Tax and Customs Risks in Foreign Trade
Assessment and minimization of possible tax and customs risks in foreign trade
In today’s economically and politically unstable situation, the regulation of foreign economic activity is changing very quickly, and therefore businesses involved in international transactions have to closely monitor the changes introduced by the legislator. Such changes affect not only the content of the foreign economic contract and related documents, but also increase the possible legal risks for the entrepreneur, including tax and customs risks.
The concept of “tax risk” has no formal legal definition in the Russian legislation, however it may be defined as possible adverse consequences associated with compliance with tax laws.
At the same time, the Customs Code of the Eurasian Economic Union defined the concept of “customs risk”, which is the probability of non-compliance with international treaties and acts in the field of customs regulation and the legislation of the Member States on customs regulation. In order to differentiate the application of measures to minimize risks, the customs authorities apply the categorization of persons performing customs operations, and pide them into organizations with (1) low, (2) medium or (3) high risk. The categorization of entrepreneurs is carried out in accordance with Order No. 29n of the Ministry of Finance of Russia dated February 21, 2020 “On approval of the procedure for categorizing persons performing customs operations, the frequency and form of its implementation, the list of criteria characterizing the activities of persons performing customs operations, the conditions for classifying persons performing customs transactions to the category of low, medium or high risk, the conditions for differentiated application of risk minimization measures to them, as well as the procedure for monitoring compliance with the criteria by persons performing customs operations classified as low risk”.
In addition to expertise in the field of tax and customs legislation, the practical experience of specialists accompanying such a transaction plays a role in minimizing tax and customs risks when conducting a foreign economic transaction. It is not easy to understand the intricacies of customs and tax legislation on your own, and therefore entrepreneurs engaged in foreign economic activity attract qualified specialists to support international transactions.
Tax risks that may arise during an international transaction include:
- additional tax charges due to violations committed and found by regulatory authorities;
- accrual of penalties and fines;
- charging of debts on taxes and other contributions.
The reasons for the occurrence of tax risks in an international transaction include:
- Incorrect calculation of tax payments.
- Incorrect drafting of a foreign economic contract and errors in filling out customs, banking and tax documents. When drawing up a foreign economic contract, it is important to take into account all the details, including those that seem insignificant. In case of incorrect drawing up of an international treaty, disputes may arise with regulatory authorities on the calculation of income tax or VAT. In addition, the tax authorities may not recognize some expenses for foreign economic activity.
- Execution of an incorrectly planned draft foreign economic supply contract.
- Incorrect use of tax incentives and preferential tax treatment, incl. non-compliance with the terms of its application.
- Violation in the application of the VAT deduction and confirmation of the zero VAT rate.
However, tax risks may also arise from changes in tax legislation.
The customs risks that participants in foreign trade activities may face include the following:
- Negligence of counterparties in the performance of duties within the framework of customs control.
- Evasion of payment of customs duties by contractors.
- Forgery of documents and products.
- Delay of goods during control and long paperwork without justification.
- Lack of explanations of the requirements for a foreign economic transaction by the customs authorities.
- Other types of risks depending on the situation and circumstances.
To minimize tax and customs risks when concluding a foreign economic transaction, the main component is the availability of a qualified specialist who can study and assess possible risks. And also prepare a foreign economic deal, taking into account all the possible risks that may arise at different stages of concluding an international contract. Taking into account the fact that more and more transactions are transferred to electronic format, an important element of a foreign economic transaction is knowledge and experience in electronic execution and conduct of a foreign economic transaction, execution of related documents, as well as sending all necessary documents in electronic format to the relevant authorities.
- Analysis of international legal regulation on the subject of the transaction
- Assessment of possible risks that may arise in the course of foreign trade
- Advising on emerging tax and customs risks
- Minimization of risks and consequences in the event of the occurrence of certain events that may significantly affect the outcome of a foreign trade contract
- Building tactics of interaction with tax and customs authorities on the issues of conducting an international transaction
- Preparation of necessary documents for tax and customs authorities, including in electronic form
- Other types of services necessary for minimizing tax and customs risks in the implementation of a foreign economic transaction