On the issue of determining the actual tax liabilities in transactions with "high tech" companies

Tipikina Valeriya Alekseevna ORCID: 0000-0002-0848-6549 Student; Faculty of Taxes, Auditing and Business Analysis; Financial University under the Government of the Russian Federation Researcher at the Center for Scientific Research and Strategic Consulting; Financial University under the Government of the Russian Federation 15 Verkhnyaya Maslovka str., Moscow, 127083, Russia Lera_Xemmo@mail.ru

Bondarev Maksim Aleksandrovich ORCID: 0000-0001-8684-6020 Graduate student; Faculty of Taxes, Auditing and Business Analysis; Financial University under the Government of the Russian Federation Researcher at the Center for Scientific Research and Strategic Consulting; Financial University under the Government of the Russian Federation 15 Verkhnyaya Maslovka str., Moscow, 127083, Russia bondarrr2001@yandex.ru

Introduction

The scientific work examines the problem of determining the actual tax liabilities (BOTTOM) in transactions with "technical" companies. At the moment, this problem is particularly relevant, since a significant proportion of newly registered companies are "technical" companies that are created solely for the purpose of obtaining unjustified tax benefits by the taxpayer or related parties.

It is important to note that due to the increasing role of "technical" companies in tax evasion schemes used by taxpayers, the question arises not only of their detection and proving the illegality of their integration into the chains of exchange of goods/works/services, but also of determining the rules (methodology) for calculating valid tax liabilities. Objectively, in practice, the most difficult issue is not so much the identification of a "technical" organization or proof of its participation in the supply chain, but the question of how to determine the tax obligations of the participants in the chain. Both of these issues (markers for identifying "technical" companies and the procedure for calculating the bottom) have already been considered by many academic economists. For example, in the work of I.V. Vachugov ^[1], measures aimed at limiting tax evasion through the use of "technical" companies were analyzed, and separate risk markers for identifying technical companies were presented. Nevertheless, the highlighted list of risk markers is far from complete for the purposes of improving the efficiency of tax administration in general. In the context of the BOTTOM calculation procedure, a significant part of the research is devoted to assessing the applicability of the calculation method. In this aspect, in practice, we are talking about "tax reconstruction" or the procedure for calculating the amounts of additional charges for taxes, fees, and insurance premiums ^[8]. A broader interpretation of this concept involves determining the scope of the taxpayer's rights and obligations based on the true economic content of the relevant transaction ^{[4, 13]}. So, Kovaleva A.A. ^[11], based on judicial practice, justified the effectiveness of using the calculation method for determining valid tax obligations in the deliberate use of "technical" companies by the taxpayer. Novopashin I.Yu. ^[14] in his work, the author paid the greatest attention to the calculation of corporate income tax expenses, as well as the reclassification of transactions made by interdependent parties.

The purpose of the study is to adapt a unified methodology for determining valid tax liabilities, developed in a scientific article by Tikhonova A.V. ^[18], based on the analysis of established judicial practice. The present goal has identified the following research objectives:

- identify the main risk markers of tax evasion schemes in transactions with "technical" companies;

- to form a list of measures of the tax authority to prove the fact of participation of a "technical" organization in the transaction;

- identify typical types of transactions with "technical" companies;

- to determine the basic method of calculating valid tax liabilities for each of the considered types of transactions and the conditions for its application.

Research methods and materials

Before we proceed to consider the problem of determining valid tax liabilities in transactions with "technical" companies, we will briefly present the general methodology for calculating the bottom in the Russian Federation (Figure 1).

Figure 1 – The general concept of calculating the BOTTOM ^[18]

The practical part of the scientific work is based on the analysis of judicial and law enforcement practice in terms of tax evasion schemes using "technical" companies, explanations from the Ministry of Finance and the Federal Tax Service of Russia. The presented methodology includes three stages, each of which will be discussed in more detail in the main part of the study using the example of transactions with "technical" companies. The first stage involves the identification of the basic method of determining the BOTTOM: the actual (according to the actual data of the taxpayer's accounting) and the calculated (based on other available data and information). The specificity of various schemes of offenses leads to the fact that for each of them (including transactions with "technical" companies) the economic justification of the methods of calculating the BOTTOM differs fundamentally. For example, when replacing an employment relationship with a civil one, the reality of the transaction always exists ^{[3, 15, 16, 17, 19]}, hence, the validity of the application of the calculation method is virtually absent. At that time, for the violations considered in this article, a twofold situation is possible (both the actual provision and non–provision of services).

