Семинар на тему: "налоговая реформа в россии. Где мы?"

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So, at best for the taxpayer it means we don't get a decision in that hearing, we end up having to suspend the hearing for another month. We then sit down with our clients, scramble to get all the information on how much taxes they have paid so that we can show the court: look, this piece that the tax authorities are talking about is a tiny piece of the overall taxes, it's one issue, it doesn't make or break the company, it's not important, this taxpayer actually pays a lot of taxes. And when you have a fact pattern like that, it works pretty well. The judge looks and says, oh, okay, we don't see bad faith.

But it is a delay, it does create a little bit of nervousness for taxpayers because there is a little bit of an unpredictable element.

The other thing to do for taxpayers as they go into particular transactions: try at least to have your documentation appear that it is not coming from a tax-driven planning, but rather that it is your developing new structures for how you are operating your business. It is the commercial people who are writing the memo saying: this is how we would like to restructure our business going forward because we think it will be more efficient or something else. You actually don't -- when you look at other jurisdictions, you actually don't need an awful lot to help you build up an argument for business purpose, but you need to have something. There is no magic, rationale of what you could use. You do have to look at the particular transactions. But if you can create that supporting documentation ahead of time, you'll give yourself a lot of insurance that when the taxpayer, the tax authorities come in and argue bad faith taxpayer or lack of business purpose, that you can very quickly pull out something that shows: look, this had a very good business rationale developed by our commercial people. It happened also to have a better tax result, but it is driven by the business, not by the tax results.

And so, on that note -- now, it's a little bit of pre-planning -- not to panic that there are these new concepts that are starting to develop and we do see the tax authorities more aggressively using them. We just have to accept that they are out there. But ultimately, if you have a company that is reasonably tax compliant and doesn't have some of the extraordinarily aggressive structures that we've sometimes -- for example, I've seen when we've due-diligenced targets for Western clients -- the tax plans, actually, tax fraud. If you don't have structures like that, you should have a better comfort level of how you are doing you tax planning, and you generally can do proper tax planning. Thank you.

ГОРЮШИНА: Thank you. The next presentation will be on a very hot topic of tax audit, and comparison of the letter of the law and the reality. The speaker will be Olesya Galkova, Director of Norman Dale Associates.

ГАЛКОВА: Hello everybody, and I would like to thank everybody for the invitation to speak here today. The topic I am covering is tax audit, and I am sure that everybody knows the Tax Code and tax legislation, but just to refresh the mind I highlighted here that I am going to talk about the documentary tax audit and about on-site tax audit. Again, I am pretty sure everybody knows it, but just to refresh the mind, I'd like to say, to highlight main characteristics of documentary tax audit, which would be that it should be concluded in the office of the tax authority, it should be concluded within three months after a taxpayer has filed a tax return, and it is concluded by the authorized tax officials without any kind of specific decision of the head of the tax authority.

And as for the on-site tax audit, it is concluded at the office of the taxpayer, it is allowed to have only one tax audit of the same tax within one calendar year, and it may not last for more than two months. There are some exclusions, but just two of them. And it is important to understand the difference of the subject of the documentary audit and on-site tax audit because documentary audit is supposed to check the mistakes in calculation and on-site tax audit is supposed to check initial documents.

As for the documentary audit, it is mostly regulated by Article 88 of the Tax Code, and I'd like to dwell on the main practical issues that the taxpayers have when this documentary audit takes place. The most common one, probably, is that the tax authorities try to request initial documents, too many initial documents from the taxpayer, and also they try to make them provide notarized copies or originals, and what happens in practice is that they keep asking and asking and asking, and act like there is no limitation on which documents the taxpayer should present, and it leads to an additional, first of all financial burden on the taxpayer because if they have to make all those notarized copies, that can become very expensive. And also, because of so many requests, sometimes what happens is that the accounting department cannot do anything else, they just spend their time communicating with the tax authorities. Sometimes they have to create a whole separate section of their department to deal with the tax authorities, and that can become expensive, too.

