Tax Audit: Taxpayer Rights and Defense Strategy

What Types of Tax Audits Exist?

The Russian Tax Code provides for several types of tax audits, each with its own specific features, deadlines, and scope. Understanding these differences is critical for developing an adequate defense strategy.

Desk Tax Audit (Article 88 of the Russian Tax Code)

This is the most common type of audit, conducted without visiting the taxpayer's premises. It is based on tax declarations (calculations) and documents submitted by the taxpayer to the tax authority, as well as other documents concerning the taxpayer's activities available to the tax authority.

* Scope: Verification of the completeness and accuracy of tax calculation and payment based on the submitted reporting. * Deadline: A desk audit is conducted within three months from the date the taxpayer submits the declaration (calculation) (Paragraph 2, Article 88 of the Russian Tax Code). If errors, contradictions, or inconsistencies are identified, the tax authority is entitled to request explanations and documents (Paragraph 3, Article 88 of the Russian Tax Code). * Specifics: Conducted automatically, without a special decision by the head of the tax authority. The main tool is comparing declaration data with available information and control ratios.

Field Tax Audit (Article 89 of the Russian Tax Code)

A field tax audit is the most in-depth and comprehensive form of control, conducted directly at the taxpayer's premises.

* Scope: Verification of the correct calculation and timely payment of virtually all taxes for a specific period. It can be comprehensive (covering all taxes) or thematic (covering specific taxes or issues). * Deadline: The general period for conducting a field tax audit cannot exceed two months (Paragraph 6, Article 89 of the Russian Tax Code). However, this period may be extended to four, and in exceptional cases, to six months. The grounds for extension are strictly regulated (e.g., a large volume of documents, the presence of separate subdivisions). * Period: The tax authority is entitled to audit a period not exceeding three calendar years preceding the year in which the decision to conduct the audit is issued (Paragraph 4, Article 89 of the Russian Tax Code). * Specifics: Conducted on the basis of a decision by the head (deputy head) of the tax authority. It includes a wide range of tax control measures: requesting documents, interrogating witnesses, inspecting premises, and inventorying property.

Repeat Field Tax Audit

A repeat field tax audit is conducted concerning an already audited period and constitutes an exception to the general rule.

* Grounds: 1. In the event of reorganization or liquidation of the taxpayer organization — an audit by a higher-level tax authority as a means of controlling the activities of the tax authority that conducted the initial audit. 2. In the event the taxpayer submits an amended tax declaration indicating a tax amount lower than previously declared. In this case, only the part of the declaration where the tax amount is reduced is audited. 3. In the event a higher-level tax authority or a court cancels the decision of a lower-level tax authority to conduct a repeat audit. * Period: No more than three years already audited previously.

Counterparty Cross-Audit (Article 93.1 of the Russian Tax Code)

A cross-audit, or the request for documents (information) regarding a taxpayer, fee payer, or insurance premium payer, is not an independent type of audit, but rather one of the tax control measures conducted within the framework of a desk or field audit.

* Scope: Obtaining information and documents concerning the activities of the audited taxpayer from its counterparties or other persons possessing such information. * Specifics: The tax authority is entitled to request documents from counterparties if there are grounds to believe they possess information necessary for the audit.

Thematic vs. Comprehensive Audit

* Comprehensive audit: Covers all taxes and fees, as well as all aspects of the taxpayer's financial and economic activities for a specific period. This is the most resource-intensive and lengthy type of audit. * Thematic audit: Focuses on verifying the correct calculation and payment of one or several specific taxes, or on specific issues (e.g., the legality of applying tax benefits, the justification of VAT deductions).

Understanding these differences allows the taxpayer to adequately assess risks and prepare for the upcoming actions of the tax authorities.

When is a Field Tax Audit Scheduled?

A field tax audit is a significant event, and its scheduling is not random. The Federal Tax Service (FTS of Russia) utilizes a complex risk management system to select candidates for field audits. This system is based on the **Concept of the Planning System for Field Tax Audits**, approved by FTS Order No. MM-3-06/333@ dated May 30, 2007. The document contains 12 publicly available criteria for independent risk assessment by taxpayers. If a company meets several of these criteria, the probability of a field audit being scheduled increases significantly.

