What does a lawyer need to know about taxes?

Some lawyers by mistake believe that taxes are a matter of accounting, not legal. But almost every transaction of a commercial organization is subject to taxation, and the cost of paying taxes must be considered when determining the terms of the transaction. The choice of a taxation system, the definition of an object of taxation, an analysis of the conditions for the application of special tax regimes and the possibility of applying benefits require the involvement of a lawyer. What cases should the attention be paid to?

Determination of the type of activity of the enterprise for applying the 0% VAT rate

In accordance with paragraph. 4 sub. 1.1.1 p.1 Art.102 of the Tax Code VAT rate 0% applies to exported transport services.

For reference.
Exported transport services include freight forwarding services, transportation services for goods, passengers and baggage by road, air, rail, sea, river and other types of transport (combination of these types of transport) out or outside of the Republic of Belarus, from outside its territory, as well as in transit through the territory of the Republic of Belarus, including the partial provision of these services on its territory (clause 4 of article 102 of the Tax Code).

Example.
The Belarusian organization has signed an agreement with a foreign express operator. The logistics of international express-transportation included transportation of express-cargo by road and air, which in its essence was a multimodal transport. Within the concluded agreement, the Belarusian organization, in relation to the consolidated shipments of express-cargo arriving on the territory of the Republic of Belarus, performed on its own behalf the functions of accepting them when entering by air to the territory of the Republic of Belarus; performed as the claimant when they were placed in a temporary storage warehouse; made customs clearance of received express cargoes that were not subject to customs declaration (customs clearance of express-cargoes that were subject to customs declaration was carried out by the Belarusian consignee, but the Belarusian organization acted as the claimant when placed on the temporary storage warehouse). After customs clearance, the Belarusian company organized the delivery of each express cargo to the consignee indicated in the individual invoice.

The tax authority considered that the relevant activity does not relate to the exported transport services. The decision on the accrual of VAT and penalties was appealed in the court. The court of first instance satisfied the application of the organization and invalidated the decision of the tax authority. The Court of Appeal considered the decision of the tax authority to be lawful and revoked the decision of the court of first instance. The court of cassation left the decision of the court of first instance in force.

Justification of the type of activity for the purposes of applying benefits was carried out by lawyers using the provisions of the Law of the Republic of Belarus as of June 13, 2006 No. 124-З “On transport-expeditionary activities” and the Civil Code, but the difficulty was that the legislation of the Republic of Belarus did not contain the term “mixed transportation”.

Unaccounted value added tax (VAT)

According to the sub. 1.1 Clause 1, Article. 93 of the Tax Code turnover on the realization of goods (works, services), property rights on the territory of the Republic of Belarus are subject to VAT. At the same time, an approximate list of possible objects is given in terms of the “including” construction.

In Art. 31 of the Tax Code is provided a general definition of "realization" for tax purposes, and also are listed transactions that are not realization for tax purposes. Under general rule, the realization is the alienation of goods by one person to another person (execution of work by one person for another person, the provision of services by one person to another person), the transfer of property rights by one person to another person on fee or free of charge basis

Therefore, if during the contract execution, the transfer of properties, works execution, services provision take place, then such an action may be subject to VAT and the costs of VAT must be taken into account.

Example.
The borrowing-organization is not able to return the loan in financial resources. The parties agreed to provide a compensation in order to fulfill the obligation to return the loan, but did not take into account the borrower's obligation to pay VAT in connection with the provision of the compensation. The assignment of compensation is turnover for realization for VAT purposes. The duty to pay the tax shall be borne by the person providing the compensation. In fact, the deal for the borrower becomes more expensive by 20%, means the amount of VAT that is being paid to the budget. 

The distinction of the contract of storage and use of property

Example.
The organization built a shopping and entertainment center with parking lot for visitors. The organization raised a question whether it has the right for rebate on a real estate tax.  

Based on the sub. 1.11 p. 1 art. 186 of the Tax Code are subject to exemption from property tax the capital structures (buildings, constructions) of organizations put into operation for the first time within one year from the date of their acceptance into operation in the manner prescribed by law, except capital structures with exceeded terms for construction, settled by project documentation.

For reference.
In accordance with Part 2 of Art. 186 of the Tax Code organizations lose the right for real estate tax exemption when leasing, other paid use or rent-free of capital structures (buildings, constructions), their parts, lots for cars, that were exempted from real estate tax.

