Different tax audits in Russia: desk audit vs field audit
What kind of tax audits are conducted in Russia?
There are two main types of tax audit in Russia:
- Desk audits: documents are submitted directly to tax authorities or through telecommunications network;
- Field audits: tax inspectors conduct audits on taxpayer premises. Such audit may, as a rule, be either all-inclusive or specific (for example, auditing several taxes, inspecting premises or stocktaking).
What is a desk audit?
A desk audit is conducted at the request of tax authorities in cases prescribed by Russian tax law.
When can a desk audit be initiated?
Cases where tax desk audits may be initiated:
- Taxpayers have declared losses in their profit tax returns (tax authorities may ask about the reasons for losses and the measures taken for profit making);
- Taxpayers have declared recoverable VAT;
- Discrepancies between the data in a taxpayer’s purchase and sales ledgers and that declared by its counterparties;
- Taxpayers own property exempted from property tax;
- Tax authorities have received a request for third-party audit from another taxpayer;
- Taxpayers are exporters and/or apply 0% VAT, etc.
Tax authorities may also request additional information, documents and clarifications in the following cases:
- When indicators and figures are different in various declarations or reports (for example, the sales volume specified in VAT return is different from that specified in profit tax return);
- The figures from various reporting periods do not match (for example, other income in profit tax return for the first 9 months of the year is smaller than other income in profit tax return for the first half of the year);
- Upon distribution of profit tax among separate subdivisions, the base for distribution (in particular, fixed asset book value) differs from the data specified in property tax return and balance sheet;
- Net profit in profit and loss statement does not match the growth of retained earnings in the balance sheet for the same period;
- Employee salaries are lower than the regional minimum wage;
- When revenues are not subject to VAT, etc.
We have received a request from tax authorities. Does this mean we are in trouble?
Requests from tax authorities do not mean that taxpayers have committed any errors or violations so providing written clarifications or appearing before so-called commissions in tax offices is often enough.
Good. What is a field audit?
Field audit is a tax audit conducted on taxpayer premises. Field audits take much longer than desk audits. Tax authorities are also entitled to request more documents during field audits. They may also interview employees, conduct counter-inspections and audit counterparties.
Field audits cannot, as a general rule, take more than two months. This time period may, however, be extended to four months, and in exceptional cases, up to six months.
What taxes may be checked during a field audit?
Any taxes such as profit tax, VAT, property tax, personal income tax, social insurance contributions (which have been administered by tax authorities since 2017), excises, transport tax, etc. may be checked.
The taxes that will be checked must be listed in the official audit request. This list of taxes may be extended during the audit but only to request explanations of reasons.
What period can be audited by tax authorities?
Only the last three calendar years preceding an audit request may be checked during a field audit. For example, if you receive an audit request in 2017, only 2014, 2015 and 2016 may be checked.
Tax authorities are not entitled to conduct two or more field audits of the same taxes for the same period although a second audit may be initiated in exceptional cases.
Do tax authorities notify of any upcoming audit?
Tax authorities notify of upcoming audits at least 3 weeks prior to their beginning by sending an official field audit request specifying its time period. As mentioned above, audit timelines may be extended, and in such case, another official request specifying the reasons for such extension is also sent to the entity subject to audit.