Similarly, depending on the avoidance schemes, risk markers and measures of the tax authority to establish the BOTTOM, determined within the framework of the second stage of the methodology, are differentiated. Risk markers in the article are understood as signs of a tax evasion scheme in transactions between economic agents. Determining the measures of the tax authority to establish the BOTTOM involves the formation of actions and evidence base of the taxpayer and the tax authority to substantiate the existence of an evasion scheme based on the analysis of judicial practice.

The third stage involves detailing the procedure for calculating income tax and value added tax in terms of accounting for elements that reduce the amount of income (income tax expenses and VAT deductions). This procedure is closely related to the justification of the method of calculating the BOTTOM, hence its specificity for each type of offense.

Thus, the scientific and methodological enrichment of Tikhonova A.V.'s approach consists in the economic justification of specific elements of the methodology in relation to determining valid tax liabilities in transactions with "technical" companies.

Results

Stage 1. Recognition of the basic method of determining the BOTTOM. The choice of the BOTTOM method will be influenced by many factors: from the number of "technical" organizations involved in the transaction to the way they are used for potential benefits from involvement in economic transactions. Taking into account the established practice, it was found that when involving a "technical" company in a transaction, it is possible to use both the actual and the calculated method of determining the BOTTOM, depending on the situations that arise. The actual method implies the determination of the BOTTOM based on documents confirming the actual execution of the transaction and establishing the actual performers for it. The calculation method is used in cases where the taxpayer does not have documents confirming the actual execution of the transaction, but the tax authority has information about similar transactions or business facts that can be applied to this transaction. The procedure for determining the BOTTOM method is discussed in more detail in Step 3.

Stage 2. Formation of the burden of proof.

For a long time, checking the taxpayer's counterparties for compliance with the principles and norms of established economic practice lay on the shoulders of the tax authorities. Their duties included the search for tax evasion schemes and deliberate understatement of the tax base by identifying chains of so-called one-day companies, which significantly burdened and complicated the work of this state structure. The introduction of Article 54.1 of the Tax Code of the Russian Federation, which obliges taxpayers to exercise "due diligence" when choosing their counterparties, made it possible to partially shift the burden of the Federal Tax Service of Russia on checking counterparties to taxpayers themselves. The obligation to be more rational in choosing one's counterparty has contributed to the development of such a segment in the field of tax services as the development of systems for verifying the reliability of business entities with which the customer can potentially enter into contractual relationships. This preliminary analysis of counterparties is aimed, among other things, at preventing the occurrence of situations in which the tax authorities may be accused of understating the tax base by concluding transactions with "technical companies" in order to unlawfully increase the volume of expenses incurred and, as a result, receive additional tax deductions and generate additional expenses for corporate income tax. At the same time, based on established practice, not all potential counterparties are subject to analysis for compliance with the principle of due diligence. So, for example, it is considered to be notoriously trustworthy:

- subsidiaries of a group of companies - such organizations, as a rule, are interdependent with each other, have common management bodies, are united by common/similar local acts regulating their activities and the practice of relations with counterparties. A unified management structure and often common business relationships with suppliers and contractors allow us to judge the known reliability of such organizations;

- banks and other credit organizations that cannot operate without a license issued by the Central Bank of Russia. In order to obtain a license, such organizations must meet high criteria, for example, for a newly registered bank with a basic license, the minimum amount of authorized capital must exceed 300 million rubles. The Central Bank also checks organizations on an annual basis for compliance with established criteria, if they do not comply with which the bank/credit institution may lose its license, which gives it the right to carry out certain types of activities. For example, the reason for the withdrawal of a license may be the provision of false information that contributed to obtaining a license, non-use of the license for its intended purpose (the bank did not perform banking operations for a year), etc.;

- organizations with a government share of 50% or more;

- organizations belonging to the category of the largest taxpayers. Business entities belonging to this category are subject to additional verification by the tax authorities (in Interregional and Inter-district inspections for the largest taxpayers), which allows us to judge the reliability of such a counterparty;

- organizations that are under tax monitoring. The reason for not conducting additional checks on the reliability of contractors belonging to this category is similar to the previous paragraph.

