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According to which criteria are business entities considered high-risk taxpayers?
According to which criteria are business entities considered high-risk taxpayers?
Risky Taxpayer – A person who meets the criteria approved by the Cabinet of Ministers, including engaging in non-commodity and/or risky transactions. What are these criteria? Why are some business entities recognized as risky taxpayers? Mircefer Rzayev provides clarification on these questions.
1) When a taxpayer engages in risky and non-commodity transactions:
Example 1: A taxpayer signs a contract with another taxpayer, but no physical delivery of goods occurs. Nevertheless, the taxpayer sends an electronic invoice worth 1,000 manat to the other party and makes a payment to them even though no goods were received. If this situation is detected, the taxpayer will be considered risky.
Example 2: If the taxpayer does not have a registered warehouse (including leased warehouses) or any other economic object, or if the area of the registered warehouse or economic object does not match the volume of goods imported or acquired (except for cases where goods are ordered for other individuals and directly delivered to the customers, and information on the order value for each customer is submitted to the tax authorities):
Example 3: A taxpayer imports 300 tons of rebar from abroad for sale (the goods are not imported based on the order of another taxpayer). The registered warehouse of the importing taxpayer is 20 square meters. Therefore, physically placing the imported rebar into the registered warehouse is impossible. As a result, the tax authority may decide to classify this business entity as a risky taxpayer.
3) When goods acquired by a taxpayer do not match their type of activity (excluding office supplies, inventory, and other similar assets acquired for their own business activities), and these goods are presented to tax control without documentation:
4) If the volume of goods imported or acquired by the taxpayer for sales purposes in the last 6 months exceeds three times the turnover for that period (excluding cases where goods are of a seasonal nature, or delivery is scheduled according to the pre-agreed terms in the contract):
Example 4: A taxpayer who engages in the wholesale sale of electrical appliances has purchased 15,000 manat worth of goods via electronic invoices and 30,000 manat worth via customs declarations in the past 6 months. All purchases were made in compliance with the Tax Code requirements, and the area of the warehouse registered by the taxpayer is sufficient for the volume of goods. The sales volume in the last 6 months was 12,000 manat. As a result, the tax authority may classify this taxpayer as a risky taxpayer.
A physical person recognized as a risky taxpayer based on the above criteria is considered a risky taxpayer if they are the head or founder of a legal entity; the head or founder of the legal entity that is a risky taxpayer; or the head of the executive body of more than five legal entities and the legal entities they lead are also considered risky taxpayers.
-According to the decision of the Cabinet of Ministers, the following operations performed by a taxpayer are considered risky transactions:
-If a discrepancy is found in the electronic invoices presented by taxpayers, where the goods listed differ from the goods imported or acquired:
Example 5: A taxpayer is engaged in retail sales of food products but nevertheless sells gravel to another taxpayer via an electronic invoice. In this case, the business entity could be recognized as a risky taxpayer.
-If a taxpayer presents more goods than they acquired or imported (for the excess volume of goods):
Example 6: A newly established taxpayer, in their first quarter of operations, purchases 10 refrigerators from another taxpayer via an electronic invoice for sales purposes and has no other acquisitions. Despite having only 10 refrigerators in stock, the taxpayer sells 12 refrigerators. In this case, the transaction will also be considered risky.
-It should be noted that taxpayers with the status of a risky taxpayer, as well as those who engage in non-commodity and risky transactions to avoid taxes, are subject to a number of restrictions under the Tax Code. These restrictions include:
-Tax liabilities arising from non-commodity transactions are imposed on the beneficiary (the person benefiting from the transaction);
-Documents obtained within non-commodity transactions are not considered as valid evidence for confirming expenses deducted from income;
-VAT paid on non-commodity and risky transactions cannot be refunded;
-Information about risky taxpayers is considered non-commercial and non-tax confidential information;
-If a taxpayer meets the criteria for a risky taxpayer, this justifies conducting an extraordinary mobile tax inspection and operational tax control measures;
-If a taxpayer is a risky taxpayer, the tax authority has the right to calculate the tax until it is paid;
-The deadline for fulfilling tax obligations is not extended for risky taxpayers;
-Refunds of overpaid amounts to risky taxpayers are only made after the completion of tax control measures on their activities.