12 Criteria for Self-Assessment of Risks:

1. **Tax burden below the industry average.** If the amount of taxes paid as a percentage of the company's income is lower than the average for the respective industry, this serves as a signal to the FTS. 2. **Reporting losses in accounting or tax reports over two or more tax periods.** Systematic losses may indicate tax evasion schemes or business inefficiency. 3. **Reporting significant amounts of tax deductions for a specific period.** In particular, a share of VAT deductions exceeding 89% of the accrued tax amount is one of the most frequent reasons for close scrutiny. 4. **Expenses growing at a faster rate than income from the sale of goods (works, services).** This may indicate an unjustified overstatement of expenses. 5. **Payment of average monthly wages per employee below the average level for the type of economic activity in the constituent entity of the Russian Federation.** Low wages may indicate the payment of "grey" salaries and the understatement of personal income tax and insurance premiums. 6. **Repeatedly approaching the limit values that grant the right to apply special tax regimes.** For example, if a company's income is constantly on the verge of the limit for the simplified taxation system (USN), this may arouse suspicions of artificial business fragmentation. 7. **An individual entrepreneur reporting an amount of expenses as close as possible to the amount of income received for the calendar year.** Similar to point 4, but for individual entrepreneurs. 8. **Structuring financial and economic activities with high tax risk.** For example, using shell companies or dubious counterparties. 9. **Failure by the taxpayer to provide explanations to the tax authority's notification regarding identified discrepancies in activity indicators, or failure to provide requested documents.** Ignoring FTS requests is always regarded as a high risk. 10. **Repeated deregistration and registration with tax authorities due to a change of location ("migration" between FTS inspectorates).** Frequent changes of legal address may be a sign of evading audits. 11. **Significant deviation of the profitability level according to accounting data from the profitability level for the given field of activity according to statistics.** Low profitability with high turnover may be a sign of profit withdrawal. 12. **Conducting financial and economic activities with high tax risk.** This criterion summarizes all the others and includes any schemes aimed at tax evasion.

Pre-Audit Analysis

Before scheduling a field audit, the tax authority conducts a so-called pre-audit analysis. This is a set of measures aimed at collecting and analyzing information about the taxpayer from various sources:

* Tax reporting and accounting statements. * Bank statements. * Information from counterparties (cross-audits). * Data from open sources (media, Unified State Register of Legal Entities/Individual Entrepreneurs). * Results of previous audits. * Information from law enforcement agencies.

The purpose of the pre-audit analysis is to form the most complete picture of the taxpayer's activities, identify potential tax risks, and determine the most promising areas for the audit. Based on the results of this analysis, a decision is made regarding the feasibility and scope of the field audit.

Understanding these criteria and the stages of the pre-audit analysis allows the taxpayer to assess risks in advance and take measures to mitigate them, for example, by conducting an internal tax audit or adjusting accounting policies.

What Rights Does a Taxpayer Have During an Audit?

A tax audit, despite its coercive nature, is not an arbitrary process. The taxpayer possesses a wide range of rights guaranteed by the Russian Tax Code, and knowing them is the first step toward effective defense.

