FTS publishes information on taxpayer obligations and financial reporting2 November 2018
The Federal Tax Service (FTS) recently began publishing information concerning the various obligations of Russian taxpayers (ie, legal entities) and their financial reporting on its website. This practice is new in Russia, as such information was previously classified as tax secrets and, by virtue of the Tax Code, could not be disclosed. Following amendments to the legislation, the tax authorities will now actively publish this information in order to help genuine companies choose counterparties.
The significant simplification of the Russian company registration process (including the substantial reduction in associated costs) in 2002 gave rise to the phenomenon of shell companies. Unscrupulous entrepreneurs:
- registered a shell company, as a rule, in the nominee's name;
- briefly used the company to conduct an economic activity while failing to submit reports to the tax authorities or pay taxes; and
- abandoned the company and established a new one in the same way.
Meanwhile, the counterparties of such shell companies incurred significant problems due to the tax authorities' refusal to deduct value added tax paid in favour of the companies and their corporate income tax. As such, it became common practice for counterparties in the Russian business environment (especially large companies interested in maintaining their positive business reputation, including their reputations as genuine taxpayers) to request a significant number of documents from a company with which they were entering into a business relationship for the first time, including its tax reports and evidence of tax payments. However, until recently, conscientious taxpayers had to rely solely on the documents submitted by a counterparty in this regard, as it was impossible to obtain information on the good-faith tax payments of a counterparty from the tax authorities due to said information's classified nature.
In 2016 a law was passed which declassified much of the above tax information. As such, the FTS has started to collect information from local tax offices on a large number of taxpayers and make it publicly available on its website.
Publication of information
On 1 August 2018 the FTS published on its website information (as of 31 December 2017) concerning:
- the number of employees of the relevant taxpayers;
- the special tax regimes used by the taxpayers; and
- the taxpayers' involvement in consolidated groups of taxpayers.
Subsequently, on 1 October 2018 the FTS published information concerning the taxes and fees paid by the relevant taxpayers in 2017, as well as their income and expenses according to their 2017 financial statements.
In the third tranche of information to be published on 1 December 2018, the FTS will publish information concerning the overdue payments and tax indebtedness of the taxpayers concerned, as well as information concerning tax fraud.
This development is useful not only for Russian taxpayers, but also foreign companies choosing Russian counterparties. For example, when concluding a franchise agreement, the franchisor will require the franchisee to provide assurance that it has properly fulfilled its obligations to the state authorities, including the payment of any taxes. There is now a mechanism in place to verify the authenticity of such assurances using an independent source.