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New principles of tax audits

New principles of tax audits

According to the latest explanations of the Federal Tax Service, the approach to verifying the reality of business transactions has changed:

1.       The focus is shifted from documents to checking that the contract could have been executed by the counterpart and had a clear business objective;

2.       Participation of affiliated persons in the transaction no longer serves as a sufficient evidence of an illegal scheme.

In general, the changes are ambiguous for business community. On the one hand, they will exclude illegal fines on the criteria of affiliation; on the other hand, Tax Authorities will pay more attention to the essence of transactions, especially those with unreliable counterparts.

Due to the changes, we recommend to focus more on due diligence of counterparts.