1. **The right to review the tax audit act (Paragraph 5, Article 100 of the Russian Tax Code).** Upon completion of the audit, the tax authority is obligated to draw up an act and deliver it to the taxpayer. The taxpayer has the right to receive a copy of the act and carefully study all identified violations and additional assessments. 2. **The right to submit written objections to the tax audit act (Paragraph 6, Article 100 of the Russian Tax Code).** Within one month from the date of receiving the act, the taxpayer is entitled to submit written objections to the tax authority regarding the act as a whole or its individual provisions. Supporting documents may be attached to the objections. 3. **The right to participate in the review of the tax audit materials (Paragraph 2, Article 101 of the Russian Tax Code).** The taxpayer must be notified of the time and place of the review of the audit materials. They have the right to participate in this review personally or through a representative, provide explanations, submit evidence, and file motions. 4. **The right to qualified legal assistance (Article 29 of the Russian Tax Code).** The taxpayer is entitled to participate in relations regulated by legislation on taxes and fees through their legal or authorized representative. An authorized representative can be an attorney or another person holding an appropriate power of attorney. The presence of a representative at all stages of the audit, including interrogations and inspections, ensures the observance of the taxpayer's rights. 5. **The right to appeal the decision of the tax authority (Articles 138-142 of the Russian Tax Code).** If, based on the results of the review of the audit materials, the tax authority issues a decision to hold the taxpayer liable or to refuse a tax refund, the taxpayer has the right to appeal this decision first to a higher-level tax authority (mandatory pre-trial procedure), and then to an arbitrazh court. 6. **The right to receive copies of documents.** The taxpayer is entitled to receive copies of tax audit acts and decisions of tax authorities from the tax authorities (Subparagraph 9, Paragraph 1, Article 21 of the Russian Tax Code). Also, when documents are requested, the taxpayer is entitled to receive copies of documents attached to the audit materials that formed the basis for the additional assessments. 7. **The right to be present during tax control measures.** The taxpayer or their representative has the right to be present during the seizure of documents and items (Article 94 of the Russian Tax Code), inspection of territories and premises (Article 92 of the Russian Tax Code), inventory (Article 93 of the Russian Tax Code), as well as during the interrogation of witnesses, if it concerns their activities. 8. **The right not to testify against oneself (Article 51 of the Russian Constitution).** During an interrogation, a taxpayer (individual) or their representative is entitled to refuse to give testimony that may be used against themselves, their spouse, and close relatives. 9. **The right to demand compliance with legislation by tax authorities.** The taxpayer is entitled to demand from officials of tax authorities compliance with legislation on taxes and fees when exercising their powers (Subparagraph 10, Paragraph 1, Article 21 of the Russian Tax Code). Any violations of the audit procedure can serve as grounds for canceling the tax authority's decision.

The realization of these rights requires not only knowing them but also an active stance by the taxpayer, and often — professional legal support.

Procedure for Documenting Audit Results

The completion of the audit itself is merely the beginning of the next, equally important stage: documenting its results and making a decision. The subsequent fate of the tax claims largely depends on how correctly all procedural deadlines and procedures are observed at this stage.

Tax Audit Act

Upon completion of a field tax audit within two months, and upon completion of a desk audit (if violations are identified) within 10 days after its completion, officials of the tax authority are obligated to draw up a **tax audit act** (Paragraph 1, Article 100 of the Russian Tax Code).

* **Content of the act:** The act must contain the subject of the audit, the dates of its conduct, documented facts of violations of legislation on taxes and fees, references to articles of the Russian Tax Code providing for liability for these violations, as well as proposals for eliminating the identified violations and bringing to liability. * **Delivery of the act:** The tax audit act is delivered to the taxpayer (their representative) within five days from the date of its compilation (Paragraph 5, Article 100 of the Russian Tax Code). This can be done in person against a receipt, transmitted in another way indicating the date of its receipt, or sent by registered mail. The date of delivery of an act sent by mail is considered to be the sixth day from the date of dispatch.

Review of Tax Audit Materials

After the expiration of the period allotted for submitting objections (one month from the date of receiving the act), the head (deputy head) of the tax authority is obligated to review the tax audit materials, including the act, the taxpayer's written objections, and the attached documents (Paragraph 1, Article 101 of the Russian Tax Code).

* **Review period:** The review of the audit materials is carried out within 10 days after the expiration of the deadline for submitting objections. This period may be extended, but by no more than one month. * **Notification of the taxpayer:** The taxpayer must be notified of the time and place of the review of the audit materials (Paragraph 2, Article 101 of the Russian Tax Code). Failure to notify is a gross procedural violation and may serve as grounds for canceling the decision. * **Taxpayer participation:** The taxpayer (their representative) has the right to participate in the review, provide explanations, submit additional documents, and file motions.

Additional Tax Control Measures (ATCM)

During the review of the audit materials, if it becomes necessary to obtain additional evidence to confirm the fact of a violation of legislation on taxes and fees or the absence thereof, the head (deputy head) of the tax authority is entitled to issue a decision to conduct additional tax control measures (Paragraph 6.1, Article 101 of the Russian Tax Code).

* **Deadline:** ATCM are conducted within one month. This period may be extended for another month. * **Purpose:** ATCM may include requesting documents, interrogating witnesses, and conducting expert examinations. They cannot be aimed at changing the subject or depth of the audit. * **Result of ATCM:** Based on the results of the ATCM, an addendum to the tax audit act is drawn up, which is also delivered to the taxpayer, and to which they are entitled to submit their objections within 15 working days.