Another issue would be that the tax authorities try to impose a fine immediately after they find some kind of calculation mistakes, and they all know that Section 5 of Article 88 says that for the underpaid amount of the taxes revealed by the documentary audit the tax authorities shall send out demand of the payment of the tax and interest amount, it doesn't say anything about a fine. So, I should say that the court practice of those, of the last one was more favorable to the taxpayers recently.

As for the -- there were some amendments to the tax legislation which are supposed to take effect on January 1, and I should say that when there was a discussion of those amendments, the business community really did want a lot of amendments happen with regard to the tax audit, both documentary and on-site audit, and some amendments took place, mostly regarding the documentary audit, not all of them that the business community wanted. But at least now it will take effect on January 1, 2007. Article 88 will at least clarify which kind of documents the tax authorities can request while doing the documentary audit. It should be documents that are specified for this exact tax that they are checking, and it should be only documents that are stated in the Tax Code for the specific tax.

Another one is that the taxpayer has the right to prove calculations prior to making corrections. What happened before is that Article 88, I mean the way it is now, until January 1, is that if the tax authorities find mistakes because technically Article 88 didn't say that the taxpayer has the right to present like proof -- of why they calculated -- additional proof of why they calculated it the way they did, the tax authorities were just trying to say -- well, officially Article 88 doesn't say it, so, you'd better now make the corrections which we tell you to do. And if the taxpayer doesn't agree with this, they technically could argue and go to court and would probably win, but at the same time, that's what the tax authorities did, they were saying that the taxpayer didn't have the right to prove it at that point, at least.

And another new thing is that obligation of the tax authorities to prove a specific document if they establish a violation of the tax law. Specific documents would be a checking act. This is something that the business community wanted also because the obligation of the tax authority to present this checking act would give more rights to taxpayers to defend themselves.

Regarding the on-site tax audit, the main practical issue would be -- again, there are so many of them that I will probably not have enough time -- I definitely won't have enough time to talk about all of them. So, the highlight of the most common ones, it's duration of an audit. We all know that it is supposed to be for two months, and there are only a couple of exclusions, which are very clearly stated in the law, when it could be longer. But what happens is that usually when the tax authorities finally understand that they don't have enough time to complete the audit, they always try to find a reason to have it longer. And what they try to do is they try to suspend an audit. And even though there is no law that says that it is okay to suspend an audit -- actually the Tax Code says nothing about it -- the tax authorities always try to say, well, there is an instruction of the Tax Ministry that it is okay to suspend it. But this instruction wouldn't be -- shouldn't be taken into account at this point because the Tax Code doesn't say anything about any suspension of an audit.

Also they try to perform multiple audits in a given period, and this is a very well-known fact when the tax authorities try -- a higher tax authority comes to a company and says, well, we are not doing a second audit, we are just checking on the tax authority that came before and did the tax audit. So, we are not checking you, we are checking them. But what they really do is, they are checking the company again and even try to impose fines.

And the request to deliver documents to the tax authorities. This also happens when the tax authorities do make tax (…), at least try to make them deliver documents to the tax authorities. And in this case it shouldn't be this way because to deliver documents to the tax authorities this is what happens when a documentary audit takes place. And an on-site audit shouldn't substitute a documentary audit. In other words, it shouldn't be this way.

And the last slide -- again, there are a lot of things that a company can try to do in order to minimize the negative things that the tax authorities can do, and I wouldn't be able to talk about all of them, but we have stated some, at least, to have a preliminary independent audit or to have a parallel independent audit. The reason to do it would be that sometimes, and it happened a lot of times, that the taxpayer overpays taxes, but even though the tax authorities know it sometimes, they wouldn't say it, they always try not to talk about it. So, if it comes to the point where the tax authorities did find mistakes and try to make the taxpayer responsible for them, there is no other way to defend yourself. At least there is a possibility to say, well, I have overpaid taxes before, now take this and take out of it. This might help.

