How to receive interest for late repayment of taxes

Maxim Rovinskiy, Head of Tax and Customs Law Practice of the Law Firm "YUST".

“Novaya Buhgalteriya (New Accountability)” (No. 10, October of 2012).

Articles 78, 79, 176 and 203 of the Tax Code of the Russian Federation stipulate grounds for calculation and payment to the taxpayers of interest on the amount of the tax paid in excess and not timely repaid or charged in excess. The interest is paid from the budget, where the excessive payment went to. The rules of calculation and payment of interest are also applied to the amounts of untimely repaid (charged in excess) advance payments, levies, penalties and fines, and include tax agents, levy payers and the responsible member of a consolidated group of taxpayers. But the taxmen rarely make repayments willingly. We tell you how to receive said interest.

In what cases the taxpayer is entitled to demand that the tax inspectorate pay interest for untimely repayment of taxes and what problems may arise?

There are four situations, when a taxpayer is entitled to demand interest from the tax inspectorate. First – when the tax authority delays on the period of repayment of excessively paid tax, fixed by clause 6 of Article 78 of the TCRF – for each calendar day of the delay (clause 10 of Article 78 of the TCRF).

Second – for an excessive charge of a tax by the tax authority – it is done for the period from the day following the day of the charge until the day of actual repayment (clause 5 of Article 79 of the TCRF).

Third – for late repayment of the VAT amount – starting on the 12th day after the completion of the office tax check, according to the results of which it was decided to repay (in full or in part) the VAT amount (clause 10 of Article 176 of the TCRF). Interest is also compounded in the case of illegal refusal to repay VAT or of inaction, which resulted in non-adoption of the respective decision.

Fourth – for delay on the period of repayment of excise for each day of the delay (clauses 3 and 4 of Article 203 of the TCRF).

The legal nature of interest payment is that of compensation of damages to the taxpayer, caused by the tax authority’s actions/inaction of charging excessively paid or unreasonably exacted taxpayer’s property in the form of a tax.

The amount of the interest paid to the taxpayers is an indicator of the quality of the tax authorities’ work, that is why the latter rarely compound and pay the interest willingly.

We may mark out a number of the most frequent offences committed by the tax authorities, which prevent the taxpayer from exercising his right to receive interest. First, it is inaction, when the taxpayers’ requests to compound and pay the interest are ignored. Also, the tax officers may deny the existence of excessively paid (charged) tax, refuse to acknowledge the fact of delay of repayment of excessively paid tax, claim that the taxpayer has delayed the period of submitting the request to compound and pay the interest. Also, tax authorities may apply an incorrect method (formula) for calculating interest.

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There is a risk that the court will dismiss the taxpayer’s demand to compound the interest if there are no documents, which prove the circumstances serving as the base for compounding the interest, and also in the case of delay on the procedural time limits fixed by the legislation.

What is the correct way to prepare the request to the tax inspectorate to exact interest and what are the time limits for filing it? When one should resort to courts?

The TCRF contains no procedure for filing requests to compound interest. It is up to the taxpayer to decide whether to contact the tax authority or resort to courts.

Also, the taxpayer may contact both the tax authority and the court, as Article 79 of the TCRF does not fix any requirement to obligatorily request the tax authority to compound interest for excessively charged tax amounts if the taxpayer files a similar request with the court. For example, the FCA of the Moscow District, by its ruling No. КА-А40/11750-09 dated 11.11.2009 on the case No. А40-24509/09-4-125, dismissed the tax inspectorate’s argument regarding the non-observance by the taxpayer of the extrajudicial procedure of dispute settlement. The court pointed out that the Tax Code of Russia does not contain any requirement to file any request to compound and pay interest on the excessively paid amounts. The tax authority was to compound such interest by itself. Similar conclusions are contained in rulings No. КА-А40/7698-09 dated 01.09.2009 on the case No. А40-9363/09-129-17 and No. КА-А40/6172-08 dated 15.07.2008 on the case No. А40-62091/07-20-381 by the FCA of the Moscow District.

The request to the tax authority is filed in a simple written form. For the request to be considered as quickly as possible, it is recommended that all circumstances regarding the compounding of interest be described in detail and a detailed calculation of the interest be enclosed. If the request is further submitted to a court, said request and the proof of its receipt by the tax authority should be enclosed to the claim (request).

The TCRF does not fix any period, during which the taxpayer may demand compounding and payment of interest in courts (limitation period). Following the existing court practice, such period is of three years starting on the day, when the taxpayer became or should have become aware of the facts, on the basis of which the interest was to be compounded. This means that the demand to oblige the tax authority to compound and pay the interest to the taxpayer is not a demand to contest a non-normative legal act, decision, action (inaction) of a state authority but a demand of a proprietary nature, for which a general three-year limitation period is established by Article 196 of the Civil Code of Russia.

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