The Tax Service recommends that enterprises and individual entrepreneurs exercise independent control over the volume of tax revenues to the budget. For this purpose, recommended average values of the tax burden by industry are established annually. If, during a desk audit of tax returns, the inspector sees significant deviations from the industry average, the taxpayer will need to explain the current situation. In our article we will look at how to draw up an explanation of the low tax burden for corporate income tax.
Tax burden calculation
To calculate NV you need to perform the following steps:
- Determine the total amount of taxes and fees accrued for the calendar year according to declarations submitted to the Federal Tax Service.
- Take the revenue indicator from the Profit and Loss Statement for the same period.
- Divide item 1 by item 2, multiply the resulting quotient by 100%.
The obtained value must be compared with the industry indicator of taxable income, published annually by the Federal Tax Service. If the organization’s workload turns out to be lower than according to the Federal Tax Service, this may be a reason for inspection.
Explanations for the updated income tax return
It is necessary to provide updated information when errors are made. The following errors are most often made in such a document:
- Code 1 may indicate that the transaction was not recorded at all in the declaration, or the company indicated zero indicators, or due to an error, it is impossible to compare the data.
- The second code indicates that the data from sections 8 and 9 may not match.
- When the declaration indicates the data of the company’s intermediary operations, then code 3 will be shown. It means that the data between sections 10 and 11 do not match.
- The fourth code is considered universal. This code indicates that there is an error in the declaration.
When filling out the declaration, you must take into account the tax inspector’s requirement to provide information from the individual entrepreneur. Then you will have to fill out section 12.
If an error is made that does not result in an underestimation of the tax burden, you can indicate the correct option in the explanation and clarify that this error did not affect the understatement of the tax burden. Or you can simply submit a clarification. But when the declaration indicates an error leading to a deduction, it is necessary to immediately submit an amended declaration.
You need to know that such a paper is a table, which consists of some accounting data and details. This is where it is necessary to explain why the company has discrepancies in performance. Only reliable data must be presented. It is necessary to indicate all types of activities that the organization is engaged in.
When filling out several sheets, each one must be certified by the signature of the head of the company or an authorized person. It is also necessary to include the company details on each sheet.
After the errors have been corrected, explanations are sent to the tax service. Reasons that can be indicated in the explanatory note:
- All the company's activities are structured incorrectly and do not correspond to reality.
- The status of the company may be low profitability, so the tax burden is greatly underestimated.
- The company can also engage in investing.
It is important to understand that if there is the slightest discrepancy in the declaration, the taxpayer must immediately submit a corrected declaration with explanations. Then taxpayers will not have any problems with the tax service.
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Every year, the Federal Tax Service publishes tax return indicators by type of activity, and if this indicator in an organization is lower than the industry indicator, then the risk of inspection by the Federal Tax Service inspector increases.
Low tax burden
Let's consider an explanation (example), taking as a basis an educational organization that provides additional education services (OKVED 85.11).
The amount of accrued taxes for 2021 is 2,169,066 rubles.
Revenue for 2021 according to the income statement is 20,557,770 rubles.
NI will be 10.6% (2,169,066 / 20,557,770 × 100%).
We compare the resulting tax value with the corresponding indicator in the Federal Tax Service document “Tax burden by type of economic activity in percent” for 2021. In the Federal Tax Service document, the indicators are presented in aggregate; you need to find your section according to the OKVED classifier, and if it is not there, then use the NN value in the “Total” line.
The Federal Tax Service did not highlight the “Education” section; we compare the organization’s tax return with the general indicator in the “Total” line, which for 2021 is 10.8%.
The organization’s NI is 0.2% below the average (10.8–10.6%). If there are higher deviations of the organization's tax base from the industry average, the Federal Tax Service usually sends a letter with a recommendation to revise the tax base and pay additional taxes.
