Russia’s Participation in Rendering of Mutual Administrative Assistance in Tax Matters

Ratification in November 2014 of the Convention of 25 January 1988 on Mutual Administrative Assistance in Tax Matters imposed on Russia concrete obligations, including additional ones as regards rendering of assistance in tax matters.

Apart from the exchange of information (at an automatic or initiative request), the Convention provides for carrying out of simultaneous tax audits, participation in tax audits abroad, rendering of assistance in collection of taxes and servicing (sending) of documents. Russia ratified the Convention with a number of reservations, for example, not to render assistance in collection of any tax claims or administrative penalties.

At present, the most developed line of assistance in tax matters is an exchange of information, in particular, on the basis of a request. Russia does not participate in tax audits abroad, while simultaneous tax audits do not actually take place with few exceptions.

Russia plans to join the international automatic exchange of information from 2018, so the country has to comply with tax transparency international standards. On the basis of the research of the OECD Global Forum on Transparency and Exchange of Tax Information on Russia in 2014, the country was assigned the rating of “general compliance with tax transparency international standards”. It is to be noted that the same rating is assigned to the US, the UK and Germany. However, a number of countries, for example, Belgium, Canada, Finland and France was assigned the rating of “compliance with tax transparency international standards”. At present, Russia carries out an automatic exchange of information with member-state of the Eurasian Economic Union, but only on indirect taxes.

For fulfilment by Russia of its obligations as regards rendering of administrative assistance in tax matters within the frameworks of proposals to upgrade the information exchange, we believe it would be expedient to establish a database of ultimate beneficiary owners, specify clearly in the legislation the responsibility for losses caused to a taxpayer by actions of tax officials, sign with offshore jurisdictions of agreements on exchange of information and ratify the Convention between the Government of the Russian Federation and the Government of the Republic of Estonia for Avoidance of Double Taxation and Prevention of Tax Evasion in Respect of Taxes on Income. Also, a responsibility of individuals for providing information on real-estate deals outside the Russian Federation on a regular basis should be introduced.

As regards other lines of administrative assistance, a possibility of participation of representatives of Russian tax authorities in tax audits abroad and a similar one for representatives of foreign competent authorities in Russia should be envisaged. It is to be noted that participation of representatives of foreign tax authorities in relevant tax audits is to be limited to their passive participation.

Also, it is proposed to amend Agreement No. 0001/7/ММВ-23-8/3@ of 4 April 2014 and 14 April 2014 of the Federal Service of Bailiffs and the Federal Tax Service on the Procedure for Networking between the Federal Tax Service and the Federal Service of Bailiffs in Carrying Out Enforcement Documents as regards collection of trans-border tax debts. We support the position of the Federal Tax Service that any procedure facilitating collection of taxes cannot yield a desirable result unless the issue of mandatory (automatic) enforcement of judicial acts of arbitration courts of the Russian Federation in the territory of foreign states and vice-versa judicial acts of arbitral tribunals in the territory of the Russian Federation is solved. In addition to the above, it would be expedient to conclude additional inter-agency international agreements on rendering assistance in collection of taxes, as well as establish a special department on administrative networking with allocation of experts and budget funds to the Federal Tax Service of the Russian Federation.

Apart from proposals related directly to taxation, it is proposed to lift further limitations as regards grounds for crediting cash funds to foreign accounts of currency residents of the Russian Federation.

Natalia Kornienko, PhD, Law, Head of the Tax System Development Department
Yelena Velikova, Senior Researcher of the Tax System Development Department