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Which criteria are used to classify a business entity as a high-risk taxpayer?
Which criteria are used to classify a business entity as a high-risk taxpayer?
A high-risk taxpayer is a person who meets the criteria approved by the Cabinet of Ministers, including those who engage in non-commercial and/or risky operations. What are these criteria? Why are some business entities classified as high-risk taxpayers? Tax expert Mirjafar Rzaev provides clarification on these questions.
When a taxpayer engages in risky and non-commercial operations:
Example 1: A taxpayer signs a contract with another taxpayer, but no physical delivery of goods occurs. Nonetheless, an electronic invoice for 1,000 manat is sent to the other party, and payment is made if the goods are not received. If this is detected, the taxpayer will be considered high-risk.
Example 2: If a taxpayer does not have a registered warehouse (including a leased warehouse) or other economic entity (object) with the tax authority, or if the area of the registered warehouse or other economic entity (object) does not match the volume of imported or acquired goods (except for cases where goods are ordered for others and delivered directly to the customers, and information on the amount of the order is provided to the tax authority):
Example 2: A taxpayer purchases goods from another taxpayer for the purpose of sale, and the purchase is processed in accordance with the requirements of the Tax Code. However, the taxpayer making the purchase does not have a registered object with the tax authority. In this case, the purchasing taxpayer may be classified as high-risk by the tax authority's decision.
Example 3: A taxpayer imports 300 tons of rebar for sale from abroad (goods are not imported based on another taxpayer's order). The registered warehouse of the importing taxpayer with the tax authority has an area of 20 square meters. Thus, it is physically impossible to store the imported rebar in the registered warehouse. Consequently, the business entity may be classified as high-risk by the tax authority's decision.
Example 4: If the volume of goods imported or acquired by a taxpayer for sales purposes over the past 6 months (excluding cases dependent on the seasonal nature of the goods, as well as those pre-ordered and scheduled for delivery within the contractually specified time) is at least 3 times greater than its turnover for the corresponding period:
Example 4: A taxpayer engaged in wholesale distribution of electrical equipment has purchased goods worth 15,000 manat by electronic invoice and goods worth 30,000 manat by cargo customs declaration over the past 6 months. Each purchase complies with the requirements of the Tax Code, and the registered warehouse area does not contradict the volume of the goods. Sales over the 6 months amounted to 12,000 manat. Therefore, this taxpayer may be classified as high-risk by the tax authority's decision.
According to the above criteria, a physical person who is the head of the executive body or the founder of a legal entity classified as high-risk; a legal entity founded by the head of the executive body or founder of a high-risk legal entity; and physical persons who are the heads of executive bodies of more than five legal entities, as well as the legal entities headed by them, may also be considered high-risk taxpayers.
According to the decision of the Cabinet of Ministers, the following operations conducted by a taxpayer are considered risky:
When electronic invoices provided by taxpayers indicate types of goods different from those actually received or imported:
Example 5: A taxpayer engaged in retail sales of food products, yet sells gravel to another taxpayer via electronic invoice. In this case, the business entity may be recognized as a high-risk taxpayer.
When it is discovered that a taxpayer has provided goods in quantities exceeding those acquired or imported (with respect to the excess volume):
Example 6: A new taxpayer purchases 10 refrigerators from another taxpayer for sales purposes in the reporting quarter, and there are no other purchases for the enterprise. Despite having 10 refrigerators in the warehouse, the taxpayer sells 12 refrigerators. In this case, the operation will also be considered high-risk.
A high-risk taxpayer is a person who meets the criteria approved by the Cabinet of Ministers, including those who engage in non-commercial and/or risky operations. What are these criteria? Why are some business entities classified as high-risk taxpayers? Tax expert Mirjafar Rzaev provides clarification on these questions.
When a taxpayer engages in risky and non-commercial operations:
Example 1: A taxpayer signs a contract with another taxpayer, but no physical delivery of goods occurs. Nonetheless, an electronic invoice for 1,000 manat is sent to the other party, and payment is made if the goods are not received. If this is detected, the taxpayer will be considered high-risk.
Example 2: If a taxpayer does not have a registered warehouse (including a leased warehouse) or other economic entity (object) with the tax authority, or if the area of the registered warehouse or other economic entity (object) does not match the volume of imported or acquired goods (except for cases where goods are ordered for others and delivered directly to the customers, and information on the amount of the order is provided to the tax authority):
Example 2: A taxpayer purchases goods from another taxpayer for the purpose of sale, and the purchase is processed in accordance with the requirements of the Tax Code. However, the taxpayer making the purchase does not have a registered object with the tax authority. In this case, the purchasing taxpayer may be classified as high-risk by the tax authority's decision.
Example 3: A taxpayer imports 300 tons of rebar for sale from abroad (goods are not imported based on another taxpayer's order). The registered warehouse of the importing taxpayer with the tax authority has an area of 20 square meters. Thus, it is physically impossible to store the imported rebar in the registered warehouse. Consequently, the business entity may be classified as high-risk by the tax authority's decision.
Example 4: If the volume of goods imported or acquired by a taxpayer for sales purposes over the past 6 months (excluding cases dependent on the seasonal nature of the goods, as well as those pre-ordered and scheduled for delivery within the contractually specified time) is at least 3 times greater than its turnover for the corresponding period:
Example 4: A taxpayer engaged in wholesale distribution of electrical equipment has purchased goods worth 15,000 manat by electronic invoice and goods worth 30,000 manat by cargo customs declaration over the past 6 months. Each purchase complies with the requirements of the Tax Code, and the registered warehouse area does not contradict the volume of the goods. Sales over the 6 months amounted to 12,000 manat. Therefore, this taxpayer may be classified as high-risk by the tax authority's decision.
According to the above criteria, a physical person who is the head of the executive body or the founder of a legal entity classified as high-risk; a legal entity founded by the head of the executive body or founder of a high-risk legal entity; and physical persons who are the heads of executive bodies of more than five legal entities, as well as the legal entities headed by them, may also be considered high-risk taxpayers.
According to the decision of the Cabinet of Ministers, the following operations conducted by a taxpayer are considered risky:
When electronic invoices provided by taxpayers indicate types of goods different from those actually received or imported:
Example 5: A taxpayer engaged in retail sales of food products, yet sells gravel to another taxpayer via electronic invoice. In this case, the business entity may be recognized as a high-risk taxpayer.
When it is discovered that a taxpayer has provided goods in quantities exceeding those acquired or imported (with respect to the excess volume):
Example 6: A new taxpayer purchases 10 refrigerators from another taxpayer for sales purposes in the reporting quarter, and there are no other purchases for the enterprise. Despite having 10 refrigerators in the warehouse, the taxpayer sells 12 refrigerators. In this case, the operation will also be considered high-risk.