"Taxation is not a physical law: changes are possible when business has a clear, reasoned position" — Aleksandr Minin, senior partner at KM Partners insists
– What tax structuring models can be efficient for a company in today's realities?
– First of all, we should speak about intra-company business structuring, as far as conflict of interest is concerned, which is possible both between different entities in a market and within the company.
Unfortunately, the lawyers dealing with tax matters are very often perceived by top management targeting business development and rising profits as a drag for creative plans, likely to hinder development, Therefore, we may often hear that we should not entrust accountants and lawyers with business development issues, as they are too cautious and have no entrepreneurial streak. In this context, it is important for the tax service not to be a brake, but to find a balance between entrepreneurial risk, which is inevitable, and possible consequences for the company. And one of the most important tasks of the company's tax service is due communication with all participants and understanding of all the processes, taking place within the company, and particularly in the legislative field in general, so as to find this balance.
– In other words, the internal tax service's main task is perceived today as a permanent audit of the company to identify potential tax risks, isn't it?
– I would not apply the term "audit", because an audit is a review of what has actually already taken place. And here we have work orientation towards risk and management of tax implications for the company. In other words, the tax service of a company shall be 70%-80% future-oriented at the structuring stage, current issues making up 20%, and only then – issues related to previous periods, of course, except for significant tax consequences cases. And in such a case what is meant here is risk management, taking into account business opportunities, rather than their absolute minimization: as we know, absolute peace and absence of risk are only at the cemetery.
– But not every company has a comprehensive tax service as part of their legal department. These functions are often performed by only one employee, who is also responsible for the tax area.
– First of all let's recall that taxes are the biggest expenditure items of a company, and it is impossible to pay no attention to them. In a large business the tax service may not necessarily be a part of the legal department. For example, it may be a financial service division. And here we are talking not about the status registration of what has already taken place, but about a fully functioning service that tries to evaluate possible risks and ways for the company’s development.
In Ukrainian realities the forecasting of possible changes in legislation is also of particular importance. Moreover, it is important in this matter to find a balance between business and the state, because the state is the largest creditor (the company, as a rule, owes most to the state). Therefore, whoever does not think about taxes is unlikely to be able to conduct a successful business. Often, these companies go into the "shadow" area, but they are no longer our clients.
As the representative of the Ukrainian division of a foreign company cited an example in a meeting with SFS management, the company's sales volume in Ukraine makes up approximately 1% of the sales volume in Europe, but the budget for compliance with the law, legal services for dispute resolution comes to 10% of the European one. In fact, it is a subjective indicator of the extent to which it is more difficult to do business in Ukraine and how much attention has to be paid to these issues.
– How can a company be protected from tax inspections?
– It makes sense to use the cluster approach, as both branches and types of business are often characterized by typical claims from the tax authorities. In such cases, it is easier to protect one’s rights and interests with the entire industry, having developed a common position in business associations and working groups, among representatives of public councils at the relevant government bodies. And today these mechanisms actually work. I would not reduce everything to purely technical narrow issues, as they do not arise very often during inspections of companies.
The most important thing is communication, real cooperation that helps and gives benefits to all the participants of an industry. But no an less important factor contributing to business development is the creation of a positive image for the company.
When we talk about an upcoming inspection, the balance is also important. Indeed, it is worth training employees and appointing responsible persons, but we should not go to extremes as often happens in our country.
If unjustified decisions on the part of the tax authority are opposed by a civilized and legislatively argued approach, it is more difficult for the tax service to put pressure on business.
– You're talking about collaboration within an industry. But what about the competition?
– Taxes are not a competitive advantage for normal business. The main goal is to level the field and operate on it. Taxation is only part of expenditure for business, and understanding that business will try to minimize it is normal. A good tax service is public and works with others, without worrying about a narrow advantage.
– What taxation issues is it advisable to outsource?
– All this depends on the extent to which the in-house legal service is powerful and qualified. The main advantage of an internal tax service as compared with external tax advisors is a deep understanding of the company’s business.
I would say that the forecasting function is inevitably associated with a particular outsourcing, not necessarily because external experts are better, but because, in general, external tax advisors are more open-minded due to their wider experience. This is like a patient and doctor: the patient knows his body better, while the doctor has happened to encounter a large number of diseases, which gives him more experience and understanding of the disease. And the best option is cooperation. The tax function cannot be encapsulated. It is openness that is a guarantee of the company's success.
Today, many companies outsource issues related to administrative appeals and lawsuits, because there really are peculiar specifics and experience accumulated by external advisors.
If the company budget allows this, I would also recommend involving enlisting advisors in the case of a tax inspection, even if the company is fully prepared for it. On one hand, because in this case there is less of an internal emotional component, and on the other hand – it is a fresh look at the problem.
— What would be the main criteria for the effectiveness of tax support for business that you would single out?
– The first is a clear understanding of the internal picture, because the overall tax effect is not often understood inside a company, that is, the quantitative section of the tax burden as a whole. You cannot do anything without seeing the real picture and without understanding the consequences of possible steps.
The second criterion is an active position. In other words not an "observer" or watchman – don't go here, don't go there. We are talking about reducing the tax burden for the company to a sensible level. It makes no sense to save on taxes, and spend more on legal services in disputes. Therefore, reasonable ways and reasonable approaches are needed. In this context, communication in the branch operates first and foremost, since, in general, it is associated with problems peculiar for the branch in general. Taxation is not a physical objectively given law; it is something that can be changed. And such changes are possible when business has a clear, reasoned position. So in this part I'm talking primarily about issues that are common for the industry or even the economy, and not about "false economy".
And then further the actual skills: what to do and how. It is as if many people, for example, know how to play a musical instrument, but they play it very differently.