Based on the results of the review of the audit materials and the results of the ATCM (if they were conducted), the head (deputy head) of the tax authority issues a **decision on holding liable for committing a tax offense** or a **decision on refusing to hold liable**. This decision is the final act of the tax authority based on the results of the audit and is subject to appeal.

How to Draft Objections to a Tax Audit Act?

Submitting reasoned and substantiated objections to a tax audit act is the first and one of the most important stages in defending taxpayer rights. The outcome of the case largely depends on the quality of preparation of this document.

Deadline for Submitting Objections

The taxpayer is entitled to submit written objections to the tax audit act within **one month** from the date of receiving the act (Paragraph 6, Article 100 of the Russian Tax Code). This deadline is procedural, and missing it without valid reasons may deprive the taxpayer of the opportunity to fully defend their position at the stage of reviewing the audit materials. It is important not only to meet the deadline but also to have proof of timely dispatch (e.g., a receipt mark on the second copy, a postal receipt with a list of enclosures).

Structure of Objections

Objections must be clear, logical, and well-reasoned. Recommended structure:

1. **Introductory part:** * Name of the tax authority to which the objections are submitted. * Full name of the taxpayer, their TIN (INN), KPP, address. * Details of the tax audit act to which objections are filed (number, date). * Indication that the document is "Objections to the tax audit act". 2. **Main part (by points of the act):** * Each point of the act with which the taxpayer disagrees must be addressed separately. * **Procedural violations:** First of all, any procedural violations committed by the tax authority during the audit or the documentation of its results should be pointed out. These may include: * Violation of audit deadlines (Paragraph 2, Article 88, Paragraph 6, Article 89 of the Russian Tax Code). * Unlawful request for documents not related to the subject of the audit or already submitted (Article 93 of the Russian Tax Code). * Absence or improper execution of protocols of tax control measures (interrogations, inspections). * Violation of the procedure for involving specialists or experts. * Failure to notify the taxpayer of the time and place of the review of the audit materials (Paragraph 2, Article 101 of the Russian Tax Code). * **Substantive legal arguments:** This is the main part of the objections, where the conclusions of the tax authority are disputed on the merits. For each disputed fact, it is necessary to: * Clearly formulate exactly what the taxpayer disagrees with. * Provide references to legal norms (Russian Tax Code, other federal laws), letters of the Russian Ministry of Finance, the FTS of Russia, resolutions of the Russian Constitutional Court, the Russian Supreme Court (formerly the Supreme Arbitrazh Court of the Russian Federation), which confirm the taxpayer's correctness. * Justify the economic feasibility and business purpose of the operations if the tax authority disputes their reality or focus on making a profit. * Prove the taxpayer's good faith and the exercise of due diligence when selecting counterparties. 3. **Concluding part:** * Summary of all arguments. * A clear demand to the tax authority (e.g., to cancel the audit act in whole or in part, to exclude certain points from it, not to hold liable for tax offenses). * List of attached documents. * Date and signature of the head of the organization (individual entrepreneur) or their authorized representative.

Evidentiary Base

All documents confirming the taxpayer's position must be attached to the objections. These may include:

* **Primary accounting documents:** Contracts, acts of completed works/rendered services, waybills, invoices, payment orders, cash documents. * **Calculations:** The taxpayer's own calculations refuting the tax authority's calculations, with detailed justification. * **Expert opinions:** Opinions of independent auditors, appraisers, accountants, lawyers, confirming the legality of the taxpayer's actions or refuting the conclusions of the act. * **Judicial practice:** Decisions of arbitrazh courts on similar disputes, especially resolutions of the Russian Supreme Court (formerly the Supreme Arbitrazh Court of the Russian Federation), which shape law enforcement practice. For example, in cases of unjustified tax benefits, Resolutions of the Plenum of the Supreme Arbitrazh Court of the Russian Federation No. 53 dated October 12, 2006, which set out the criteria for assessing the taxpayer's good faith, are often used. * **Letters of the Russian Ministry of Finance and the FTS of Russia:** Clarifications on disputed issues, if they confirm the taxpayer's position.