In this case, you will have to prepare an updated declaration explaining how the low tax burden arose; an explanation (see sample below) is attached to the updated declaration. The form of the explanatory note is given in Appendix No. 5 to the Order of the Federal Tax Service of Russia dated May 30, 2007 No. MM-3-06 / [email protected]
VAT burden
For companies using this type of tax, the fiscal service also calculates the share of deductions using the following formula:
Share of deductions = Total amount of deductions / Total amount of accrued VAT * 100%,
Where:
- the amount of deductions is taken from line 190, section. 3 VAT returns;
- VAT amount – from line 118, section. 3 VAT returns.
If the result of the calculations is more than 89%, then the enterprise will be classified as a risk group, so before each submission of a declaration it is worth checking the proportion of VAT deductions. In case of excess, it is better to transfer part of the deductions to the future or leave them as they are and prepare answers to questions from tax authorities and supporting documents.
Reasons for low tax burden: explanation
In some cases, situations are possible when an organization objectively bears tax burden below the industry average and does not have the opportunity to recalculate taxes upward.
The reasons for a decrease in the tax base may be an increase in expenses, a decrease in revenue, writing off large amounts of doubtful debts, production downtime or force majeure.
In this case, the Federal Tax Service should provide explanations as to why the amount of deductions is lower than the calculated value.
The document is drawn up in free form and can be titled as Statement, Information, Message or Explanatory Note.
Explanations to the tax office about the low tax burden can be formulated in this way.
Legal grounds
Receiving a request from the tax office for clarification on the reasons for the deviation from the average tax burden means that the previously sent data raised doubts about its correction. The right to request explanations is stipulated in subparagraph 6 of paragraph 1 of Article 23 of the Tax Code of the Russian Federation. Inspectors have the right to demand the production of documentation relating to the calculation and payment of taxes. However, the law has an important clause: documents can be requested only as part of desk or on-site inspections.
That is, the requirement for explanations regarding low load is not specified in the Tax Code of the Russian Federation. There is only indirect permission. Therefore, the tax office may require an explanatory note, but cannot require supporting documents. Any such demands will be illegal. However, the entrepreneur can provide supporting documents of his own free will. It is recommended to do this, as it will avoid on-site inspection and audit.
Bank checks
Banks monitor the minimum tax indicator, the value of which is set at 0.5% of receipts to the current account by the Methodological Recommendations, approved. Bank of Russia 04/13/2016 No. 10-MR.
If the total amount of payments for taxes, fees and charges is less, the bank may request explanations, declarations, financial statements, contracts and other documents.
It is also recommended to accompany the submission of documents to the bank with an explanatory note explaining the situation.
This is what an explanation about a low tax burden might look like: a sample for a bank.
How to prevent a tax audit: main risk areas
No. Thus, according to 2007 data, the safe level of tax burden in wholesale and retail trade was considered to be 3.9%, in construction - 15.9%, in the production of machinery and equipment - 17.2%, and in the fuel and energy industry and altogether 60.2%.
Those wishing to plan the amount of the deduction must take into account that the moment of exercising the right to deduct VAT refers to the period when such a right arose in accordance with the established deduction procedure, and is not automatically transferred. In addition to the company's performance, relationships with counterparties are also at risk. All of the listed documents contain the same signs of unreliability of the counterparty: The establishment of a counterparty company at the so-called mass registration address is also considered suspicious
Factors affecting the amount of VAT payable
The amount of VAT accrued for payment to the budget and reflected on line 040 of section 1 of the VAT declaration appears in this line if, as a result of arithmetic operations with the total VAT amounts formed in sections 3, 4, 5, 6 of the declaration, the final amount of these operations reflects the obligation to pay into the budget, and not to reimburse from it.
At the same time, VAT included in sections 4, 5, 6 of the declaration is associated with sales operations at a rate of 0%, and in the final amount of each section most often represents the amount of tax refundable. The final amount of section 3 of the declaration is the difference between the amount of tax accrued from taxable objects and the amount of tax deductions and most often represents the amount payable to the budget.
Accordingly, the amount accrued for payment to the budget and reflected on line 040 of section 1 of the VAT return is influenced by the following factors:
1. The amount of tax accrued from taxable objects, and, in turn, the amount of the tax base increases the amount of tax paid.
