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What determines probability of appointment of field tax inspection

In practice, a question often arises as of what are the tax authorities guided by in selecting candidates for inspection. To be prepared to appoint tax inspection in respect of itself, a taxpayer shall have a clear idea about the selection criteria, to monitor these indicators on its own and to avoid situations of approximation of financial performance to critical.

The bulk of disputes with tax authorities stems not from errors in tax records but as a result of actions of the taxpayer to “optimize taxation”. Accordingly, the tax inspection is appointed in case of “suspicion” on the bad faith of any taxpayer, including those being on the special tax treatment.

The main document, which the tax authorities are guided with in selecting candidates of field tax inspection is Rules of planning and preparation of field tax inspections, as approved by Resolution of the Tax and Duties Ministry of Russia dated 18.08.2003 № BG-4-06/23dsp. The said Rules distinguish two categories of priority for inclusion in the plan for field tax inspections of taxpayers:
1) Taxpayers subject to mandatory inclusion into the plan of inspection by field tax inspections:

  • Companies, which are the largest and major taxpayers. Their inspection is conducted at least once every two years;
  • Taxpayers caught in the focus of law enforcement agencies or regional tax offices. These taxpayers are included in plans for inspections in an expeditious manner;
  • Companies being wound up;
  • Companies submitting “zero balance” or not submitting tax statement to the tax authority in respect of which the tax authority has information on the implementation of financial and economic activities;
  • Tax inspection results from the grounded enquiries of other tax authorities.

2) Taxpayers subject to priority inclusion into the plan of field tax inspections in case of availability of inspectors:
  • Proposed to inspection by departments producing desk inspections of tax reporting and analysis of accounting and tax reporting with a feasibility study of the proposals;
  • Those who repeatedly submit late or not in full documents necessary for calculation and (or) payment of taxes, levies and other obligatory payments;
  • The last inspection of which revealed significant violations of legislation on taxes and duties;
  • Those who were not inspected for more than 6 years;
  • Losses or insignificant profits (income) for a number of tax periods or allowing sharp fluctuations in the size of tax payments in different tax periods at approximately the same volume of turnover reflected tax reporting;
  • Those who pay small amounts of taxes and at the same time involved in charity work (sponsorship) with expenditure of large amounts of money;
  • Those with the highest amount of deviations from average level of the analyzed parameter, typical for a homogeneous group of taxpayers in absolute or percentage terms.

The Rules established that in case of equivalence of objects of choice for field tax inspections in terms of probability of detecting violations preference is given to taxpayers with the highest rates of sales revenue, number of employees, amount owed to the budget of taxes and duties, as well as projected recoverability of assessed taxes, penalties and tax sanctions.

To improve quality of fiscal control by tax authorities monitoring of financial and economic activities of companies is carried out that includes four levels:

The taxpayer, in terms of these criteria can minimize the risk of the field tax inspection. It's enough to keep track of the number of formal parameters.

Nevertheless, taxpayer compliance to these criteria does not mean that it has a violation of tax laws. And it does not mean that in the process of field tax inspection there shall be tax claims against it. The decision about authentically of the reflected tax reporting results of the company, may be made only by inspector under in-depth analysis of financial and economic activities of the taxpayer and relevant source documents.