So, with the exception of the above categories of counterparties, business entities in practice are subject to reliability checks. This audit is aimed at preventing the unintentional construction of contractual relationships with a "technical" organization, which may lead to subsequent additional tax liabilities on the part of the tax authorities (hereinafter referred to as "BUT"). However, it is not enough to simply identify and prove the presence of a "technical" company/ one-day company among the taxpayer's counterparties, because the process of calculating valid tax obligations for the taxpayer follows.

So, we smoothly approach the problem of determining the actual tax obligations that should be imputed to the taxpayer in the case of embedding "technical" companies into the system of his contractual relationships. This problem is particularly relevant at the moment, as about 1,000 organizations open daily in the Russian Federation. At the same time, a significant share of them, as shown by the practice of analyzing newly registered companies conducted by the tax authorities, falls on "technical" companies that are created solely for the purpose of embedding them in a system of false relationships and conducting suspicious transactions.

Let's focus on what is meant by a "technical" company in economic practice. Previously, this term was often mentioned in judicial practice, however, its definition was officially formulated only in 2021, when the Federal Tax Service of Russia issued a corresponding Letter ^[20]. According to this document, "a technical company is a company that does not conduct real economic activity and does not fulfill tax obligations in connection with transactions executed on its behalf, in a situation where the person performing the execution is another entity." Thus, it was customary to understand by "technical" such organizations that have the documented status of a participant in an economic transaction with a taxpayer, but actually do not carry out any significant activities. The letter also identified other signs of "technical" companies (risk markers):

- the lack of direct benefit for such an organization from the concluded transaction;

- the insufficiency of assets available on the balance sheet of a potentially "technical" organization, as well as other resources to fulfill its obligations;

- the absence of other activities other than those that are actually or fictitiously carried out in favor of the taxpayer, as well as the absence of other counterparties other than the taxpayer being audited.

However, the list of risk markers that make it possible to prove in practice the use of "tech companies" in tax evasion schemes is much longer. Table 1 shows the main risk markers of tax evasion schemes in transactions with technical companies.

Table 1 – Risk markers of tax evasion schemes in transactions with technical companies

During the analysis of scientific literature, as well as materials of judicial practice, the following measures of the tax authority were identified to prove the fact of participation of a "technical" organization in the transaction:

1. Verification of the actual location of the counterparty and the availability/sufficiency of fixed assets for carrying out activities (actual departure to the address of the counterparty's location);

2. Checking bank statements for the coincidence of the details of the counterparty and the taxpayer being checked, as well as the nature of the cash flow;

3. Verification of the IP addresses of the counterparty and the taxpayer being audited;

4. Questioning of the General Director and other employees of the counterparty for the performance of their official duties;

5. Checking for mentions of the counterparty in the media.

6. Identification of the person/group of persons who was actually the executor of the obligations under the agreement.

Based on established practice, transactions with technical companies can be divided into two categories:

1. The actual absence of a deal with a potentially "technical" organization. So, in practice, a scheme was revealed in which the Company fictitiously purchased products from a "technical" organization (in fact, the goods did not exist in the supplier's warehouse and were not shipped, and the funds were credited to the account of a technical organization), then this "technical" organization also fictitiously purchased products from another "technical" organization (further cash flow from the account of the first "technical" to the account of the second "technical organization" without real movement of products from the supplier's warehouse), and then the funds were issued to the primary buyer (the real organization) in the form of an interest-free loan. Thus, the funds have come full circle and returned to the account of the primary buyer. In this situation, a real company gets the right to take into account additional expenses for corporate income tax, as well as apply a VAT deduction by purchasing products from a "technical" organization without actually spending funds (Definition of the Supreme Court of the Russian Federation dated 06/21/2021) (Figure 2).

Figure 2 – The actual absence of a transaction involving a "technical" organization

Similar situations with the absence of transactions actually carried out by "technical" organizations are also considered in the Ruling of the Supreme Court No. 304-ES21-930, the Decision of the Arbitration Court of the Volga Region No. A65-2655/2019, etc.;

2. The actual fulfillment of obligations under the contract either by another person, officially, who is not a party to the transaction ^{[9, 10]}, or by the "technical" organization itself in order to generate benefits for other parties to the transaction.