2. The amount of tax deductions based on properly executed documents received from suppliers of goods (works, services) reduces the amount of tax paid.
See also the material “What is the procedure for applying (accepting) tax deductions for VAT: conditions?” .
3. The amount of VAT on advances transferred to suppliers of goods (works, services), if all conditions for applying such a deduction are met and the organization makes a decision to use the right to apply it, reduces the amount of tax paid.
See also the material “Acceptance for deduction of VAT on advances issued” .
4. The amount of VAT accrued when performing construction and installation work for own consumption, subject to deduction, reduces the amount of tax paid.
5. The amount of VAT paid to customs authorities when importing goods into the territory of the Russian Federation reduces the amount of tax paid.
See also the material “What is the procedure for refunding VAT when importing goods?”
6. The amount of VAT paid to the tax authorities when importing goods into the territory of the Russian Federation from the territory of the EAEU member states reduces the amount of tax paid.
7. The amount of VAT on buyer advances closed during the period reduces the amount of tax paid.
8. The amount of VAT paid by the taxpayer for the period as a tax agent reduces the amount of tax paid.
See also the material “How can a tax agent deduct VAT when purchasing goods (work, services) from a foreign seller .
9. Features of the algorithm for calculating the distribution of tax deductions between transactions subject to VAT (taking into account the breakdown at different rates) and transactions not subject to VAT. Not only the amounts of deductions according to suppliers’ documents are subject to distribution, but also the amounts paid to customs and tax authorities when importing goods into the territory of the Russian Federation.
When creating an algorithm for such a calculation, it should be taken into account that VAT on advances (both received and paid), VAT of the tax agent, and VAT accrued when performing construction and installation work do not participate in the distribution. They must be accepted for deduction in full in the period when the right to apply such a deduction arose. This will allow you to reasonably reduce the amount of tax paid to the budget.
In addition, the calculation of the distribution of VAT amounts must be carried out taking into account the balances of VAT related to sales at a rate of 0%, the right to apply which has not been confirmed at the beginning of the billing period. The balances of this VAT must be reflected in accounting in a separate subaccount of account 19. The VAT received by calculation, relating to operations that are not subject to taxation or exempt from VAT, must be included in costs according to the rules of Art. 170 Tax Code of the Russian Federation.
See also: “How is separate VAT accounting carried out (principles and methods)?” .
Possible mistakes
You already know what a sample explanation to the tax office about the low tax burden on profits looks like. Let's look at typical mistakes that a declarant can make when filling out documentation.
Code 1 indicates the following defects:
- there is no record of the operation in the declaration;
- the taxpayer did not report for VAT for the specified period (gave zero figures);
- errors prevent you from “finding” the invoice and comparing the data with those indicated in the declaration.
Code 2 indicates that the data in section 8 (purchases book) does not match those presented in section 9 (sales book). This can happen if calculations were made on the basis of previously issued advance invoices.
Code 3 indicates a discrepancy between section 10 (invoices issued) and 11 (invoices received). This may happen if the declaration contains information about the intermediary operations of the taxpayer.
Code 4 is kind of universal. It indicates that an error was made in one of the columns. Usually the tax officer writes the number of this column in parentheses next to the error code.
The tax inspectorate may require clarification not only from a legal entity, but also from an individual entrepreneur (the full list is in Article 173 of the Tax Code of the Russian Federation). They are required to fill out section 12. If a private entrepreneur submits an explanation on several sheets, on each he must indicate the number of the registration certificate.
So, if a tax official has questions about your return, immediately correct errors (updated return) and provide explanations. It is important not to be afraid to justify your actions; everything can have a logical explanation.
We choose the right taxation system for an LLC.
There are only 3 special tax regimes for LLCs:
- STS (Simplified Taxation System);
- UTII (Unified Tax on Temporary Income);
- UAT (Unified Agricultural Tax).
