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How to Check Your Russian Counterparty: When is Verification Required?
September 1, 2020 15:54

How to Avoid Tax Sanctions and Prove Due Diligence? How not to make a bad deal? How to prevent non-execution of the order by the counterparty? There is a solution: before signing the contract, check the counterparty to confirm its business reputation, legal capacity and financial and material support.

When is verification required?

In the activities of almost every company, an unpleasant situation can arise when the tax authorities refuse to deduct value added tax or recognize the transaction as questionable, the costs are unconfirmed, and the tax benefit is unreasonable. This may be due to the fact that the counterparty that seemed quite reliable at the conclusion of the transaction, was recognized by the tax service as unscrupulous. However, the company or entrepreneur did not bother to check it.
Russian legislation does not contain requirements for mandatory verification of the counterparty, but the controlling organizations pay considerable attention to the taxpayer's display of due diligence when choosing a counterparty. The main document that guides the tax and other regulatory authorities in this case is the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of October 12, 2006 No. 53 "On the assessment by arbitration courts of the justification for obtaining tax benefits by a taxpayer." It sets out the basic criteria for due diligence   when selecting a counterparty.
Other recommendatory documents are letters of the Ministry of Finance of the Russian Federation dated July 6, 2009 No. 03-02-07 / 1-340 and dated April 10, 2009 No. 03-02-07 / 1-177, letter of the Federal Tax Service of Russia dated July 24, 2015 No. ED- 4-2 / 13005.

It is recommended to check the counterparty before any transaction, but the following cases require special attention:

conclusion of a deal with a new partner;
conclusion of a prepayment contract;
conclusion of a contract with a deferred or installment payment;
conclusion of an agreement with a counterparty registered in another region.

Some signs of bad faith of the company may indicate:

the counterparty organization is registered at the address where a large number of companies are located;
the duties of the director and the chief accountant are performed by the same person;
the company constantly changes its activities;
the company has large debts or credit obligations;
state registration of the counterparty company is carried out right before the transaction conclusion procedure.

The presence of at least one of these signs should already raise reasonable suspicions. Although the verification of counterparties cannot guarantee the absence of claims against the taxpayer from the tax authorities, nevertheless it reduces the risks of making claims and increases the likelihood of their successful appeal in court.

Russia-IC has developed mechanisms for checking the conscientiousness of counterparties, including inquiries and analysis of the necessary documentation, as well as a study of the Internet environment. We guarantee the reliability and accuracy of the information collected.

Author: Anna Dorozhkina

Tags: Check Your Russian Counterparty Russian Laws    

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