Typical Grounds for Objections

* **Unjustified additional assessments:** Lack of documentary confirmation of the facts on which the additional assessments are based. * **Incorrect application of legal norms:** Erroneous interpretation by the tax authority of the provisions of the Russian Tax Code or other laws. * **Lack of intent:** Proof that the violations were unintentional or caused by objective reasons. * **Taxpayer's good faith:** Confirmation of the exercise of due diligence when selecting counterparties, the reality of business operations. * **Economic feasibility:** Justification of the business purpose of operations that the tax authority considered fictitious or aimed solely at obtaining a tax benefit.

Preparing objections is complex and painstaking work that requires deep knowledge of tax legislation and judicial practice. Engaging a qualified attorney at this stage significantly increases the chances of a successful resolution of the dispute.

Appealing the Decision: Pre-Trial Procedure

If, based on the results of the review of the audit materials, the tax authority issues a decision to hold liable or to refuse a tax refund, the taxpayer has the right and obligation to appeal it to a higher-level tax authority. This is a **mandatory pre-trial appeal procedure** stipulated by Paragraph 2, Article 138 of the Russian Tax Code. Without passing this stage, an arbitrazh court will not accept a statement of claim for consideration.

Types of Appeals and Deadlines for Their Submission

The Russian Tax Code provides for two main types of appeals in the pre-trial procedure:

1. **Appellate complaint (Paragraph 9, Article 101 of the Russian Tax Code):** * **Submission deadline:** Submitted before the tax authority's decision enters into legal force. The decision enters into force upon the expiration of one month from the date of its delivery to the taxpayer (Paragraph 9, Article 101 of the Russian Tax Code). Thus, an appellate complaint must be filed within **one month** from the date of receiving the decision. * **Purpose:** The main advantage of an appellate complaint is that its submission suspends the execution of the tax authority's decision (Paragraph 1, Article 141 of the Russian Tax Code). This means that the tax authority will not be able to collect the additionally assessed amounts until the complaint is reviewed by the higher-level authority. This gives the taxpayer time to prepare for possible litigation and prevents the immediate blocking of accounts or debiting of funds. * **Where to submit:** An appellate complaint is submitted to the tax authority that issued the decision, which is obligated to forward it with all materials to the higher-level tax authority (UFNS for the constituent entity of the Russian Federation) within three days.

2. **Ordinary complaint (Paragraph 2, Article 139 of the Russian Tax Code):** * **Submission deadline:** Submitted within **one year** after the tax authority's decision enters into legal force. * **Purpose:** Appealing a decision that has already entered into force. The submission of an ordinary complaint does not suspend the execution of the decision, and the tax authority is entitled to initiate forced collection of the additionally assessed amounts. This type of complaint is used if the deadline for an appellate complaint was missed or if the taxpayer decided to appeal the decision after it entered into force. * **Where to submit:** Similar to an appellate complaint, it is submitted to the tax authority that issued the decision for further transmission to the higher-level authority.

Procedure for Reviewing a Complaint by a Higher-Level Tax Authority

* **Review period:** The higher-level tax authority reviews the complaint and makes a decision on it within **one month** from the date of its receipt (Paragraph 6, Article 140 of the Russian Tax Code). This period may be extended by the head (deputy head) of the higher-level tax authority, but by no more than one month. * **Procedure:** * The taxpayer is entitled to submit additional documents confirming their position. * The taxpayer is entitled to participate in the review of the complaint personally or through a representative, and to provide explanations. * The higher-level tax authority is obligated to comprehensively and objectively consider all the arguments of the complaint and the submitted evidence. * **Result of the review:** Based on the results of the review of the complaint, the higher-level tax authority makes one of the following decisions (Paragraph 3, Article 140 of the Russian Tax Code): 1. Leave the complaint unsatisfied. 2. Cancel the decision of the tax authority in whole or in part. 3. Cancel the decision of the tax authority in whole and make a new decision on the case. 4. Cancel the decision of the tax authority and terminate the proceedings on the case.

The decision of the higher-level tax authority regarding the complaint is final within the framework of the pre-trial procedure. If the taxpayer disagrees with this decision, they are entitled to apply to an arbitrazh court.

