Tax monitoring or 'horizontal monitoring' programmes have been introduced across the world. This type of programme of cooperative compliance has been available in Russia since 2015.
The number of companies joining this programme in Russia is on the increase. In 2016 only six companies applied this regime. However, by 2019, there will be 44 companies from various sectors of the economy, including oil and gas, metals and mining, telecoms, banking, and consumer goods, and services participating in the programme. Tax authorities in Russia actively encourage companies to join the tax monitoring programme.
Applicants for the tax monitoring programme need to have an internal control system ensuring the proper calculation and payment of taxes. The more reliable and developed the internal tax control system, the lower the volume of documents that tax authorities may request during tax monitoring will be.
Tax monitoring in Russia also allows tax authorities to have access to the company's accounting and tax data in real time. Companies applying tax monitoring are exempt from standard desktop and field tax audits and potential tax penalties. Furthermore, tax authorities will close the reporting year for the audit within nine months after the year-end (which provides a strong advantage, as the standard period is three years).
Other advantages of tax monitoring include:
- The possibility of obtaining a ruling from the Federal Tax Service on the tax treatment of particular transactions;
- Fewer requests are received from the tax authorities in relation to providing copies of documents, resulting in a decrease in compliance costs (as data and copies of documents are available to tax authorities online); and
- The mitigation of tax risks and enhancement of the company's reputation.
At the moment, the tax monitoring regime is available only for large companies that fulfil the following criteria:
- The amount of federal taxes paid is more than RUB 300 million ($4.5 million);
- Income is at least RUB 3 billion; and
- The value of assets is at least RUB 3 billion.
Companies wishing to apply to participate in the tax monitoring programme in 2020, should submit an application by July 1 2019. In our experience, the preparation for tax monitoring may require at least six months. Among other things, the preparation includes a review of the company's tax management system and the creation of a mechanism for information exchange with the tax authorities.
The development of tax monitoring in Russia is an important step towards improving the Russian tax system and building trust between the tax authorities and businesses. We expect to see more companies joining this programme in the future.