Tax reconstruction as a tool for reducing subsidiary and criminal liability

On 15 February 2024 a conference, "Criminal and subsidiary liability of owners and managers, 2024", was held at the Kommersant publishing house. Leading Russian experts, consultants, officials and lawyers discussed questions of criminal law, subsidiary liability and business risk, and the criminal-law risks of tax law, corporate law and insolvency law.

One of the speakers was Andrey Rymarev, head of the tax consulting practice at Consul Group, who spoke about tax reconstruction as a tool for securing a taxpayer's rights and for reducing subsidiary and criminal liability.

Tax reconstruction in a tax dispute is a necessary stage, for example before a bankruptcy or a criminal case. Whether it is carried out, and whether it is applied correctly, also affects the amount of the liabilities of the persons who will be held to subsidiary or criminal liability.

How the approaches of the Supreme Court and the Federal Tax Service to tax reconstruction have evolved

The practice of applying tax reconstruction in Russia developed in several stages. In 2017 the Federal Tax Service introduced a complete ban on tax reconstruction if the taxpayer fails to meet even one of the conditions of Article 54.1. That approach in effect ignored a basic proposition of tax law: it matters not only to find an offence, but also to calculate the tax liabilities correctly.

In May 2021 the approach was adjusted slightly, and the Federal Tax Service proposed to proceed from the form of guilt. If the offence was committed without intent, the calculation method may be applied to profits tax, but there will be no recalculation of VAT. If an intentional breach is proved, the Federal Tax Service allows tax reconstruction where the taxpayer itself discloses information about the real figures and the real suppliers. In May 2021 the Supreme Court of the Russian Federation supported that approach of the Federal Tax Service.

In December 2021 the Supreme Court's approach to tax reconstruction changed, and the differences were of fundamental importance. From May 2021 the condition that information about the real suppliers be disclosed had been a strict one. In December, disclosure of the real suppliers by the taxpayer under audit ceased to be obligatory where the tax authority had obtained information about the real suppliers from any other source.

A tax obligation should be read as an obligation to pay tax in an amount no greater than the law lays down. The mere fact that an unjustified tax benefit has been obtained cannot, moreover, be a ground for collecting tax in an amount greater than the law provides.

The rights and the opportunities of officers who have already lost corporate control of the organisation

Practice is now developing so that, when former founders and general directors are pursued for subsidiary liability, they may join the tax dispute as a third party. If the court dispute has already been heard, but without them, they are entitled to appeal the judicial acts adopted in the case.

A former director or founder is therefore entitled to be a third party in a tax dispute in court between the organisation and the tax authority. If the former director or founder did not take part in a court dispute that has ended, he may use the right to appeal the judicial acts, so as to affect the amount of the pecuniary loss. A former director or founder can exercise those rights only if a claim has been brought to hold him to subsidiary liability. Tools of this kind give a greater opportunity to defend oneself when subsidiary and criminal liability is sought.

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