Risky Taxpayer – A person who meets the criteria approved by the Cabinet of Ministers, including engaging in non-commodity and/or risky transactions. What are these criteria? Why are some business entities recognized as risky taxpayers? Mircefer Rzayev provides clarification on these questions.
1) When a taxpayer engages in risky and non-commodity transactions:
Example 1: A taxpayer signs a contract with another taxpayer, but no physical delivery of goods occurs. Nevertheless, the taxpayer sends an electronic invoice worth 1,000 manat to the other party and makes a payment to them even though no goods were received. If this situation is detected, the taxpayer will be considered risky.
Example 2: If the taxpayer does not have a registered warehouse (including leased warehouses) or any other economic object, or if the area of the registered warehouse or economic object does not match the volume of goods imported or acquired (except for cases where goods are ordered for other individuals and directly delivered to the customers, and information on the order value for each customer is submitted to the tax authorities):
Example 3: A taxpayer imports 300 tons of rebar from abroad for sale (the goods are not imported based on the order of another taxpayer). The registered warehouse of the importing taxpayer is 20 square meters. Therefore, physically placing the imported rebar into the registered warehouse is impossible. As a result, the tax authority may decide to classify this business entity as a risky taxpayer.
3) When goods acquired by a taxpayer do not match their type of activity (excluding office supplies, inventory, and other similar assets acquired for their own business activities), and these goods are presented to tax control without documentation:
4) If the volume of goods imported or acquired by the taxpayer for sales purposes in the last 6 months exceeds three times the turnover for that period (excluding cases where goods are of a seasonal nature, or delivery is scheduled according to the pre-agreed terms in the contract):
Example 4: A taxpayer who engages in the wholesale sale of electrical appliances has purchased 15,000 manat worth of goods via electronic invoices and 30,000 manat worth via customs declarations in the past 6 months. All purchases were made in compliance with the Tax Code requirements, and the area of the warehouse registered by the taxpayer is sufficient for the volume of goods. The sales volume in the last 6 months was 12,000 manat. As a result, the tax authority may classify this taxpayer as a risky taxpayer.
A physical person recognized as a risky taxpayer based on the above criteria is considered a risky taxpayer if they are the head or founder of a legal entity; the head or founder of the legal entity that is a risky taxpayer; or the head of the executive body of more than five legal entities and the legal entities they lead are also considered risky taxpayers.
-According to the decision of the Cabinet of Ministers, the following operations performed by a taxpayer are considered risky transactions:
-If a discrepancy is found in the electronic invoices presented by taxpayers, where the goods listed differ from the goods imported or acquired:
Example 5: A taxpayer is engaged in retail sales of food products but nevertheless sells gravel to another taxpayer via an electronic invoice. In this case, the business entity could be recognized as a risky taxpayer.
-If a taxpayer presents more goods than they acquired or imported (for the excess volume of goods):
Example 6: A newly established taxpayer, in their first quarter of operations, purchases 10 refrigerators from another taxpayer via an electronic invoice for sales purposes and has no other acquisitions. Despite having only 10 refrigerators in stock, the taxpayer sells 12 refrigerators. In this case, the transaction will also be considered risky.
-It should be noted that taxpayers with the status of a risky taxpayer, as well as those who engage in non-commodity and risky transactions to avoid taxes, are subject to a number of restrictions under the Tax Code. These restrictions include:
-Tax liabilities arising from non-commodity transactions are imposed on the beneficiary (the person benefiting from the transaction);
-Documents obtained within non-commodity transactions are not considered as valid evidence for confirming expenses deducted from income;
-VAT paid on non-commodity and risky transactions cannot be refunded;
-Information about risky taxpayers is considered non-commercial and non-tax confidential information;
-If a taxpayer meets the criteria for a risky taxpayer, this justifies conducting an extraordinary mobile tax inspection and operational tax control measures;
-If a taxpayer is a risky taxpayer, the tax authority has the right to calculate the tax until it is paid;
-The deadline for fulfilling tax obligations is not extended for risky taxpayers;
-Refunds of overpaid amounts to risky taxpayers are only made after the completion of tax control measures on their activities.