The concept of a Bona Fide Taxpayer from taxpayers view point

1
The concept of a Bona Fide Taxpayer from
taxpayers view point
Court practice analysis

• 31 May 2005
• AEB Tax Conference
• Mikhail Bortniaev

2
Issues

• Definition of a Bona Fide Taxpayer in Russian tax
  law.
• Responsibility of the court system.
• Bona fide behavior of the tax authorities with
  respect to taxpayers.
• Resume.

3
Definition of a Bona Fide Taxpayer in Russian tax
law

• 1998 RF CC Decree dated 12.10.1998 ?24-?
• The term bona fide taxpayer was introduced for
  the first time
• The taxpayer is not responsible for the actions
  of any entity that takes part in the process of
  tax payment
• Charging taxes from a bona fide taxpayer
  repeatedly conflicts with the Russian
  Constitution.
• 2001 RF CC Decision dated 25.07.2001 ?138-?
• The tax law presumes that bona fide taxpayers
  exist
• The tax authorities are obliged to prove bad
  faith
• To prove bad faith the tax authorities have a
  right to check taxpayers activities.

4

• 2003
• RF CC Decision dated 16.10.2003 ?329-?
• The tax law presumes that bona fide taxpayers
  exist
• The definition of a Bona Fide Taxpayer does not
  represent additional charges that are not
  prescribed in the law
• Arbitration courts are the competent authorities
  that may consider bona fide taxpayer status.
• RF CC Decision dated 29.05.2003 ?254-?
• Criminal proceedings may be instituted if a
  criminal act is conducted deliberately and is
  directed to avoid payment of statutory
  established taxes.

5

• 2004
• RF CC Decision dated 14.12.2004 ?453-?
• The tax Code dos not establish the taxpayers
  responsibility for actions that the taxpayer is
  not subject to perform
• RF CC Decision ?169-? ? ?324-?
• Transactions that do not have a reasonable
  economic justification fake transactions that
  are aimed at tax evasion
• VAT input can not be recovered where acquired
  property has not been paid for and evidently will
  not be paid in the future.

6

• YKOS
• What issues are disputed by the tax authorities
• The tax authorities position
• RF CC Decision dated 18.01.2005 ? 36-?
• - tax law provisions that grant certain benefits
  and guarantees to bona fide taxpayers can not
  apply to bad faith taxpayers,
• - this issue is within the scope of arbitration
  courts.
• 2004 RF CC Press Service Statement
• Bona Fide Taxpayer Concept
• may be considered
  may not be considered
• transaction formally does not
  if the
  transaction is null and void conflict with the
  law

7
Responsibility of the court system

• Concept of a Bona Fide Taxpayer subjective
  issue
• Prestige of the court system. The court system as
  an independent branch of the state authorities
• Independent court
• Corruption
• Quality of Russian legislation
• Reform of the court system

8
Bona fide behavior of the tax authorities

• Although the RF Tax Code does not establish
  criteria for a bona fide taxpayer, based on the
  concept of a general theory of law and principles
  set up in the Constitution, one can determine the
  bona fide concept as the subjective rights of a
  person where there is a basis for damage or for
  treat to cause damage to other persons
• Having picked up a bad faith taxpayer as a
  partner in a transaction and having dealt with
  him, the taxpayer is free to choose an option
  and, therefore, is supposed to act in such a way
  (demonstrate attention and prudence) that gives
  him the right to rely on the proper behavior of a
  partner from a tax view point. Negative
  consequences as a result of picking up a bad
  faith partner can not be transferred to the
  budget
• Therefore, in order to recover VAT input
  incurred, in addition to formally meeting the
  requirements necessary to get such offset, the
  taxpayer is obliged to observe a principle that
  has been declared in p. 7 of Art. 3 of the RF Tax
  Code to act bona fide.

9
Resume

• 1) To consider the Bona Fide Taxpayer concept in
  the event of null and void transactions
• To determine the concept of a Bona Fide Taxpayer
• Willful Violation
• Violation is aimed at tax evasion
• State interests are damaged
• Reform of the court system
• To protect taxpayers from the abuse of a primary
  status of tax authorities

10
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