How to charge interest from the tax Inspectorate: 13 situations

Dmitry Manuylov, Lawyer of the Tax and Customs Law Practice of the Law Firm "YUST"
“Novaya Buhgalteriya (New Accountability)”, No. 10, October of 2012.

Companies face a multitude of questions in practice, when interest is charged for untimely repayment of excess amount of taxes or for excessively charged tax amount by a tax authority. Which amount the interest is calculated on? How to define the limitation period, when resorting to court? Will the tax amount be considered excessive payment, if the tax is paid on the inspectorate’s demand or before such demand is made? You will find the answers to these and other questions here.

The date, from which interest is calculated

The interest for untimely repayment of excess amount of taxes is calculated from the date, when the tax authority was to repay the tax.

The court established that the taxpayer filed the request for repayment before the expiry of the period of office check of the corrected declaration. According to the court, the interest for untimely repayment of the tax should be calculated from the date following the day, when the one-month period for the tax repayment expired. Said one-month repayment period is calculated from the day of completion of the office check (three months from the date of submitting of the corrected declaration) (Resolution No. KA-A40/1856-10 by FCA of the Moscow Region dated 31.03.2011 on the case No. A40-75515/10-20-393).

In another case, the court dismissed the inspectorate’s argument that the interest should be calculated from the moment of entry into force of the court’s ruling, which rules the refusal to repay the tax illegal. The court pointed out that the interest is calculated from the moment, when the tax authority was to repay the tax (ruling dated 07.12.2010 by the FCA of Povolzhsky District on the case No. А55-7346/2010).

Who calculates the interest

It is the tax authorities’ duty to calculate the interest for late repayment of the taxes.

The court ruled as follows: the argument of the inspectorate that the company requested the tax authority to compound interest beyond the three-year repayment period was considered and reasonably dismissed by courts of three instances.

The argument: according to the sense of Article 176 of the TCRF, if there is a respective request by a taxpayer to repay the tax amounts and if there are motives for such repayment, the tax authority must obligatorily calculate the interest in the event of delay of the repayment. Moreover, this Article does not fix the taxpayer’s duty to file the request for calculation of the interest for late tax repayment (Resolution No. BAC-9664/10 dated 27.07.2010 by the SCA of Russia).

Tax paid in excess on the tax authority’s demand

Taxpayers frequently have to find out if the amount of a tax (levy, penalty, fine) is considered charged in excess, if the taxpayer paid that amount on the demand to pay tax (Articles 78 and 79 of the TCRF), which a court later ruled invalid.

In the event, when a taxpayer has paid an excessive tax amount, that amount is set off or repaid under a general rule without interest (clause 2 of Article 78 of the TCRF). Interest is only payable, when the inspectorate delays repayment of the tax paid in excess (clauses 6 and 10 of Article 78 of the TCRF).

If the tax amount has been exacted in excess by the tax authority, it is to be repaid with interest. That interest is compounded on that amount since the day following the day of the exaction and until the day of repayment (clause 5 of Article 79 of the TCRF).

The Tax Code of the Russian Federation does not specify, how the amount of tax (levy, penalty, fine), which the taxpayer voluntarily paid on the basis of the inspectorate’s demand to pay tax, which, in turn, was later ruled invalid, should be classified. The 2007 edition of the Tax Code of the Russian Federation also contained no provisions on that issue.

The Constitutional Court of the Russian Federation pointed out that the amount paid by the taxpayer on the demand to pay tax is charged in excess. When the tax inspectorate repays it, it must compound interest pursuant to Article 79 of the TCRF. A similar approach is used in the arbitration practice. The courts have agreed that the tax amount paid on the inspectorate’s demand, which the court later ruled invalid, is charged in excess.

As the Constitutional Court of Russia instructed in its Decision No. 503-O dated 27.12.2005, Article 79 of the TCRF proposes the tax authorities’ obligation to repay the tax amounts that the taxpayer has paid to the budget on the demand to pay taxes, which the court later ruled illegal (invalid), with compounded interest. Resolution No. 13592/04 dated 29.03.2005 by the Board of the SCA of Russia contains similar conclusions. Said Resolution of the Board of the SCA of Russia and the Decision of the Constitutional Court of Russia were made, when the previous edition of Article 79 if the TCRF was in effect. In it, the rule of repayment of excessively charged amounts with interest was fixed by clause 4. However, the current clause 5 of Article 79 of the TCRF contains a similar provision. Therefore, said court verdicts are still valid.

The tax is paid in excess before the inspectorate makes the demand

Another practical question: is the amount of tax (levy, penalty, fine) considered charged in excess, if the taxpayer paid it before the respective demand was made (Articles 78, 79 of the TCRF)?

There two points of view on this issue. According to the first one (the tax authorities share it), such amounts are not considered charged in excess, and the interest is not compounded on them.

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