When to Provide Explanations
When conducting an inspection, the inspector has the right to request written explanations. Situations in which it is mandatory to provide an explanatory note to the tax office upon request (we offer a sample for NPOs) are specified in clause 3 of Art. 88 Tax Code of the Russian Federation:
- Errors in submitted reports. For example, inaccuracies or inconsistencies are identified in the declaration. In this case, tax authorities require you to provide justification for these discrepancies or send a corrective report.
- In the adjusting statements, the amounts payable to the budget are significantly lower than in the initial calculations. In such a situation, the inspector may suspect a deliberate understatement of the tax base and payments and will demand an explanation for the changes.
- The submitted income tax return reflects losses. In any case, you will have to justify unprofitable activities to the Federal Tax Service, so you can prepare an explanatory note on losses in advance.
The inspection request must be responded to within 5 working days from the date of official delivery of the request - such norms are enshrined in clause 3 of Art. 88, paragraph 6 of Art. 6.1 Tax Code of the Russian Federation. In special cases, the Federal Tax Service will have to notify the receipt of a tax request (Letter of the Federal Tax Service of the Russian Federation dated January 27, 2015 No. ED-4-15/1071).
IMPORTANT!
Some requests may not have an official seal. You will still have to respond to such demands - such explanations are given in the Letter of the Federal Tax Service of the Russian Federation dated July 15, 2015 No. ED-3-2 / [email protected]
Procedure upon receipt of a request
After the taxpayer receives requests for clarification, he must check the documents submitted to the tax office with the data in his hands.
First of all, when checking a VAT return, the amounts indicated in it are analyzed (for their compliance with the amounts for all incoming and outgoing invoices). Next, dates, invoice numbers, and other details (TIN, KPP, addresses, etc.) are examined in the same way.
If questions arise regarding the simplified taxation system or income tax return, you should analyze all the amounts of expenses and income that were accepted for their calculation. All other types of documents that raise questions from the tax inspectorate are also checked using the same algorithm as above.
After the error is found, you need to submit updated tax reporting with corrected data - but this only applies to amounts. If the error does not relate to the financial part, then there is no need to submit a “clarification”; it is enough to provide the necessary explanations.
Attention: the law does not say that explanations must be given in writing, i.e. this means that they can also be provided orally. However, in order to avoid further disagreements, it is better to take care of drawing up a written response.
How to compose
When drawing up an explanatory note, we are guided by the following rules:
- We compose a response on the organization’s letterhead. If there is no such form, in the header of the document we indicate the full name of the institution, INN, KPP, OGRN and address.
- We indicate the number and date of the requirement for which the explanatory note is being drawn up. It is permissible to write a response to several tax requests at once.
- If there are errors or inconsistencies in the report, double-check the report to eliminate typos or typos.
- In the descriptive part of the explanatory note, we reveal in detail and consistently the circumstances of the situation that needs to be explained.
- When answering a request, rely on the facts and document the circumstances. Attach copies of documents to the answer, if any. For example, attach to the explanatory note a copy of the additional agreement to the contract with the provision for increasing prices.
If the inspector requires an explanatory note regarding inconsistencies in the value added tax return, the response will have to be sent electronically. An exception to the rules is reserved for organizations that report VAT on paper. If the institution reported electronically, but provided a response to the request on paper, then the tax office will consider such explanations not provided. Such norms are prescribed in the Letter of the Federal Tax Service dated January 27, 2017 No. ED-4-15/1443.
Results
If tax officials have questions regarding the reporting submitted to the Federal Tax Service (inconsistencies in figures, clarification with a tax reduction, declaration with a loss), they will ask the taxpayer for clarification. You should not ignore such a request (it is sent in the form of a demand): comprehensive explanations will help resolve questions and avoid possible checks caused by inconsistencies in reporting. Explanations can be given both on paper and electronically. But if we are talking about issues related to the VAT return, then taxpayers submitting such a declaration electronically must also provide explanations on it electronically.
Sources:
- Tax Code of the Russian Federation
- Code of Administrative Offenses of the Russian Federation
- Letter of the Federal Tax Service of Russia dated July 17, 2013 N AS-4-2/12837
You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.
What happens if you don’t respond to the Federal Tax Service’s requirement?
No matter how much the inspectorate threatens with punishment, tax officials cannot fine or issue an administrative penalty for the absence of an explanatory note:
- Article 126 of the Tax Code of the Russian Federation is not a basis for punishment, since the provision of explanations does not apply to the provision of documents (93 of the Tax Code of the Russian Federation);
- Article 129.1 of the Tax Code of the Russian Federation is not applicable, since a request for written explanations is not a “counter check” (93.1 of the Tax Code of the Russian Federation);
- Article 19.4 of the Code of Administrative Offenses is not an argument; punishment is applicable only in case of failure to appear at the territorial inspection.
Similar explanations are given in paragraph 2.3 of Letter No. AS-4-2/12837 of the Federal Tax Service of Russia dated July 17, 2013.
Personal income tax accrued incorrectly
The error occurs infrequently, but still occurs. If the tax authorities have discovered an incorrectly calculated tax, the organization will have to not only prepare an explanatory note, but also generate corrective statements (certificate 2-NDFL).
