Application-Based Procedure for obtaining VAT Refunds

18.01.2010

Legal Update No. 109

Goltsblat BLP law firm advises that Federal Law No. 318-FZ of 17 December 2009 “On Amending Parts I and II of the Tax Code Of the Russian Federation following Introduction of  the Application-Based Procedure for Value Added Tax Refunds”  (hereinafter – the “Federal Law”) came into force, in the main, on 21 December 2009.

The Federal Law was introduced primarily to accelerate the VAT refunding procedure in situations when VAT deductions exceed sales-related VAT charges.
It should be noted that, under the general VAT refunding procedure,  VAT charges are set-off (refunded) after the tax authority has conducted an in-office tax audit and verified the VAT claimed for refund, the normal duration of an in-house tax audit being three months.

In parallel with the general procedure, which remains in effect, another one, based on applications for obtaining VAT refunds, is introduced so that taxpayers might, on the basis of a relevant application, set-off VAT amounts (obtain VAT refunds) indicated as refundable in the VAT declaration before completion of the in-house tax audit conducted on the basis of the given declaration.

The Law specifies that such an application must to be submitted within a maximum of five days of the tax declaration being filed and the tax authority must, within five days of the application being submitted, take a relevant decision and, within five days of doing so, communicate the decision to the taxpayer in writing.   Furthermore, should the decision be in the taxpayer’s favour, the tax authority should, on the day after the decision is made, issue a refund instruction to  the relevant local office of the State Treasury, which, in turn, is required, within five days of receiving the instruction, to remit the VAT refund to the taxpayer. Provided, therefore, that the decision is favourable, the VAT set-off (refunding) process becomes much shorter, with interest being charged to the taxpayer’s benefit on non-refunded VAT from the twelfth day following submission of the application if the given deadlines are missed.

The application-based VAT refunding procedure is designed for taxpayers with aggregate value added, excise, profit and severance tax charges over the last three calendar years totalling at least 10 billion roubles and those furnishing bank grantees for VAT charges declared as refundable.  

If the in-house tax audit does not confirm the VAT refunded to the taxpayer in accordance with the application-based procedure, the tax authority may demand that the taxpayer return the overpaid VAT refunds.

Should the taxpayer fail to return the overpaid tax refunds voluntarily, the tax authority may send a demand that the taxpayer’s guarantor-bank cover the arrears and, if the tax refunds are paid in accordance with the application-based procedure without a bank-guarantee, enforce collection of arrears by levying execution on the taxpayer’s cash funds or other property.

Another important novelty introduced by the Federal Law is a direct indication that mistakes in VAT invoices that do not prevent tax authorities from indentifying sellers, buyers, names and cost of goods, and tax rates may not be considered as constituting grounds for denying relevant VAT refunds under such VAT invoices.   In fact, this provision validates the legal position already stipulated in a number of judicial acts of the Constitutional and Supreme Arbitration Courts of the Russian Federation.

For additional information, please contact:

Tatiana Vasilieva
Head of Tax Group,
Goltsblat BLP
by e-mail:  info@gblplaw.com

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