Collection Of Unpaid VAT From An Affiliated Entity
As a general rule, a company must fulfill its own tax liability. However, in case of interdependent companies, tax liability may be legally enforced not only on the taxpayer, but also on the dependent companies (affiliates).
A little over a year ago legislators adjusted the procedures for enforcing delinquent tax on affiliated/interdependent entities. Proposed amendments have been expanded and a basis specified for enforcing unpaid tax on affiliated companies. However, tax inspectors with the participation of the Moscow Regional Court have succeeded in enforcing unpaid VAT dating from even before 2012 – on an organization informally affiliated with the delinquent taxpayer.
Interdependent/affiliated entities are entities able to influence conditions and/or results of conducted transactions. Two or more organizations may be considered interdependent/affiliated based on a court ruling proving their affiliation.
According to the law, the tax authority may appeal to the commercial arbitration court with a request to hold the company liable for the tax owed by its subsidiary (dependent) or parent (holding) company. This collection is possible if the revenues received for sold goods (services) were transferred to the affiliate’s rather than the taxpayer’s bank account. This procedure applies to outstanding tax debt older than three months.
We also would like to emphasize that this penalty may be enforced only by by court order so as to protect the taxpayer who, in this case, is being charged with another entity’s debt.
The tax authorities appeal to the court simultaneously with a petition to recognize entities in question as mutually dependent/affiliated and to hold the affiliate company liable for the outstanding tax debt. The court may rule the companies to be dependent/affiliated even without documented confirmation of this affiliation – i.e. when registration documents do not reflect that one company acts as a subsidiary of the other.
Companies may be recognized as dependent/affiliates based on mutually coordinated actions to avoid tax liability by dissolving previously signed contracts and creating new contracts with the same contractors by a company specifically created for this purpose.
Translated by Alinga Consulting Group.
About Alinga Consulting Group
Audit and Taxation Legal Accounting and Payroll
Questions? Ask Alinga's Experts!
| ||Source: Æóðíàë "ÍÄÑ ïðîáëåìû è ðåøåíèÿ"|| |