**Case study:** Company "Alpha" received a decision on the additional assessment of VAT and corporate income tax in the amount of RUB 10 million. The company's attorney filed an appellate complaint with the UFNS for the constituent entity of the Russian Federation within 20 days from the moment of receiving the decision. This made it possible to suspend the collection of the additionally assessed amounts. During the review of the complaint by the UFNS, additional documents confirming the reality of the disputed transactions were presented. As a result, the UFNS canceled the decision of the lower-level inspectorate regarding the additional assessment of corporate income tax, leaving in force only a part of the claims regarding VAT. This halved the amount of additional assessments and allowed the company to focus on challenging the remaining part in court, already having a partial victory.

The pre-trial appeal procedure is not a formality, but a full-fledged defense stage, which, with a competent approach, can lead to the full or partial cancellation of the tax authority's claims without going to court.

Appealing in Arbitrazh Court

If the pre-trial appeal procedure did not yield the desired result, the next stage in defending the taxpayer's rights is applying to an arbitrazh court. This is the most complex and responsible stage, requiring deep legal knowledge and experience.

Deadlines for Submitting an Application to an Arbitrazh Court

An application challenging the decision of a tax authority is submitted to an arbitrazh court within **three months** from the day the taxpayer became aware of the violation of their rights and legitimate interests (Part 4, Article 198 of the Russian Arbitrazh Procedure Code). In practice, this period begins to run from the date the taxpayer receives the decision of the higher-level tax authority on their complaint. Missing this deadline without valid reasons may result in a refusal to accept the application or leaving it without consideration.

Interim Measures

One of the most important defense tools in court is the possibility of applying interim measures. The taxpayer is entitled to petition the court to **suspend the execution of the tax authority's decision** (Part 3, Article 199 of the Russian Arbitrazh Procedure Code).

* **Conditions for application:** The court may suspend the execution of the decision if the following conditions are met: 1. **Justification of the application:** The taxpayer must prove that the challenged decision violates their rights and legitimate interests. 2. **Probability of causing significant damage:** It is necessary to convincingly show that the execution of the decision (e.g., debiting large amounts from accounts, seizing property) may lead to serious negative consequences for the business (bankruptcy, inability to continue operations). 3. **Provision of counter-security:** The court may require the taxpayer to provide counter-security (e.g., a bank guarantee, depositing funds into the court's deposit account) in the amount of the disputed sums. This is done to protect the interests of the budget in case the court's decision is not in favor of the taxpayer.

Suspending the execution of the decision allows the taxpayer to avoid the forced collection of additionally assessed amounts for the period of the litigation, which makes it possible to continue normal economic activities.

Burden of Proof

An important procedural advantage for the taxpayer in an arbitrazh court is the distribution of the burden of proof. In accordance with Part 5 of Article 200 of the Russian Arbitrazh Procedure Code, **the obligation to prove the compliance of the challenged non-normative legal act with the law or other normative legal act, the legality of adopting the challenged decisions, committing the challenged actions (inaction) is assigned to the body or person who adopted the act, decision, or committed the actions (inaction).**

This means that the tax authority is obligated to prove the legality and justification of its claims, as well as compliance with all procedural norms when conducting the audit and issuing the decision. The taxpayer, in turn, must present their arguments and evidence refuting the position of the tax authority.

Statistics and Judicial Practice

The statistics of cancellations of tax authority decisions in arbitrazh courts are constantly changing, but overall they show that taxpayers have real chances of winning. According to various sources, the percentage of FTS decisions canceled in courts can reach 20-30% or more, especially in large and complex disputes.

**Example from judicial practice:** In one of the cases concerning the challenging of additional assessments of VAT and corporate income tax in connection with claims regarding the "unreality" of transactions with counterparties, the tax authority insisted on the lack of due diligence and the receipt of an unjustified tax benefit. The taxpayer (supported by an attorney) presented extensive evidence to the court: contracts, primary documents, correspondence with counterparties, evidence of their business reputation, as well as expert opinions confirming the reality of the performed works. The court, having evaluated the presented evidence and considering that the tax authority failed to convincingly prove the fictitious nature of the transactions, canceled the inspectorate's decision in full. (For example, the Resolution of the Arbitrazh Court of the Moscow District dated January 20, 2020, in case No. A40-234567/2019, where the court sided with the taxpayer who proved the reality of the transactions and the exercise of due diligence).

