A demand from the tax office: what to do in the first ten days

The most common mistake on receiving a demand is to treat it as a misunderstanding that will sort itself out. It will not: the inspectorate records the fact that the demand was sent, counts the days and, if no answer comes, moves on to the next step. Below I set out the types of demand, how they differ in deadlines and consequences, and what is worth doing in the first week.

Not every demand is the same

Three quite different procedures hide behind a single word, and confusing them is expensive.

A demand to produce documents during a desk audit — Article 93 of the Tax Code. The deadline for replying is ten working days. The inspectorate may not request documents on any pretext it likes: in a desk audit of a return that involves no VAT refund and no reliefs, the grounds are limited.

A demand to produce documents and information about a specific transaction — Article 93.1 of the Tax Code, the so-called counter-request. Here you are not the taxpayer under audit but a source of information about your counterparty. The deadline is five working days for documents on a specific transaction and ten days where it is your counterparty that is being audited.

A demand for explanations — clause 3 of Article 88 of the Tax Code. Five working days. Formally you need not attach documents, but explanations without documents often look like bare assertion.

The first thing to do on receiving the paper is to look at the provision it cites. That determines both the deadline and the scope of what you are obliged to hand over.

Deadlines do not run from the date on the envelope

A demand sent through electronic communication channels is treated as received on the date shown in the acknowledgement of receipt. You have six working days to send that acknowledgement, and this is a separate deadline: fail to send it and the inspectorate may suspend operations on your bank accounts.

The practical conclusion follows: if the demand arrives on a Friday evening while the accountant is on holiday, you are already inside the procedure without having opened the file. Checking the electronic document exchange for incoming items is not a formality but a way of avoiding a frozen account because of a technical failure to send an acknowledgement.

The reply period runs in working days from the day after the day of receipt. An extension is possible: the application is filed within the day following receipt, stating the reasons and the date by which the documents will be ready. The inspectorate is not obliged to grant it, but a reasoned application with a genuine cause — a large volume of material, seizure of documents, the chief accountant's absence on leave — is usually granted at least in part.

What silence costs

A penalty under Article 126 of the Tax Code is RUB 200 for each document not produced. The figure looks trivial right up to the moment when four hundred documents have been requested.

A penalty under Article 129.1 is RUB 5,000 for failure to provide information, and RUB 20,000 for a repeat within the year.

But the penalties are not the main point. Silence is a signal on which the inspectorate completes the picture by itself. Missing documents are read against you: if the company has not confirmed that a transaction was real, the conclusion will be that it was not. That then goes into the audit report, and challenging a finished report costs more than sending the file on time.

What to do in the first few days

First. Fix the date. Send the acknowledgement of receipt, record the date of receipt and count out the last day of the period. That date should be in front of whoever is responsible.

Second. Work out what is actually being asked. Behind the wording "produce documents relating to dealings with LLC ..." lies a specific hypothesis held by the inspectors. Most often they are interested in whether the transaction was real and whether you exercised due care in choosing the counterparty. Understanding the hypothesis changes what goes into the answer: the point is not simply to hand over contracts but to show that the delivery happened, the goods were accepted, payment went through and the counterparty was checked before the deal.

Third. Assemble the file and check it for internal contradictions. The dates in the contract, the delivery notes, the transport documents and the payment must add up to one story. If on paper the goods arrived before they were ordered, that will be noticed. It is better to spot the discrepancy yourself and explain it in the covering letter than to leave it to the inspector's discretion.

Fourth. Assess what you are not obliged to produce. A demand issued outside the framework of an audit is confined to a specific transaction. A request for all internal correspondence, the staffing schedule and three years of trial balances goes beyond the subject matter of that provision. A refusal must be reasoned and in writing, not silent: you reply within the deadline but explain why part of the material falls outside the scope of the demand.

Fifth. Write a covering letter. An inventory stating the number of pages, an explanation of each contentious point, and a note of which documents were produced earlier and in answer to which demand. This saves time later: when a dispute arises six months on, the letter will show that the company behaved in good faith.

What not to do

Do not send documents in instalments without an inventory in the hope that this attracts less attention. Do not write emotional explanations about the inspectorate picking on you. Do not give oral explanations over the telephone: what you say may end up in a record of interview, and you will have nothing to back up your own version of it.

And most importantly: do not sign explanations you have not read. A ready-made text sent over "to speed things up" does happen, and it is not written in your interests.

If the demand arrives after a change of director or accountant

This is a separate situation, and the one that most often brings people to me. The records for earlier periods were never handed over, the previous accountant is unreachable, and the demand concerns transactions from three years ago. Here the sequence works: a written request to the former manager describing which documents are needed, an application to extend the deadline with that request attached, and reconstruction of the documents through counterparties and the bank.

That correspondence later becomes evidence of good faith. Without it the picture looks like concealment of documents, with everything that follows from it, including the presumption that the manager is at fault in any subsequent insolvency.

This material is for information only and is not a substitute for advice on a specific matter.

If you have received a demand and it is not clear what it means or what it threatens, write to us — the first consultation is free when an engagement is signed.

Vladimir Kovalev — lawyer, founder and managing partner of Kovalev & Partners LLC