Since the Tax Code does not contain and does not define the concept of “other paid or rent-free use”, then in accordance with paragraph 2 of Art. 1 of the Tax Code relevant institution is determined taking into account the provisions of civil law. Consequently, the assessment of the issue of the legitimate application of tax benefits requires a legal component in terms of the procedure for the implementation of parking areas.

According to the sub. 1.2 p. 1 of the Decree of the President of the Republic of Belarus as of 03.10.2006 No. 589 “On streamlining the work of parking lots and car parks” (hereinafter referred to as Decree No. 589) in the manner prescribed by law and civil-law agreement, the payment can be taken only for provision of services for the vehicles storage at parking lot. In turn, the conclusion of a contract for the provision of compensated services for the storage of motor vehicles does not constitute a transfer of the structure and (or) its parts for other chargeable use.

For reference.
Car parking is a parking place of vehicles, which is a specially equipped single or multi-level engineering structure (parking), designed for storage of vehicles (sub-clause 1.1, paragraph 1 of Decree No. 589)

Tenfold land tax

Example.
The organization was provided within the locality the land for temporary use for the period of construction of the object. After the construction was completed, the organization began the commissioning procedure. During the commissioning of the object, the period of temporary use of the land plot has expired and the organization has not applied for its extension. After the object was commissioned and the rights were registered, the corresponding land was leased to service the object. For the period from the expiration of the term of temporary use of the land until the moment of granting the land for servicing the organization's object, the land tax was added in tenfold. 

The legal basis for additional taxation is paragraph 2 of Art. 197 of the Tax Code. The attention of a lawyer to the terms of use of the land and understanding of the possible tax consequences could save the organization’s money spent on paying the tax at a higher rate.   

Useless explanation

In accordance with paragraph 3-1 of Art. 52 of the Tax Code the penalties are not charged on the amount of taxes, fees (duties) payable by the payer (another obliged person) in the event of their non-payment or incomplete payment on the basis of written explanations on the application of acts of tax legislation received by them from tax authorities. This rule shall cease for application 10 calendar days after sending to the payer (other obliged person) written explanation on the issues on application of tax legislation by the superior tax authority, other than clarification on the same issue, originally given by the lower tax authority.

For reference.
The payer has the right to receive from the tax authorities and other authorized state bodies written explanations on the application of acts of tax legislation  (subclause 1.2 clause 1 of article 21 of the Tax Code).

In a joint letter of the Ministry of Taxes and Duties of the Republic of Belarus, the Ministry of Finance of the Republic of Belarus, and the Ministry of Economy of the Republic of Belarus dated as of June 14, 2013 “On some issues of bringing legal entities and individuals to administrative responsibility” given that administrative measures should not be applied if the violation occurred in consequence of the payer’s execution of clarification of the authorized state body. Since in this case the payer’s fault will be absent, who acted in accordance with the received explanation of the authorized state body. At the same time, non-application of administrative liability measures is possible only if such explanations are based on complete and reliable information provided by the payer in the request.

Example.
The Belarusian organization, registered as an economic operator, turned to the tax authority for clarification on the terms of exemption from the "import" VAT, if the Russian organization that sells the goods under the commission agreement will not pay the "import" VAT in Russia (a copy of the commission agreement concluded with Russian organization, was not attached to the request). Responding to a request, the tax authority explained the general procedure for applying the 0% VAT rate when exporting goods on the basis of commission agreements (clause 7 of article 102 of the Tax Code). Subsequently, the organization was charged additional “import” VAT due to improper qualification of relations with a Russian organization. The basis of legal relations was the element of the commission, but the subject of the contract was that the Belarusian organization shall take actions to purchase goods from foreign suppliers on behalf of a Russian organization. The transfer of goods by a Belarusian organization to a Russian organization was the transfer by a commission agent to a commitment of the goods purchased for him. Such transfer is not subject to VAT.

In support of the objections, the organization cited the response of the tax authority regarding the procedure for applying 0% VAT on exports, but this argument was not taken into account, since the circumstances outlined in the request did not correspond to the actual ones.

For reference.
Goods, imported by persons, who have the status of an authorized economic operator and are included into the register of owners of customs warehouses and (or) in the register of owners of temporary storage warehouses are exempted from VAT charged by customs authorities, provided the export by the person who owns the warehouse of goods, imported into the Republic of Belarus, using the 0% VAT rate (clause 1 of the Decree of the President of the Republic of Belarus as of 11.08.2011 No. 358).