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. Last Updated: 07/27/2016

Tax Police Stir Fear Among Expatriates

ST. PETERSBURG -- A knock on the door. Uniformed officers. The brusque request: "Documents, please."


No, the Stalinist 1930s have not returned. But in the minds of some local businessmen, today's equivalent could be a surprise visit from the State Tax Police.


"People are really scared now," said one American businessman, who did not wish to be identified. "They're afraid the tax police are going to go crazy."


In mid-January, Robert Burston, an Australian businessman in St. Petersburg, was jailed on suspicion of tax evasion. Burston was the first foreign businessman in St. Petersburg -- and, it is believed, in all of Russia -- to be arrested by the newly empowered tax police.


Although he has been released after an unpleasant six weeks in Kresty Prison, his passport was confiscated, and he has been warned not to leave the country pending resolution of tax claims involving his contracting business. So far, the emphasis is on businesses rather than individuals working for companies. "From the state's point of view, there is not much sense in spending a lot of effort on individuals," said Andrei Smirnov, who handles cases involving foreign companies for the tax police in St. Petersburg.


Until recently, about the worst a company had to fear was a periodic audit by the State Tax Inspectorate. The State Tax Police, despite becoming an independent agency in 1993, had only limited investigative authority. That is, until last November, when the revenue-hungry state gave them the powers of arrest, "unhindered entrance" into premises and the right to seize anything deemed useful as evidence.


"The first and immediate goal of entry is to prevent the destruction of proof of any economic crime," said Vladimir Alexandrov, another spokesman for the St. Petersburg office. "Then the officers can go about introductions."


He emphasized, however, that employees in an office being searched have the right to call the tax police at any time to verify the identity of the officers.


Generally, the State Tax Police work independently of the State Tax Inspectorate, which is responsible for periodic audits of local companies. For the most part, the tax police conduct their own investigations before requesting search and seizure permission from a prosecutor.


Tips come from a variety of sources, ranging from undercover agents to individuals looking to cash in on the promise of up to 10 percent of the amount of the taxes recovered if they turn in someone.


Russian law requires that foreigners report and pay tax on their worldwide income if they work in Russia for 183 days or more in a fiscal year. The filing deadline is April 1. Failure to report income can result in fines of up to 100 percent of the amount of taxes due or imprisonment. Current tax rates range from 12 percent to 30 percent, the rate that applies to income of more than $10,000.


Following an investigation, criminal charges are pressed only in the event of outright violations of the tax code, as opposed to errors or bookkeeping mistakes.


So far, the tax police have concentrated mainly on Russian firms. According to federal figures, they conducted 13,115 investigations involving "gross violations" of the tax code in 1995, more than four times the number investigated the previous year. Unpaid taxes amounting to 7.5 trillion rubles (about $1.5 billion) were detected in 1995, more than double the 1994 figure.


Spiegle said possible factors behind the appearance of the tax police in the foreign community are the federal government's budget crunch and their growing understanding of how to track down tax dodgers.


Recent changes in work permit policies also have helped. "Immigration services and the tax inspection service know about new people with work permits," Spiegle said. "They freely provide information to the tax police, even if they're not sure if something wrong is going on."


It is unclear how many foreign businesses might be running afoul of tax laws, but estimates run high.


"A lot of individuals and small business people here are not in [the system] 100 percent," said Jim Beatty of Emerging Markets Group, a tax consulting firm. However, he added, "I don't think the tax police are going after individuals as much as individual businessmen."


One major problem is uncertainty about interpretations and regulations that seem to change overnight. "If you make a mistake, you're still liable, and you can't claim ignorance of the law," Spiegle said. "And it's easy to be ignorant of the law if there's little warning that a change is coming."


Companies have the right to appeal any decisions. "Tax officials have had to learn everything, too," Beatty said. "But they're not God, and a lot of times they're wrong."


The tax authorities contend that only criminals have anything to fear, but they concede that their search-and-seizure tactics may seem heavy-handed to Westerners.


"In the West, tax officials have the technology we currently lack. Therefore, our laws have to be more stringent" in regard to investigation, said Smirnov.


"We need to teach people not to be proud about how much money they hide, but to pay their taxes, help the government get strong, so it can help society," he said.