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Monitoring of tax risks

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Monitoring of tax risks

As you know, any disputes easier and cheaper to prevent than to later prove his innocence, this equally applies to disputes in tax matters. In contrast to the situation when we are dealing with an already existing dispute (i.e., usually the ongoing verification or legal process), the situation when the specific operation or the activity of the taxpayer is tested in advance on the possibility of such a dispute, provides huge opportunities for optimization of future risks. At this stage, the taxpayer can still without significant limitations to manufacture and assemble additional documents, to rectify mistakes in them, to simulate a transaction without a risk or even abandon a transaction if the risk of financial loss it too great.


Monitoring tax risks ("tax Due Diligence") is a special kind of work of tax advisors, which includes three interconnected elements:

  • identification and evaluation of existing tax risks of the taxpayer client;
  • recommendations to minimise identified tax risks;
  • optimization and minimization of taxation of a taxpayer-client.

Monitoring tax risks ("tax Due Diligence") may be performed as separate transactions, and comprehensively throughout the company. Comprehensive Due Diligence is typically the first stage of the preparation of tax optimization, in preparation for a possible tax audit, in the sale of business or its part (the M&A deal). Monitoring risks in the individual transaction are particularly important when planning a potentially risky from the point of view of taxation of the transaction, which will involve material to the company funds.


Who needs to monitor tax risks?

Typically, this service is especially recommended to taxpayers that are organisations (legal persons), however, if the individual is actively involved in economic relations, is personally involved in large transactions or is the owner of expensive assets, it is also recommended to undergo the procedure of monitoring of tax risks.


When you need to monitor tax risks?

In our opinion, the monitoring of tax risks in one form or another should be conducted regularly. The General rule is such that the more active and sophisticated is the activity of the taxpayer, the more attention should be given tax risks and optimize them. However, there are categories of taxpayers and situations where the monitoring of tax risks is clearly needed.

For example, comprehensive tax Due Diligence required of any major company:

  • no established system of monitoring of tax risk (the system of "due diligence" in respect of the counterparty, legal work with primary documents, and agreements, system analysis thresholds for the purposes of applying exemptions or simplified regimes of taxation and so on);
  • regularly recorded tax losses or profitability deviates significantly from the commonly used in the industry of the company;
  • used tax incentives are claimed for reimbursement of a substantial amount.
  • expected on-site tax inspection;
  • and any company that did not pass this procedure more than three years.

With regard to the monitoring of tax risks of individual transactions, it is particularly relevant for such monitoring can be, for example, before purchase of major assets (including another company). We also highly recommend monitoring tax transactions, if they have one or more of the characteristics below:

  • this is a major deal for the taxpayer in terms of absolute size or relative to the assets and funds (at the level of 5-10% of the available current assets of the company we would recommend to consider a major transaction for such purposes);
  • this transaction, which implies the right to exemption from tax or a large tax credit;
  • this is an atypical transaction, not typical for ordinary activity of the taxpayer;
  • this deal with an interdependent person or a person applying for tax benefits (applying the simplified system of taxation, the residents of special areas);
  • this deal with the difficult subject of regulation, for example, a transaction in securities or financial instruments, land, cession or otherwise deal with property and non-property rights;
  • a transaction made solely by means of the Internet;
  • it's a deal with a foreign company (or another offshore jurisdiction) or the transaction, subordinate to foreign law;
  • this transaction or transactions made through an intermediary (or intermediaries), agents, commissioners and any other similar entities.
What the client receives after the tax Due Diligence?

According to the results of monitoring of tax risks to the Client is provided with a report which contains a description of tax burden, assessment of tax risks and the likelihood of their occurrence, and recommendations for their reduction. Tax Due Diligence allows you to make a professional judgment about the quality of the system of control over tax risks in the enterprise, to identify hidden tax risks in terms of possible attraction of businesses to liability for violation of tax legislation and reduce effective taxation of the company. The client receives a written assessment of the likelihood of presentation to the company of claims by the tax authorities, written analysis of tax risks and options for their reduction or elimination, as well as a description of the options of tax optimization.

The specific objective and scope of the future study is consistent with the client always in written form (drawing up of technical specifications), where we try as much detail as possible and to fully consolidate the purpose, conditions, amount, timing, stages and cost of the work. We always believe that Your needs and challenges, Your questions and requests, always trying to be as helpful and transparent for our Customers.

Our skilled professionals are able to conduct Due Diligence as a separate procedure, and within the framework of complex of measures on optimization of the tax burden the whole company and system of reducing its tax exposure. We have extensive experience with the tax authorities, so we know what weaknesses they first of all pay attention, and we will help You to avoid claims on their part.