal Revenue Service) may begin new audits if it deems it necessary for protection of the government’s interests in maintaining the applied period of limitation. Such a decision is probably relevant provided that tax procedures are completely digitalized, however, the reduction of the tax administration burden for taxpayers specifically within the framework of audits seems to be doubtful.
Russia is not a member-state of the OECD, but it took immediately a number of fiscal measures to ease tax administration and keeps developing such measures remaining within rather restrained frameworks in terms of general trends of the world practice. It is to be reminded that it is envisaged by Federal Law No.102-FZ of April 1, 2020 that the RF Government is in a position to issue statutes and regulations providing for suspension, cancelation and postponement to a later period of tax control measures, including transfer pricing audits and suspension of validity periods provided for by the Tax Code of the Russian Federation, including setting of the deadlines for audits in the period from January 1 till December 31, 2020.
Until now, cameral tax inspections (Article 88 of the RF Tax Code), discovery of documents within the framework of cameral tax inspections (Article 88 and Article 93 of the RF Tax Code) and discovery of documents and information beyond the framework of tax inspections (Article 93.1 of the RF Tax Code) have not been stopped. Obviously, in the frameworks wh ere state support is granted only to a limited circle of sectors and most taxpayers are still obligated to file a tax return there is no point of cancelling cameral tax inspections. On the other side, it is clear that for most taxpayers it is infeasible to meet such requirements to provide accounting source documents because of the lockdown introduced in most Russian regions and people do not necessarily have a direct physical access to these documents in this situation. So, though the moratorium has not been introduced, these requirements cannot be met anyway.
In our view, in this situation the reduction of the tax administration burden on taxpayers is an important timely measure of support of the business and individuals on the part of the state. Russia is among those countries which suspended on-site audits and postponed the initiation of new ones. Contrary to the international experience, the measures of reduction of tax administration adopted in Russia are aimed, on one side, at not all groups of taxpayers – they even create additional problems for some taxpayers owing to a partial suspension of tax audits (for example, it is infeasible to submit some documents requested in the course of a cameral tax inspection because executives may work online), while, on the other side, permit to reduce the load on the tax authorities, which factor in terms of solution of other current objectives is very important and complies with the trends set by the world practice. The only system-based approach which can be found in the package of Russian tax measures is the determination and expansion of the list of sectors which were hit the worst. With a comprehensive approach in place, each group of taxpayers would receive its adequate measures of support in the field of tax administration.
Natalia Kornienko, Head of the Tax System Development Department
Yekaterian Mitrofanova, Researcher of the Tax System Development Department