The Federal Tax Service of the Russian Federation (the “FTS”) suggested that the tax authorities pay more attention to situations where taxpayers deduct VAT on a large sale in the absence of a tax base.

FTS considers that deduction of VAT in the absence of a tax base can be indicative of abuse on the part of taxpayers. Therefore the tax authorities were advised to enhance tax supervision in respect of such taxpayers, particularly in respect of those who apply VAT rates other than the zero rate.

Alongside this, the fact that the FTS referred to the Decree of the Presidium of the Supreme Commercial Court dated 3 May 2006 reminds us that an absence of a VAT base during the relevant tax period cannot be regarded as a reason for refusing VAT deduction.

These clarifications once again illustrate that taxpayers that intend to claim VAT deductions on a large scale must diligently plan the preparation of the relevant tax declarations and forms in advance in case tax claims arise.

[Letter No. ED-4-3/20687 of the Federal Tax Service of the Russian Federation "On Forwarding the Letter of the Ministry of Finance of Russia", dated 7 December 2012; Decree No. 14996/05 of the Presidium of the Supreme Commercial Court, dated 3 May 2006]