At the same time, the second category can be divided into several types, depending on the ultimate goal of forming a fictitious transaction:

1. A scheme aimed at deliberately involving technical companies in order to underestimate the income from the sale of a "technical" company (reduction of tax liabilities) and subsequent resale to a real buyer at an inflated price. Such schemes, in particular, are created if the technical link applies a reduced rate or is located in a low-tax jurisdiction. Similar conclusions are contained in the Ruling of the Supreme Court of the Russian Federation, in which the Company was the first copyright holder of the trademark, but sold the right to it to an interdependent company in the Virgin Islands at a fairly low price. This company, in turn, sold the trademark to Cyprus, after which it returned to the Russian Federation with a price hundreds of times higher than the original one. The Supreme Court of the Russian Federation pointed out that the funds received as a result of the disputed transactions are the profit of the Company, which imposes on the applicant the obligation to pay income tax (Figure 3).

Figure 3 – The scheme of involvement of "technical" companies for the subsequent sale of goods (works, services)

2. A scheme aimed at deliberately creating a formal document flow for the purchase of goods, works, and services from "technical" companies in order to account for expenses when calculating corporate income tax and deducting VAT in a larger volume (Figure 4).

Figure 4 – Creation of a formal document flow when purchasing goods (works, services) from a "technical" company

For example, in the Decision of the Arbitration Court of the West Siberian District, the Company purchased milk directly from agricultural producers exempt from VAT. Then one-day firms were integrated into the supply chain (between agricultural producers and the Company), a formal document flow was created, the Company's expenses increased and input VAT arose (while one-day firms did not pay mirror outgoing VAT to the budget).

The Ruling of the Supreme Court of the Russian Federation noted that the Company purchased goods from foreign suppliers directly and on order. Controlled one-day firms were integrated into the supply chain in the domestic market, from which the Company bought goods at an inflated cost. The tax authorities have added VAT and corporate income tax to the Company. They pointed out that a violation of Article 54.1 of the Tax Code of the Russian Federation entails a full adjustment of tax obligations.

3. A scheme aimed at obtaining unlawful benefits for both the buyer and the seller. In such schemes, the real supplier sells products to the "technical" organization at an undervalued price, and the "technical" organization itself already sells the received products to the end customer at an inflated price. It is important to note that the "technical" organization in the described scheme is not an interdependent person for either the supplier or the buyer, and, therefore, virtually any price set during the purchase and sale of products between them will be recognized as a market price and will not entail recalculation of actual tax obligations on the part of the tax authorities, even if the real supplier and the buyer will be interdependent. The purpose of building the scheme in this case is as follows: the supplier, by setting a low price, reduces its obligations in terms of generating income from corporate income tax and the tax base for value added tax; the buyer gets the right to take into account a larger amount in corporate income tax expenses than when making a real market transaction, as well as overestimate the amount value added tax deductible (Figure 5).

Figure 5 – The scheme of involving a "technical" company to benefit the supplier and the buyer

For example, in the Decision of the Arbitration Court of the Moscow District, the Company, being the first copyright holder of a trademark, sold the right to it to a company located in the Virgin Islands (low-tax jurisdiction) at a reduced price. Subsequently, the trademark right was resold to a company located in Cyprus, after which the trademark was re-sold to a Russian organization at a price significantly higher than the original one.

4. A scheme aimed at generating illegal expenses by renting one's own property. For example, in practice, a scheme was revealed in which the Company created a "technical" organization in a special economic zone with a corporate income tax rate of 0%. Subsequently, the Company donated to the "technical" company ownership of fixed assets (including buildings, equipment, etc.) necessary for conducting business activities. Then the "technical" company leased the same fixed assets to the Company. As a result of the created scheme, the Company reflected rental payments in expenses for corporate income tax, and the "technical" organization paid income tax at a rate of 0% (Resolution of the AC NWO dated 06/17/2015 N F07-3426/2015) (Figure 6).

Figure 6 – A scheme aimed at generating illegal expenses by renting one's own property

Note for the points described above: in practice, an unlimited number of "technical" organizations and interdependent persons can be integrated into the chain between the real supplier and the buyer in order to complicate the tax evasion scheme and, thereby, reduce the likelihood of its disclosure by the tax authorities.