Another advice would be to have an accountant communicate closely with lawyers. This is helpful, too, because accountants a lot of times think differently, and they don't go to court, they don't have to deal with the documents and information and with the way of how to present them in court. So, sometimes, when they make decisions to do something, they don't take into account how it would look in court.

And the last one would be to involve lawyers in the process from the very beginning. That's good, too, because a lot of times lawyers can prevent the tax authorities from receiving negative information or documents, arguable information or documents, so that would be easier to do this instead of letting tax authorities receive all that and then try to argue with them. Thank you.

АБРАМОВ: Olesya, thank you very much. It was Olesya Galkova, Director from Norman Dale Associates. And now we have our last topic on the last session. It will be presented by Andrew Somers, President of the American Chamber of Commerce, and Peter Reinhardt, co-chair of the AmCham HR Committee and partner of Ernst&Young. And they will speak about hot topics in the US, tax system changes and changes in the Russian legislation. As you will see, changes do not always happen in the Russian system, but they also do change overseas, and sometimes not in favor of taxpayers.

РЕЙНХАРД: Thank you very much, Vlad. I'll start off with the technical piece, and then Andrew will give us the silver lining on some of the more difficult news I have to deliver today. I am going to talk first about Russia, actually, and then come to the US, just to wrap things up on the Russian side.

And (…) a few key changes that are going through on January 1 relative to the taxation of individuals as well as a couple other proposed changes that might come through. The most important change to the Tax Code -- you heard about this one, Shatalov was speaking this morning -- is to the tax residency, tax for individuals, that will be going forward -- 183 days in any consecutive 12-month period as opposed to what we have now, through the end of 2006, which is looking at the calendar here. And as you may sense from the discussion this morning, the questions posed, there are plenty of practical questions about transition to these new rules, how they will be applied going forward, that have yet to be answered. Some of those questions are, for example: will it be possible in early 2007 to look back into 2006 for purposes of figuring out residency status early next year. I think the answer to this will probably be yes, but we don't have that answer yet. Will there be a concept of split-year residency? Theoretically, in other jurisdictions which have similar tax laws, you can be resident for part of the tax year and non-resident for another. I understand that Mr. Shatalov said this morning that would not be the case here. If you are resident for part of the year, then you are resident for the full year. I am not sure that's the final answer, but at least that's an answer which, I think, we can live with if indeed that's going to be the answer to that question.

On the whole, despite those open questions, this is very positive change in the sense that it will mean that no matter when an expatriot arrives in the country or departs, no matter when a Russian citizen goes abroad on assignment or repatriates from that assignment, it should be possible to be resident and pay 13 percent from day one to the last day of being in Russia as long as you get 183 days full stop within any 12-month period.

Another big difficulty on more the tax administration side of things, which it looks like will be solved now is with paying taxes. On paper we have a very wonderful system for individuals -- 13 percent. More of us will be paying 13 percent for a greater period of time thanks to the new residency rules. But if as an individual taxpayer you are then making payments with the tax return, you know how difficult that is. Having forbid that you transpose two digits in the KBK code in a payment order, or stick something in the wrong field in that payment order of a purely informational nature, the money still gets to the tax authorities on time and in full, we know that that holds up registration and in practice we see them accruing interest for late payment when the payment>

Some minor changes: social tax deductions increasing slightly for education and medical expenses, individuals paying for medical insurance themselves will also be able to treat those expenses as deductible under this particular deduction. There's been a lack of clarity when you purchase a room as opposed to a full apartment, whether you can take the property-related tax deduction for that. It will now be clear that you can. Potential further amendments, and these are big ones if they happen. This stems from the draft law that made it through the first reading in the Duma but has gone no further as of yet. This draft law would change the definition of a tax withholding agent from Russian legal entities and permanent establishments of foreign legal entities, change the permanent establishment to autonomous subdivision. So, the purpose behind that is to remove the situation that we currently have whereby non-commercial representative offices technically don't need the definition of who has (…) personal income tax. And if we don't have the obligation to do that, which was, probably never what legislators intended when they first wrote the personal income tax chapter back at the beginning of the century, but in fact they did write it. That would clear up that situation.

