The Federal Tax Service of the Russian Federation has prepared a draft law on amending the Tax Code in the area of pre-trial reviews of tax disputes.
The necessity of improving the procedure of pre-trial resolution of tax disputes is particularly noted in the Main Guidelines of the Tax Policies of the Russian Federation for 2013 and the Planning Period of 2014 and 2015, as approved by the Government of the Russian Federation. Accordingly, it is very likely that the law will be adopted this year and put into effect as of 1 January 2013.
On 18 May 2012, the round-table discussion “Internal reviews in tax law practice – the prospects of developing administrative procedures for resolving disputes” took place as part of the 2nd International Legal Forum in Saint Petersburg.
The main topic of the round-table discussion was the draft law. Deputy Director of the Federal Tax Service of the Russian Federation (the “FTS”), Sergey Arakelov, presented the key provisions of the draft law.
One of the main objectives of the draft law is creating favourable conditions for taxpayers to participate in dispute resolution. The conceptual proposal of the draft law includes a required pre-trial procedure for all tax disputes. At the present time, only decisions of the tax authorities on the results of tax inspections are bound to pre-trial complaints. If the draft law is approved, all statements of the tax authorities (for example, a demand to pay taxes or a decision on freezing a taxpayer’s bank account) and the action or inaction of their officials will be subject to a required pre-trial complaint.
The overall timeframe for filing a complaint for administrative (pre-trial) proceedings on all disputes is one year. Additionally, it has been proposed to increase the timeframe during which it is possible to file an appellant complaint (апелляционная жалоба) on a decision of the tax authorities based on the results of a tax audit from the current 10 days to one month. We remind our readers that if an appellant complaint is filed, the decision of the tax authorities does not enter into force until the higher tax authorities have taken a decision on this complaint.
The clear advantage of the draft law is the reduced timeframe for reviewing a complaint on the statements of the tax authorities (except for decisions involving tax liability) and the action or inaction of their officials: only 15 days (may be extended to 30 days). Complaints on the decisions involving tax liability, as now, must be reviewed within one month, with the possibility of extending this timeframe for an extra month (currently, this period may be extended for only 15 days).
If a taxpayer is not satisfied with the decision on a complaint, s/he has the right to seek protection of his/her rights in court or appeal the decision with the FTS. Consequently, a two-tiered system of required complaint to the higher tax authorities and to the FTS (voluntarily) is stipulated.
As now, a taxpayer will not be invited to take part in a review. At the same time, the FTS proposes including in the draft law a provision which would permit a taxpayer to present additional documents, which were not presented during a tax audit, to the higher tax authorities only if the taxpayer justifies the reason for the documents not having been presented in a timely manner.
Opinion of the experts
The representatives of the tax authorities believe that the draft law provides the real possibility of resolving disputes in a pre-trial manner. Additionally, once a taxpayer has appealed to the tax authorities, s/he may always seek relief in the courts.
Stanislav Tourbanov, Head of the Tax Practice of CMS, Russia, specifically indicated to the participants of the round-table discussion another very important provision of the draft law that does not exist in current legislation: if the higher tax authorities do not review a complaint within the established timeframe, a taxpayer has the right not to wait for the decision, and s/he may appeal the statements of the tax authorities and the action or inaction of their officials in the courts.
Many foreign jurisdictions have required pre-trial procedures for reviewing disputes, as is the practice, for example, in the United States, Germany, the Netherlands and France.
“The requirement to file a complaint is well accepted by the taxpayers in France and very important for the regulation of tax litigation.” – noted Stéphane Austry, a partner at CMS Bureau Françis Lefebvre, during the round-table discussion. According to the data of the French tax authorities, of the 3.5 million complaints filed every year with the tax authorities, only 20,000 are heard in the courts. Since 2002, new procedures of mediation have also been introduced, by which taxpayers may refer disputes to the Mediator of the Ministry of Finance, who not only handles tax litigation, but also other disputes involving the Ministry. The Mediator has no specific power, but s/he may assist in settling a dispute between a taxpayer and the tax authorities by finding an amicable solution. Every year, the Mediator deals with around 2,000 tax cases. In each French department, there are also “tax conciliators” to whom taxpayers (mainly individuals) may also refer disputes.
Sergey Arakelov, Deputy Director of the FTS, emphasised that since introducing the required pre-trial complaint of decisions of the tax authorities on tax audits in 2009, the number of tax disputes going to court has substantially decreased.
The pre-trial dispute resolution procedure must be improved, based on both Russian experience and on the practices of other countries. Even though Russia does not currently have a full-fledged system for mediating and resolving tax disputes without involving the courts, let alone the possibility of avoiding these disputes altogether, the proposed draft law may be viewed as one of the first steps in this direction.