Appealing a tax authority decision

What is happening

The field audit report turned out to be substantial: the tax office disallowed expenses and VAT deductions on several suppliers, describing them as 'shell' companies. There is a month to object, and the documents on transactions three years old are scattered across archives and former employees.

Objections were filed, but the decision reproduces the audit report almost word for word. The company is weighing whether an appeal to the regional directorate is worth it, and is worried the assessed amounts will be debited from its accounts while the dispute goes on.

Sometimes only part of the decision is in dispute: the tax office miscalculated interest, ignored an overpayment or disregarded mitigating circumstances. These points are also dealt with on appeal, and small sums are no reason to let them go.

What the law says

• Written objections to an audit report are filed within one month of receiving it (Article 100 of the Tax Code); the audit materials are considered with the taxpayer present, and the taxpayer must be notified of the time and place.
• A decision that has not yet taken effect is challenged by an appeal to the higher tax authority, lodged through the tax office that issued it, within one month of service; the appeal postpones the decision's entry into force (Article 139.1 of the Tax Code).
• Before going to the commercial court, an audit decision must be appealed to the higher tax authority: the pre-trial procedure is mandatory (Article 138 of the Tax Code).
• An application to have the decision declared invalid is brought in the commercial court under Chapter 24 of the Commercial Procedure Code (APK), as a rule within three months of the company learning that its rights were infringed.
• Together with the application, the court can be asked to suspend the contested decision as an interim measure, so that the amounts cannot be recovered without a court order while the case is pending.
• Mitigating circumstances (Article 112 of the Tax Code) allow the fine to be reduced at least by half (Article 114 of the Tax Code); they are raised in the objections, on appeal and in court.

What we do

• We break the report or decision down item by item: what is alleged, on what evidence, and where the tax office has gone beyond what it actually gathered.
• We check the procedure: time limits, notifications, access to the audit materials and the results of any additional measures, and whether the company had a real opportunity to take part.
• We gather evidence that the transactions were real and had a business purpose: primary documents, correspondence, logistics and payment records, and statements from counterparties' staff.
• We prepare objections, attend the consideration of the audit materials and raise mitigating circumstances.
• We draft the appeal to the regional directorate or the complaint to the Federal Tax Service and attend the hearing where the higher authority invites the parties.
• We prepare the commercial court application and the request for interim measures, and represent the company at first instance, on appeal and in cassation.
• In parallel, we check whether demands for payment and account freezes based on the decision are lawful.

What we will need from you

• The audit report with its appendices, or the decision if it has already been issued.
• The decision ordering the audit, the requests and replies, and the minutes of interviews and inspections.
• Documents on the disputed transactions: contracts, primary documents, correspondence, payment orders.
• Any objections and appeals already filed.
• Information that may count as mitigating circumstances: financial position, the social importance of the business, no previous breaches.