The other big item in there is that this law would crystallize and formalize that the norms for government workers on per diems for business trips would be the same limits for taxation purposes for employees of commercial organizations as well. That means for travel within Russia, for example, we would be limited to a hundred rubles per day before you would have to begin taxing your employers on per diems. Obviously, the tax authorities have never been happy with the court decisions following the Gazprom case being a very much prominent one a couple of years ago, where it said that, basically, whatever limit you set in your internal policies for per diems you can deliver that to your employees tax free. This would undo that.

Most of that is positive, and I am glad that I can tell you about some things that are good. Now I am going to move onto the bad and ugly, which it pains me to say is on the US side of things. Why are we talking about the US, developments in the US? We are talking about it because for those of you who don't already know, American citizens, by virtue of their citizenship, continue in principle to be liable to US tax on their worldwide income whether they are in the US or not. So, it's relevant for every American outside the country, including here. Why is it relevant then for American businesses? Because for those of you who don't already know, American citizens, by virtue of their citizenship, continue in principle to be liable to US tax on their worldwide income whether they are in the US or not. So, it's relevant for every American outside the country, including here. Why is it relevant then for American businesses? Because so many American businesses, when they send their employees abroad, put them on tax equalization systems, whereby they are obligated to pay for the cost of their taxes, both Russian and US. And so, when we have something that affects the US liability that impacts both American citizens and American businesses abroad.

What have we had happen in the US this year is that in May Congress passed and President Bush signed what is very ironically called the tax increase prevention and reconciliation act. For some people it prevents a tax increase, but for those of us over here it created a tax increase, as I'll show you. This is known as TIPRA.

I mentioned that Americans, in principle, are liable to US tax on their worldwide income even when they are outside the US. That is true. But there is a provision in the US Tax Code that says that if any one of two tests, one of them known as the bona fide residence test, the other physical presence test, I won't go into the details on those. Suffice it to say that most Americans on assignment abroad will qualify under one of those two tests. If I qualify, then I am allowed to do two things. I am allowed to take what's known as the foreign earned income exclusion, which is a certain amount of my earnings from work abroad that I can throw out of the tax base on the US side. I can also take some of my foreign housing costs and exclude that from the US tax base as well. Beyond that there is a facility to take a credit in the US for Russian tax paid.

Through 2005 the basic foreign earned income exclusion was $80,000 a year. The housing exclusion worked such that you could exclude all reasonable housing costs which, in fact, does mean all housing costs. In any case, I've ever seen in my professional career, whatever the amount, in excess of the base amount, which crept up over the years. For last year it was $11,894. So, anything I spent over that I was allowed to exclude in the US. Most expatriates working in Russia were able to qualify under one of those two tests and were able to do that.

So what changes in 2006 as a result? Why was it called the tax increase protection act? It's because it extended out for a couple more years the lower rate and the tax rate on capital gains of 15 percent, which was applied to taxpayers in the highest income categories, tax brackets. It also extended something known as an alternative minimum tax relief for middle income taxpayers.

It's a wild guess but the numbers I've seen on that and heard are that the consequences of that would be somewhere in the neighborhood of a $60 billion to $70 billion loss in revenue to the US budget. And so it was felt that something needed to be done, you know. You can think of it as a fig leaf if you will, but something needed to be done to find some alternative sources of revenue to offset that, at least partially, and Senator Grassley from Iowa, who has been wanting to do this for many years -- he snuck in a provision in the middle of the night, literally. It's true, it was in the middle of the night -- to severely limit those exclusions for US expatriates.

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Семинар на тему: "налоговая реформа в россии. Где мы?"