Tax optimization: main issues from judicial practice

In this world nothing can be said to be certain, except death and taxes (с)

(Benjamin Franklin, the free quote)

Tax avoidance in the reflection of judicial practice – based on the conversation with the judge of the Supreme Court Dubai S.I. "The right to tax optimization: limits and tax consequences".

Stats:

• 99% pay taxes faithfully or pay surcharge tax voluntarily;
• 61 court cases on taxes were settled for the last 18 months;
• 11 % of court decisions in favor of payers;
• there are practically no court cases on false busines

Tax optimization means determining the balance of equitable distribution of assets between the owner and the state through the payment of taxes without tax rights abuse. Abusing such rights may turn the avoidance (optimization) into punishable tax evasion.

The limits beyond which may be understood as a tax rights abuse and entail the risk of increasing tax liabilities, in general, are prescribed in paragraph 4 of Article 33 of the Tax Code:

1. misrepresentation of information about the facts (the predominance of form over content)

Examples:

• creation of a loss by misrepresentation of the recorded purchase price and the recorded sale price;
• non-accountance of proceeds from sales.

2. the purpose of the business transaction - tax savings, rather than a reasonable business purpose

Examples:

• transfer of VAT deductions during reorganisation;
• claiming VAT deductions in full when the goods were bought "on paper";
• creating formal conditions for the implementation of international tax agreements (the recipient of income is not the beneficial owner);
• business division is allowed if shareholders of new business entities are self-sufficient in funds and resources to conduct their activities, receive an independent economic result, and the application of a special tax regime is possible even without division.

3. absence of actual business transaction (goods have not been received, works have not been performed, services have not been rendered)

Examples:

• the disputed transaction was not executed by the person named in documents;
• works were performed while a payer has no personnel, equipment and technical means for the performance of such works.

Consequences of tax evasion:

• surcharge tax payments and penalties on taxes;
• administrative liability – up to 40% of the unpaid tax;
• criminal liability – in case of intentional non-payment of taxes over 64,000 Belarusian rubles - from a fine to imprisonment up to 12 years.

We will be happy to provide any further information or assistance should you are interested in the above issues.

Should you have any further queries, please contact VMP Tax practice team partner Konstantin Mikhel (konstantin.mikhel@vmp.by).