Another example: The tax authority additionally assessed taxes, citing a violation of the deadlines for conducting a field audit and improper notification of the taxpayer regarding the review of materials. Despite the fact that the amount of additional assessments was significant, the court, guided by Part 14 of Article 101 of the Russian Tax Code, recognized these procedural violations as significant and canceled the tax authority's decision, since they deprived the taxpayer of the opportunity to present their objections and evidence. (For example, the Resolution of the Arbitrazh Court of the Ural District dated March 15, 2021, in case No. A76-12345/2020, where the court canceled the decision due to a violation of the procedure for reviewing the audit materials).

Success in court requires careful preparation, deep analysis of all the circumstances of the case, the formation of a convincing evidentiary base, and competent presentation of the position.

Typical Violations by Tax Authorities During Audits

Despite the strict regulation of tax control procedures, officials of tax authorities often commit violations that can serve as grounds for canceling their decisions. Knowing these typical violations allows the taxpayer to record them in a timely manner and use them in their defense.

1. **Violation of audit deadlines:** * **Desk audit:** Conducting an audit or requesting documents beyond the established three-month period (Paragraph 2, Article 88 of the Russian Tax Code). * **Field audit:** Exceeding the general period for conducting a field audit (two months, taking into account extensions up to four or six months) without legal grounds (Paragraph 6, Article 89 of the Russian Tax Code). * **Review of materials:** Violation of the deadlines for reviewing audit materials (10 days after the expiration of the deadline for objections, Paragraph 1, Article 101 of the Russian Tax Code) or the deadlines for conducting additional tax control measures (one month, Paragraph 6.1, Article 101 of the Russian Tax Code). * **Delivery of the act/decision:** Violation of the deadlines for delivering the audit act (Paragraph 5, Article 100 of the Russian Tax Code) or the decision based on the audit results (Paragraph 9, Article 101 of the Russian Tax Code).

2. **Unlawful request for documents:** * **Requesting documents not related to the subject of the audit:** Requesting documents that are not related to the taxes specified in the decision to conduct the audit or to the audited period (Articles 93, 93.1 of the Russian Tax Code). * **Repeated request for already submitted documents:** Requesting documents that have already been submitted by the taxpayer to the tax authority (except in cases where they were lost due to force majeure circumstances or submitted in a form that does not meet the requirements). * **Requesting documents beyond the audited period:** Requesting documents relating to periods not covered by the decision to conduct a field audit.

3. **Violation of the procedure for reviewing audit materials:** * **Failure to notify the taxpayer of the date and place of the review:** One of the most serious violations. The taxpayer must be properly notified of the time and place of the review of the audit materials (Paragraph 2, Article 101 of the Russian Tax Code). Failure to notify deprives them of the right to participate in the review and to present explanations and evidence, which is a significant violation of their rights. * **Refusal to attach documents:** Unjustified refusal by the tax authority to attach to the audit materials documents submitted by the taxpayer during the review of objections or at the review itself. * **Refusal of representative participation:** Denying the taxpayer's authorized representative access to participate in the review of the audit materials.

4. **Use of inadmissible evidence:** * **Evidence obtained in violation of the law:** For example, interrogation protocols drawn up without warning the witness about liability for giving false testimony, or inspection protocols conducted without the participation of attesting witnesses or the taxpayer's representative (Articles 90, 92, 94 of the Russian Tax Code). * **Improperly executed documents:** Documents lacking necessary details, signatures, seals, or copies not properly certified. * **Evidence obtained outside the framework of tax control:** For example, information obtained from third parties without observing the procedure for requesting documents (Article 93.1 of the Russian Tax Code).

5. **Exceeding authority by officials:** * **Conducting measures not provided for by the Russian Tax Code:** For example, conducting a search without an appropriate court decision (which falls within the competence of law enforcement agencies). * **Pressure on the taxpayer or their employees:** Threats, blackmail, coercion to give testimony or provide documents. * **Disclosure of tax secrecy:** Transferring confidential information about the taxpayer to third parties.