* You can learn how taxes are calculated for each taxation regime in our article: How to calculate taxes for an LLC under different taxation regimes?
Using one of the special tax regimes allows you to reduce tax payments and the tax burden in general. To save money when registering an LLC, you need to choose one of the most suitable tax regimes. If your company has high turnover at the initial stage, then you should pay attention to the simplified tax system. This regime will allow you to pay tax on the income you receive or on profits. For those companies where there are large expenses, it is worth choosing to pay taxes on profits of 15%. If there are almost no expenses, it would be preferable to choose 6% of income. UTII is more suitable for those LLCs that have a stable large cash flow. The advantage of this system is that your tax will be fixed, based on specific indicators.
LLC has the right to use UTII and simplified tax system in combination, in case of conducting activities in several areas. Read more in our next article.
The Unified Agricultural Tax is similar to a simplified taxation system. It differs only in that only LLCs engaged in agricultural activities can use it (70% of the turnover is made up of agricultural operations). The rate will be 6% of net profit. For business, this is the lowest tax percentage.
OSNO (General System of Taxation) should be used if your counterparties also use it. In other cases, it will be difficult to refund VAT.
Indirect ways to reduce tax payments:
- Competent development of LLC accounting policies - depending on the specifics of your business, can reduce your tax base and tax payments;
- Predicting an on-site tax audit - try to submit reports on time, do not confuse amounts, do not carry out questionable actions, because during an on-site inspection, fines will only increase;
- Proper maintenance and storage of documentation - the accounting department is obliged to keep on hand all primary documentation to confirm and justify all payments to the LLC;
- Choosing reliable counterparties - choosing conscientious (in terms of taxes) counterparties will save you a lot of money and time. If the counterparty is not conscientious, the tax office will not accept expenses for transactions with him, which means you will have to pay much more taxes, even if your transaction was legal;
- Attention to concluded agreements - carefully study the agreements for various types of errors and omissions;
- Compliance with deadlines and dates for submitting reports and paying taxes - compliance with deadlines will benefit you, because In case of errors, there will be time to correct them without penalties.
Reducing taxes on the unified agricultural tax.
The easiest way to reduce the amount of tax on the unified agricultural tax is to keep records of all expenses to the maximum. In order to later avoid questions from the tax office, all documents that are related to the company’s costs must be attached and executed properly.
Reducing taxes on UTII
The imputation can be reduced by almost 50%. To do this, you need to reconsider the factors that influence the company's income generation.
Reducing taxes on the simplified tax system.
Reducing the tax burden on the simplified tax system is quite possible due to insurance premiums. In this case, the deduction amount will be at least 50%.
Reducing taxes on OSNO.
At OSNO, we must minimize taxes in three directions at once, namely: income tax, property tax, VAT. To reduce VAT, it is preferable to purchase goods from organizations that also pay VAT. This VAT amount can be deducted. To reduce income taxes, reflect all business expenses in full in your reporting. The amount of property tax is directly based on the value of fixed assets. As you know, they wear out every year, so it would be correct to calculate the depreciation of fixed assets. The cadastral value is a stable value, however, if you think that the assessment was not carried out objectively, it can be challenged in court.
What actions can you get fines for?
Despite the desire to reduce the tax burden, one should not forget that one must not cross the line of the law. There is no need to resort to schemes that are illegal. Most often, the LLC managers themselves are guilty of this, but there are also accounting specialists who convince management of the legality of their actions. Next, we will find out what these or other actions entail:
- Manipulations to conceal income - failure to punch checks, failure to formalize the receipt of funds properly, concealment of payments and money received entails fines and possibly more serious measures;
- Working with one-day companies - in 2021, they are identified very quickly, so not only tax authorities, but also police officers can visit your office.
Conclusion.
It is necessary to reduce the tax burden only through legal means. To do this, you need to entrust your company to the hands of professionals. Law Firm "Dionysus" also provides accounting and reporting services. Contact us by phone +7 (985) 166-59-59, or via the feedback form.
>Explanation of the reason for the low tax burden on income tax
