Adjustment of the tax liabilities on the basis of notification about discrepancies issued by the controlling authorities under the procedure of para. 201.6 of the Tax Code
Paragraph 201.6 of the Tax Code establishes the procedure of sending by the controlling authorities to the taxpayers of notifications about discrepancies with the data of contractors revealed by the controlling authorities in the register of issued and received VAT invoices.
Upon receipt of such notification the taxpayer has the right to adjust its tax liabilities without application of any fines mentioned in Chapter II of the Tax Code.
As a matter of practice the controlling authorities apply the provisions of paragraph 201.6 of the Tax Code in the following way: referring to paragraph 201.6 of the Tax Code they send to the taxpayer a letter, where they ask the taxpayer to consider the opportunity to adjust its tax liabilities and pay respective fine. Depending on the method of self-adjustment chosen by the taxpayer, it is suggested that the latter should pay such fine in the amount of 3 % or 5 % of underpaid tax liabilities.
The controlling authorities may provide to the taxpayer very simple explanation for such request: for example, that they have received certain information that the taxpayer had legal relations with ‘shady’ taxpayer. At the same time the controlling authorities neither provide to the tax payer the explanation, which discrepancies were found out in the register of VAT invoices, nor provide the list of VAT invoices, in respect of which such discrepancies were revealed.
Are such ‘requests’ in line with the law and do they satisfy the requirements of paragraph 201.6 of the Tax Code?
Paragraph 201.6 of the Tax Code provides that notification to the taxpayer should be sent by the controlling authorities on the ground that the controlling authorities revealed discrepancies in the register of issued and received VAT invoices. Therefore, the notification under the procedure set by para. 201.6 of the Tax Code should contain the information about the discrepancies found out by the controlling authorities as well as the list of tax invoices in respect of which such discrepancies were found. If there lack such information in the notification, the taxpayer have no possibility to define which figures of the tax return should be adjusted and what are the grounds for such adjustment. Under such circumstances there lack due grounds for the tax payer to make a decision about adjustment and to use the right for adjustment of the tax liabilities according to the procedure set in para. 201.6 of the Tax Code.
Therefore, upon obtaining from the controlling authorities of the notification with reference to para. 201.6 of the Tax Code, where lack all the information which is necessary to make the decision on adjustment, the taxpayer may provide the controlling authorities with the polite reply that the taxpayer is not able to use its right for adjustment of tax liabilities. Such reply might be reasoned by the failure of the controlling authorities to inform the taxpayer about existing discrepancies in due manner, therefore, the taxpayer is not able to consider such notification and make respective decision about adjustment.
It should be also noted, that the controlling authorities try to equate the procedure of adjustment of tax returns on the basis of para. 201.6 of the Tax Code with the procedure of self-adjustment of tax liabilities under Article 50 of the Tax Code, when the taxpayer by itself found out certain mistakes in its tax returns.
We would like to remind that Article 50 of the Tax Code foresees that the taxpayer, which by itself has revealed certain mistakes in its tax reports and, therefore, adjusts its tax liabilities, should pay fine in the amount of 3 % or 5 % of underpaid tax liabilities, depending on the method of self-adjustment chosen by the taxpayer.
At the same time adjustment of tax liabilities under the procedure set by para. 201.6 of the Tax Code based on the notification of the controlling authorities about discrepancies in the register of issued and received tax invoices shall not be treated as self-adjustment, when the taxpayer revealed certain mistakes by itself. In the first case the taxpayer receives notification about existing discrepancies rather than reveals mistakes by itself.
Therefore, the suggestion of the controlling authorities to pay fine in the amount of 3% or 5% of underpaid tax liabilities, when making adjustments under the procedure set by para. 201.6 of the Tax Code, is not in line with the provisions of the Tax Code. The Tax Code does not require that such fine should be paid. Besides, para. 201.6 of the Tax Code says that the taxpayer has the right to adjust its tax liabilities under the procedure established by this paragraph without application of fines, foreseen by Chapter II of the Tax Code, which, in its turn, covers both fines related to self-adjustment and fines, which are applied by the controlling authorities.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.