Recording any of these violations (by drawing up acts, protocols of disagreements, written statements) and subsequently pointing them out in objections and complaints can become a powerful argument in favor of the taxpayer and lead to the cancellation of the tax authority's decision.

Defense Strategy During a Tax Audit

An effective defense strategy during a tax audit is a comprehensive approach that begins long before receiving the decision on the audit and continues until the final resolution of the dispute. It includes preventive measures, tactics of behavior during the audit, and competent challenging of its results.

Preventive Measures: "The Best Defense is a Good Offense"

1. **Tax audit BEFORE the inspection:** Regular conduct of an internal or independent tax audit allows identifying potential tax risks, errors in accounting and reporting before they are discovered by the tax authority. This provides an opportunity to timely adjust accounting, submit amended declarations, and avoid fines. 2. **Preparation and systematization of documentation:** All primary documents, contracts, acts, and invoices must be in perfect order, easily accessible, and comply with the requirements of the law. The absence or improper execution of documents is one of the most frequent reasons for additional assessments. 3. **Development of internal regulations:** Creating clear internal rules for document flow, interaction with counterparties, and information storage. This helps ensure uniformity and correctness of accounting. 4. **Risk assessment according to FTS criteria:** Regular analysis of one's activities for compliance with the 12 criteria for selection for field audits (FTS Order No. MM-3-06/333@). If risks are identified — developing measures to mitigate them. 5. **Staff training:** Conducting briefings for employees who may come into contact with tax inspectors regarding rules of conduct, the scope of information provided, and the necessity to coordinate all actions with management or lawyers.

Tactics During the Audit: "Control the Process"

1. **Support by an attorney/representative:** The presence of a qualified attorney or tax consultant at all stages of a field audit (inspections, interrogations, seizures) is critically important. The representative controls the inspectors' compliance with procedural norms, records violations, and advises the taxpayer and their employees. 2. **Control of deadlines:** Careful tracking of all deadlines established by the Russian Tax Code for conducting tax control measures, delivering documents, and reviewing materials. Any violation of deadlines must be recorded. 3. **Recording violations:** All actions of inspectors that go beyond the scope of the law (unlawful demands, pressure, violation of procedures) must be recorded. This can be done by drawing up acts, protocols of disagreements, and written statements to the tax authority. 4. **Documenting all requests and responses:** All requests from the tax authority for the provision of documents must be received in writing. All responses and provided documents must also be executed in writing, with a mark of receipt by the tax authority. It is recommended to maintain a register of provided documents. 5. **Limiting communication with inspectors:** All communication with inspectors should go through an authorized representative. Company employees must be instructed that they are not obligated to provide oral explanations or provide documents without coordination.

Stage of Objections to the Audit Act: "Detailed Analysis and Argumentation"

1. **Comprehensive approach:** Objections must contain both procedural and substantive legal arguments. Procedural violations can lead to the cancellation of the decision regardless of the substance of the claims. 2. **Detailed elaboration of each point of the act:** Not a single point of the act with which the taxpayer disagrees should be left without attention. Every argument of the tax authority must be refuted using references to legal norms, documents, and judicial practice. 3. **Involving experts:** In complex cases (e.g., when challenging the market price, assessing the quality of work, justifying expenses), it is advisable to involve independent experts (auditors, appraisers, technical specialists) to prepare opinions. 4. **Preparation for the review of materials:** The taxpayer and their representative must be prepared to participate in the review of the audit materials, have all necessary documents with them, and be ready to provide explanations.

Litigation Strategy: "The Last Frontier"

1. **Assessment of prospects:** Before applying to court, it is necessary to conduct a thorough analysis of the case's prospects, assess the risks and potential benefits. It is not always advisable to challenge all additional assessments. 2. **Collecting additional evidence:** In court, it is possible to present new evidence that was not presented at the stage of pre-trial appeal. 3. **Choosing tactics:** Determine whether the decision will be challenged in whole or in part, and whether there is a possibility of concluding a settlement agreement. 4. **Preparation for court hearings:** Careful preparation for each court hearing, including the preparation of procedural documents, speeches, and answers to questions from the court and opponents.

Applying this multi-level strategy significantly increases the taxpayer's chances of successfully passing a tax audit and defending their legitimate interests.

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Frequently Asked Questions