5. A scheme aimed at obtaining a deduction for value added tax when interacting with a counterparty applying a special tax regime (SNR). Within the framework of the standard contractual process, the Company found an organization applying a special tax regime (ESH) as a potential counterparty. Therefore, if the Company purchases products from such a counterparty, it will not be able to accept VAT as a deduction from the purchase of products (the organization is not a VAT payer on the ESC). In this case, the Company resorts to involvement in the chain of purchasing products of a "technical" organization: a "technical" organization purchases products from a counterparty on the ESCN (there is no right to apply a deduction), and then sells the same products to the Company (there is a right to apply a VAT deduction). Thus, the Company understates the VAT tax base by illegally obtaining a deduction (Decision of the Arbitration Court of the Voronezh Region dated March 31, 2021 in case No. A14-4599/2020) (Figure 7).

Figure 7 – A scheme aimed at obtaining a VAT deduction when interacting with a counterparty applying the SNR

6. A scheme aimed at understating the tax base for NGOs and VAT by substituting the actual executor of obligations under the contract (the transaction is fictitiously executed by another person) (Figure 8).

Figure 8 – A scheme aimed at understating the tax base for NGOs and VAT by substituting the actual executor of obligations under the contract

For example, in the case of Mary Firm LLC, the taxpayer formed a chain of "paper" contractors engaged in the transportation of pastries. The taxpayer disbanded the staff of drivers and purchased transportation services from third-party "technical" companies. In fact, the finished products were transported by individuals whose wages were paid without concluding an employment contract. In the described situation, the taxpayer has the right to take into account additional expenses for NGOs, deduct VAT from the cost of purchasing contractor services, as well as reduce tax obligations to pay personal income tax to his employees and insurance premiums for them.

Stage 3. Calculation of the BOTTOM.

The procedure for determining the method and calculating the BOTTOM, as well as the distribution of responsibility between the participants in the described situations are presented in table 2 below.

As shown in table 2, liability in transactions with technical companies is attributed to one of the parties to the transaction, which are the actual beneficiaries. In the same cases, when the scheme is organized by several beneficiaries (for example, the involvement of a "technical" company to benefit the supplier and the buyer), responsibility is also attributed to one person, but who this person will be depends on the fact of the presence or absence of their interdependence.

In addition to the above-mentioned tax obligations, in case of detection of a tax evasion scheme, taxpayers must also be subject to penalties and fines, taking into account the provisions of the Tax Code of the Russian Federation.

Table 2 – Calculation method, tax consequences, calculation of the BOTTOM, as well as the distribution of responsibility between participants in transactions with "technical" organizations

Conclusions

The scientific novelty of this study lies in the adaptation of the general conceptual methodology for determining the actual tax obligations of Tikhonova A.V. in relation to such a type of tax schemes as a transaction with "technical" companies. In particular, the choice of the method of determining the bottom is justified, the main and most common risk markers of the evasion scheme are highlighted, as well as the measures of the tax authority to prove it. Due to the lack of detailed information on schemes of offenses and tax losses from transactions with "technical" companies, a reliable assessment of the budget effect is not possible.

The issue of applying the calculation method for determining the BOTTOM in relation to value added tax, which we have proposed for the following scheme, is subject to scientific discussion: involving a "technical" company to benefit the supplier and the buyer. The scientific community is divided into two groups on this issue. The former suggest the expediency of using the calculation method only for direct taxes (income tax and personal income tax) ^{[6, 7]}, justifying this by the fact that the VAT-2 ASK can be effectively used for calculating VAT (as the information basis of the actual method). Others, on the contrary, following the principle of tax fairness (which the authors of the article are also supporters of), note the applicability of the calculation method for all taxes ^{[2, 5, 12]}.

The study has significant practical significance. The formulated and described above methodology for calculating the BOTTOM allows us to divide tax evasion schemes that arise in practice using "technical" organizations into separate categories, depending on the type of transactions carried out and the nature of interaction between participants in the chain. Such categorization will make it possible to form a common strategy for proving tax offenses for employees of the Federal Tax Service of Russia, which in turn will increase the speed and efficiency of the work of tax authorities. In addition, the article formulates the results of market analysis to verify the reliability of potential counterparties. This analysis will be useful to a wide range of specialists both from the tax authorities (for making recommendations on the verification of their counterparties by taxpayers) and from consulting organizations providing similar counterparty verification services.