Unexpectedly for many, the Russian Classification of Types of Economic Activity (OKVED) has taken on a new and decisive role. Inspectors make no secret of their satisfaction: for years they tried to have the formal codes reflect real activity. Businesses in despair are ready for extreme measures.
Many organisations stated a principal OKVED code and additional codes without realising how, in future, this would affect tax relief and other relief. Often a company declared one of the codes as its principal code, but over time developed activity in other directions. The additional business became the principal one, and nothing changed in the extract from the Unified State Register of Legal Entities (EGRUL).
The law did not prohibit a business from carrying on any type of activity regardless of the OKVED codes it had declared. That freedom became a trap: a company may operate in industries on the government's list and still not receive the relief it has earned.
38 OKVED codes were included in the list of affected industries
The internet already offers many services of a dubious kind, for example "change an OKVED code retrospectively". We look at the chances of obtaining the relief if the desired code is not stated in the documents, and at which rash decisions are better avoided.
The formal criterion has become the principal one. Most of the Government's support measures have turned the formal attributes of OKVED codes into a significant asset of the company. The concept of assistance to small and medium-sized enterprises requires two conditions to be met:
- the organisation or individual entrepreneur was, as at 01.03.2020, included in the register of small and medium-sized enterprises;
- the principal OKVED of the organisation or individual entrepreneur, according to EGRUL or the Unified State Register of Individual Entrepreneurs (EGRIP) as at 01.03.2020, is included in the list of affected areas (paragraph 1 of Government Resolution of 02.04.2020 No. 409).
In the view of the Federal Tax Service, the combination of three digital keys, EGRUL + EGRIP + the principal OKVED code, makes it possible to identify an organisation precisely as one affected by the pandemic and entitled to the relief. The Federal Tax Service has made it possible to check whether your counterparty is on that list, on the website service.nalog.ru/covid/.
Affected companies were granted concessions:
- A moratorium on debts in bankruptcy: for six months, creditors have no right to file applications against a debtor who falls into this group. The debtor itself may file for bankruptcy and use the relief - deferrals and instalment plans for payments - or conclude a settlement.
- "Crisis" deferrals and instalment plans for taxes and contributions. Taxes other than VAT accrued for the second quarter will be forgiven altogether for the affected business.
- Preferential lending programmes.
There will be no relief without the documents. The experts offer no encouragement: if a company does business in the affected industries but did not, before 1 March 2020, declare the corresponding activity code, it will not be able to use the relief.
Business will "get creative". When the rules of the game become formal, entrepreneurs switch on a creative approach and save the business in their own way. The shadow market has already stirred: companies are offered a way to "sort out" the OKVED question. Owners expect the finance director to come up with something.
Manipulating OKVED codes is likely to become a new trend in tax saving in 2020. Companies have learned how to defeat the Federal Tax Service in tax disputes, for example over the splitting of a business. If an organisation is prepared to defend its interests in court and it really does carry on activity in the affected areas, it should think through a tactic for allocating business processes among legal entities or individual entrepreneurs.
Whether it is worth trying to defend an OKVED code in court. Many principled owners believe that an honest business should not invent schemes because of gaps in the laws. Yes, formally an OKVED code does not confer a right to the relief. In substance, it does. Lawyers expect a flow of applications to the courts.
If the code is on the list of additional activities, there is a chance.
Attempts to call oneself affected will be made, but they are unlikely to succeed. The main question is what will happen to those who really suffered but stated a different OKVED in EGRUL, for example an old one. For such entrepreneurs the task will be enormous. Those who have an OKVED from the list of affected activities recorded among their additional types of activity, and who may receive most of their profit under that additional activity code, have a chance of obtaining the relief. But even in that case they will have to prepare for possible court proceedings with the Federal Tax Service,
- Sergei Pivovarchik, managing partner of the law firm Consul Group
Read comments by lawyers from Soleman Legal Services, Alliance Legal CG and Coleman Legal Services in the source.
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