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. Last Updated: 07/27/2016

Taxing Questions

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The first of this month began tax amnesty season, a 10-month period that appears to be aimed at getting the tax delinquent to pay up in a "find us before we find you" drive.

But confusion and uncertainty enveloped the unveiling of the federal government's program in the weeks following its debut, with many -- including those responsible for helping with implementation -- struggling to understand the basic provisions as well as the more subtle nuances.

Dinar Akhmetov, a tax consultant for the ExpatCPA accounting firm, said tax authorities in Moscow told him they did not have any information about the tax amnesty in the first weeks after it began. Later, however, he was able to confirm that foreigners were included in the amnesty.

At the outset, it seems like a good offer -- one that federal and local governments around the world have successfully used to plug a gap in their budgets. The government is spared the time and energy of the hunt and chase -- and gains a cash windfall of sorts -- while the taxpayer eschews the possible legal action and penalties associated with nonpayment.

The mechanics of the amnesty work as follows: Taxpayers who wish to take part are supposed to calculate 13 percent -- the usual flat income tax rate -- of the income they intend to pay taxes on, and pay that amount into a special account through any bank. Keep the receipt for this transaction, because it is the document that demonstrates the taxes were, for all intents and purposes, paid.

What concerns many, however, is the level of safeguards or protections for taxpayers who take advantage of the government's offer. Some are hopeful that there is enough anonymity -- and a lack of specific information about the source of the income that is essentially being declared -- while others fear there may be a loophole that allows prosecution and late penalties down the road.

Ernst & Young, in a statement, described the conundrum as follows:

"Literally, the law states that taxpayers who made the tax payment in accordance with the law will be considered as taxpayers who 'have fulfilled their obligation in respect of tax payment and tax return filing.'"

However, the statement continued, "the wording 'have timely fulfilled' would have been much more comforting and, therefore, the text of the law does not explicitly state that the late filing penalty and interest charges will not be applicable."


Vitaly Belousov / Itar-Tass
Others say fines cannot be charged if a taxpayer has paid his or her taxes before a tax inspection process has been started.
What Akhmetov and others, including Ernst & Young, point to is that there is little tracking information involved in the process of handing over the money through the bank. Since it is a lump sum that is paid, there is no indication about which year it applies to and what the source of income was, which can make it hard to prosecute.

"In my view, once the payment of 'declared tax amount' is made, [the] taxpayer is free from the tax responsible in [the] form of fines and default interest," Anna Lessova, a senior lawyer with LeBoeuf, Lamb, Greene & MacRae, said by e-mail.

Because of a law that's been in effect since 1999, the fines cannot be charged if the taxpayer has paid his taxes before the tax inspection has been started, she said.

"The default interest cannot be calculated because there is no obligation for the taxpayer to submit documents -- or information -- about [the] type of income or the period in which this income was received by the taxpayer."

While the amnesty applies to taxes going back to 2001, experts are advising that any payment be for the period from 2003 onward, as there is only a three-year window in which tax authorities can seek back payment.


Yury Mashkov / Itar-Tass
Some are concerned the amnesty law does not exclude penalties for late payment.
Also, the tax amnesty bill that passed underwent a series of amendments, and further changes could still take place in the next 10 months, so experts advise to wait a few months before going through with an amnesty payment.

"It would be almost inconceivable that anyone would put forward legislation like that with the intent of drawing people out and then hitting them with penalties, and my understanding is that other jurisdictions have done this successfully," said Tim Carty, a partner at Ernst & Young. "But the absence of clarity around the whole penalty issue is a matter of concern, and my view is that even though since March 1 people have been able to do this, it is perhaps better to wait until later in the year when there is more clarity."

Serious further repercussions for foreigners that choose to take up the amnesty offer are unlikely, he said.

In any case, those who choose to take advantage of the tax amnesty may have no choice but to wait; banks and accounting experts alike have been slow to receive the required account number.