For such a situation, an explanatory note in any form is suitable. If you don’t know how to write an explanatory note correctly, a sample will help you cope with the task.
Document code 1787 certificate for the period sample
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Errors and discrepancies regarding VAT
Value added tax is the fiscal liability where accountants make the most mistakes. As a result, discrepancies and inaccuracies in reporting are inevitable.
The most common mistakes are when the amount of tax accrued is less than the amount of the tax deduction claimed for reimbursement. In fact, the reason for this discrepancy can only be the inattention of the person responsible for issuing invoices. Or a technical error when uploading data.
In the explanatory note, please include the following information: “We inform you that there are no errors in the purchase book, the data was entered correctly, timely and in full. This discrepancy occurred due to a technical error when generating invoice No.____ dated “___”______ 20___. Tax reporting has been adjusted (indicate the date the adjustments were sent).”
Document code 1787 certificate for the period sample
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Reporting discrepancies
Quite often there are situations when the same economic indicator has different values in the presented forms of fiscal reporting. Such discrepancies are caused by the fact that for each tax, fee, contribution, individual rules for determining the taxable base are established. And if tax authorities require you to provide an explanatory note on this issue, provide explanations in free form. In the text, indicate specific reasons why the discrepancies arose.
Also, the reason for such inconsistency may be different norms and rules of tax accounting in relation to a number of specific situations. Write down the circumstances in an explanatory note.
It is welcome to provide explanations with references to the norms of the current fiscal legislation. Even if the company is wrong (incorrectly interpreted the norms of the Tax Code of the Russian Federation), the Federal Tax Service will provide detailed explanations, which will help avoid larger mistakes and fines in future activities.
Sample explanatory note to the tax office upon request for personal income tax
Is this legal? It is right that the requirements submitted by the Federal Tax Service may not have the stamp of the tax authority (letter of the Federal Tax Service of the Russian Federation NED-3-2/2739 dated July 15, 2015). Question No. 3. “If our organization ignores the tax authorities’ requirement and does not provide an explanation, can we be fined?” The tax office has no right to charge you a fine for refusing to provide explanations.
However, it is in your best interests to provide explanations, because Based on discrepancies between the declaration data and the tax authorities, you may be charged additional taxes or payments, and this is more complicated. Rate the quality of the article.
Reducing the tax burden
This issue is of particular interest to tax authorities. Thus, representatives of the Federal Tax Service constantly monitor the volume of revenues to the state budget. If they decrease, the reaction is immediate: demands with the provision of an explanatory note, an invitation to the manager to a personal meeting with a representative of the Federal Tax Service, or an on-site desk audit (a last resort).
In such a situation, you cannot hesitate; you must immediately provide explanations to the Federal Tax Service. In the explanatory note, describe all the circumstances and facts that influenced the reduction in tax payments. Confirm the facts with documents or provide economic justification. Otherwise, the Federal Tax Service initiates an on-site inspection, which may take several months.
What to write in an explanatory note:
- Reduction of salary taxes. The reasons may be staff reduction, enterprise restructuring, or reduction in wages.
- A decrease in profits may occur due to termination of contracts with customers. A copy of the additional agreement on termination of the contract should be attached to the explanatory note.
- Increased costs as a result of decreased profits. The justification may be expansion of activities (increasing production volumes, opening a new branch, division, retail outlet), changing suppliers or increasing prices for inventories and raw materials (attach copies of contracts).
There can be quite a few reasons for reducing the tax burden. We will have to look into each specific case.
Getting ready to check losses on the simplified tax system
Each organization annually determines the financial result obtained, and not in all cases it turns out to be as expected.
This article will discuss whether you should be afraid of a visit from the tax authorities if there is a loss in your annual simplified tax return. In this case, a loss can occur not only for an inexperienced startup, but also for a company that has been successfully operating for more than one decade.
Based on the results of the first year of activity, the lack of profit appears to be quite justified. The company is only taking its first steps, trying to develop the market and forming its own customer base. But there is a very high probability that the negative financial result will be systematic, moving from year to year. Then tax officials will definitely have questions for the company.
You may have heard more than once about the so-called “loss-making” tax commissions: the owners of the enterprise are invited to the inspectorate to explain the reasons for the loss. Such activities of the commission are not regulated by law, but they are completely legal.
The procedure for passing “unprofitable” commissions
Tax officers are interested in: companies that have been unprofitable for more than two years; institutions that have sharply increased their own annual expenses, which has caused a particularly large loss.
The inspector must make sure that your company does not hide its true income from taxation, and that all expenses are economically justified and documented.
The inspector has the right to send a notice to summon the taxpayer to determine the reasons for the loss. Most often, inspectors ask to justify the receipt of a particular loss. It may be necessary to provide primary documents that confirm expenses.
Since the beginning of this year, the tax service has been increasingly demanding such written explanations. It is worth recalling that previously written justification for the loss was provided only in cases of errors in the annual declaration. Since 2014, the so-called “anti-money laundering” law No. 134-FZ came into effect, expanding the powers of tax inspectors. In accordance with the new law, inspectors can summon company managers within five working days to explain the causes of losses, and also demand the provision of official explanations.
