The powers of regional FTS offices in implementing tax law-enforcement measures, including conducting on-premises inspections, searches and seizures of documentation



FTS agents conduct financial law enforcement by means of inspections, searches and other means stipulated in the Tax Code of the Russian Federation.

Tax law-enforcement actions can be divided into several categories:

- Cameral inspections are conducted by the regional tax law-enforcement agencies. In essence such inspections are automatic and digitized whereby agents use specific software to analyze the correlation of filed (by the legal entity) financial data to pick out anomalous results, which in turn are used as grounds for further investigation. Cameral inspections are conducted without the presence of the legal entity and without informing it about the results.

- On-premise inspections, as their name suggests, are conducted at the place of business, again by the regional tax law-enforcement agencies. Repeat on-premise inspections, in the cases stipulated by the Tax Code, are conducted by agents of the local Directorate of Federal Tax Service.

On-premise inspections are always a tough test for the tax payer. Not only because as a result of them additional tax dues may be claimed and the tax payer held liable. On-premise inspections waste considerable staff time which inevitably disrupts all other business processes and results in irrecoverable costs.

It is important to note that tax legislation does not specify the rules or order of selection of taxpayers for field inspections, so a knock on the door can be expected at any time.

Regional and local tax inspectors recently adopted the absurd list of 109 signs of a likely moonlight operation which, when carefully looked at, basically declares any enterprise a potential tax violator and due for inspection, search or seizure.

Here are some of the more absurd “signs of a likely moonlight operation” which in the eyes of the FTS justify the need for inspection, search and seizure:

1 – if the enterprise shares its address with other companies/organizations

11 – the owner or senior executive officer is NOT a citizen of the Russian Federation

14 – the owner is a “mass owner” – meaning someone who has registered 9 or more companies

17 – the founder and CEO of the company are the same person

23 – the founder or CEO are currently not able to physically fulfill their duties as a result of illness or old age (unspecified)

24 – the company is registered as an LLC

25 – if any member of the management has a registered home address in another region

28 – the company was purchased from another legal entity which had in the past sold more than one business

39 – the company files no profit for at least one financial quarter

42 – the founder of the company is also in any way a business partner to it

43 – if any of the company’s clients or business partners are already on the tax authorities list of suspicious companies 

58 – small company which is a business partner of a big company

60 – the company’s employees spend more money than their declared salaries at the company allow

62 – the company uses the services of a bank which services 10 or more companies already on the tax authorities list o f suspicious companies

72 – if the company employs or utilizes foreign (not Russian citizen) personnel 

- Inspections of mutually dependent persons or legal entities:
These are conducted directly by the FTS. It is important to underline that the Russian Tax Code has a specific, yet very stretchable, definition of mutual dependence when it comes to business relationships. Article 20.1 of the Tax Code defines several clear types of mutual dependencies, while 20.2 stipulates that “the Courts reserve the right to define mutual dependency on their terms of their own choice which are not described by Article 20.1”, if it is deemed that a mutual relationship may potentially influence the outcome of business transactions.

In order to prevent any possible violations of the current legislation by the tax authorities and prevent unlawful seizure of business documentation and electronic carriers, JSC Audit-EuroFinance and LLC “Russian Archive House”