Submission of tax returns. Fines and ways to minimize them

Companies must report their activity to state authorities. They must, in particular, submit tax returns to the Federal Tax Service as well as other similar reports as provided by the Russian Tax Code.

Elena Rybnikova
Head of Quality Control and Methodology Department

Article 119 of the Russian Tax Code provides that failure to submit tax returns (social insurance contributions) to relevant local tax authorities by the deadline set out by law entails the imposition of a penalty of 5% of the payable amount of tax (social insurance contributions) not paid within the period set out by law for each full or incomplete month from the date set for their submission, but not more than 30% of this amount, with a minimum of RUB 1,000.

The list of reporting to be submitted to state authorities is fairly extensive and contains more than 1,000 reports. A reporting form has been developed for each of them, as well as a procedure for filling them out. Deadlines for their submission have also been set up.

Based on the above article of the Russian Tax Code, it seems that the penalty can be minimized.

For example, if a company fails to submit its tax return by the set deadline, then it will be possible to pay the minimum penalty of RUB 1,000 and submit a tax return with zero taxes to pay, and later submit a revised tax return with the actual amount of payable tax. It is important to note that the payable tax amount under a revised tax return should be paid before submission of the revised tax return.

The above is possible if the company itself has discovered the offense. If the offense is found during a tax inspection, it will be possible to minimize penalties only in court. 

Penalties for late submission of reporting may be reduced or canceled in case of extenuating circumstances. Article 112(1) of the Russian Tax Code lists these circumstances, but they can be invoked only once as Article 112(2) sets out that a tax offense committed by a person previously held liable for a similar offense is recognized as a circumstance aggravating liability. 

Not all penalties can be minimized or avoided this way though. 

The penalties provided in Articles 15.5 and 15.6 of the Russian Code of Administrative Offenses must be paid, and their minimum amount ranges between RUB 300 and RUB 1,000. 

Penalties are intended to ensure that companies submit reporting to tax and other state authorities in a timely manner. If, for some reason, companies are unable to submit reporting in time, “rubles” are the answer. 

The aforementioned penalties are not exorbitant. They are indeed very small for companies, but penalties are not limited to the indicated amounts. 

Company liability for currency control reporting 

Below we have considered the liability of companies for currency control reporting. Given the extensive experience of the Federal Tax Service in collecting penalties, more and more types of company reporting have been, in recent years, transferred to the administration of tax authorities. For example, social insurance contributions have been administered by the Federal Tax Service since January 01, 2017, and Presidential Decree No. 41 appointing the Federal Tax Service as a currency control agency entered into force on February 02, 2016. 

Companies submit all currency control reporting to banks which act as currency control agents. The Federal Tax Service, in turn, checks the deadlines for submission of currency control documentation as well as for submission of currency control reporting and impose penalties on companies that fail to meet the deadlines for submission of documentation. 

Everything is more complicated as far as currency control is concerned as penalties are greater and it is not possible to submit revised reporting. Penalties for failing to meet the set deadlines are as follows (Article 15.25(6(6.1, 6.2, and 6.3)) Russian Code of Administrative Offenses): 

  • Under 10 days: a warning or fine from RUB 5,000 to RUB 15,000 for legal entity and fine from RUB 500 to RUB 1,000 for company officer; 
  • From 10 to 30 days: a fine from RUB 20,000 to RUB 30,000 for legal entity and fine from RUB 2,000 to RUB 3,000 for company officer; 
  • Over 30 days: a fine from RUB 40,000 to RUB 50,000 for legal entity and fine from RUB 4,000 to RUB 5,000 for company officer.

Penalties for repeated failure to meet deadlines within one year are as follows (Article 15.25(6.4) Russian Code of Administrative Offenses):

  • A fine from RUB 120,000 to RUB 150,000 for legal entity; 
  • A fine from RUB 12,000 to RUB 15,000 for company officer. 

It should be noted that the Federal Tax Service may impose fines not only for late submission of reporting, but also for late submission of clarifications and other documentation required for tax control, desk and other audits. The minimum penalty for failure to submit documents and/or other information by the set deadline is a fine of RUB 200 for each document which has not been submitted (Article 126 Russian Tax Code). The maximum penalty imposed on legal entities for failure to submit or late submission of information and documents to federal authorities ranges between RUB 100,000 and RUB 1,000,000. 

Please note that penalties are imposed for each offense, and if a similar violation is repeated within one year, this could result in disqualification of company officers from one to two years (Article 19.7.1 Russian Code of Administrative Offenses). And, if there are previous cases of documentation requests and imposition of penalties for failure to submit documentation to the Federal Tax Service, this has an adverse effect on taxpayers asserting their right in courts. 

Example: A company failed to submit to the Federal Tax Service an application for reissuance of transaction report form required for currency control, and as a result, a fine was imposed on the company as provided by Article 19.7 of the Russian Code of Administrative Offenses. Saratov Regional Court supported the Federal Tax Service in its ruling dated November 29, 2016 Case N 4А-782/2016 by bringing the company to administrative liability. 

Companies must also pay significant fines if they do not notify the Federal Tax Service when they open a bank account. It is not necessary to notify the Federal Tax Service when a bank account is opened in a Russian bank whether in the Russian Federation or abroad (this obligation was abolished in 2014). But, when companies open a bank account in a foreign bank, they must notify the Federal Tax Service within a month. If no notification is made, a fine from RUB 40,000 to RUB 50,000 could be imposed on the company officer, and a fine from RUB 800,000 to RUB 1,000,000 could be imposed on the company (Article 15.25(2.1) Russian Code of Administrative Offenses). 

How to avoid penalties? 

The best way to avoid penalties and other administrative sanctions is to submit all documentation to state authorities in a timely manner, whether tax returns, statements to banks, statistical reporting or responses to requests from all state agencies. 

How is it possible to do it all in time? 

It is no secret that good planning helps submitting tax returns by the set deadlines. Reporting calendars for each activity and for each tax are available in the media and on the Internet. Accountants will not miss the deadlines for submission of reporting if they print out such calendars or set electronic reminders. 

And what if documentation is submitted to the accounting department really late? No matter how much is planned, it is not always possible to record everything in accounting and tax registers in due time. In such case, it is necessary to ensure that the document flow with counterparties is as much as possible conducted in electronic format, as well as involve the company management and contract department in the process. 

  1. Electronic document flow significantly reduces the time for communication and processing of primary documents resulting in great performance. Electronic document flow is well-developed in the modern business world although companies may not completely function without paper documents. 

  2. Management should be aware of the risks of cooperating with unreliable partners, i.e. those who do not submit closing documents so that they can exert a certain influence on them which could go up to the termination of their contractual relations with such partner. 

  3. Accountants are not always able to “choose” counterparties who duly and timely submit documentation. That is why it is necessary to involve the contract department. The agreements with counterparties should specify how closing documents should be submitted for a better and quicker document flow between the parties.