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Published: September 26, 2017
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As is known, when calculating VAT payable to the budget, a company has the right to reduce it by input VAT received in invoices from its counterparties. But if, during the verification of the information provided, the Federal Tax Service considers the counterparty to be an unscrupulous taxpayer, then it has the right to refuse to issue a deduction or refund VAT from the budget.
To reduce their risks and prevent such a negative scenario, taxpayers are recommended to exercise due diligence when choosing business partners and check them in advance. In particular, it is worth making sure that the counterparty is not a fly-by-night company and actually conducts business activities.
This aspect is especially important due to the fact that the Federal Tax Service has significantly tightened control over paid VAT since 2020. When the tax authorities receive a VAT return, the data from it is cross-checked for all buyers/sellers. As a result, an entry from the seller’s Sales Book must necessarily be found in the buyer’s Purchase Book.
If during this audit it is revealed that there are discrepancies regarding the VAT amount or invoice details, the taxpayer will be required to make clarifications.
And if the counterparty meets the criteria of a one-day business, the deduction may be cancelled.
Therefore, under conditions of total control over the calculation of VAT, the likelihood of removing part of the deductions increases many times over.
- How to find out from the counterparty
- Independent verification of the counterparty
- Searching for information in the register of disqualified persons
- Contacting the tax office
- Contour-Focus
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Providing services to foreign companies and vice versa
At the same time, according to the clarification of the Ministry of Finance of the Russian Federation (Letter dated 09/02/2011 No. 03-07-08/272), when the manufacturer and recipient of services are located in different countries, Art. 148 of the Tax Code of the Russian Federation, which states that the place of sale of services is the territory of the Russian Federation if the recipient of the service carries out its activities in the territory of this country.
The document that confirms the place of provision of services can be an agreement concluded with a Russian or foreign counterparty, or a document confirming the very fact of provision of the service.
How is VAT actually checked?
When conducting a desk audit of VAT returns, tax authorities use internal letter No. VG-14-03/38dsp. In some cases, even a law-abiding company may incur a documentary tax audit. The company can reduce VAT, which is accrued for payment to the budget, by deductions. Their list is given in Article 171 of the Tax Code of the Russian Federation.
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According to the general rules, a deduction can be made if the acquired inventory (work, services):
- paid;
- used for production activities or other operations subject to VAT;
- credited to the balance sheet.
In addition, the company must have invoices issued by the supplier, as well as settlement and primary documents in which the VAT amount is highlighted as a separate line.
