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At present, provisions concerning accounting policy for taxation purposes are spread across different chapters of the RF Tax Code. For instance, the provision stipulating that procedures pertaining to tax accounting should be set in the framework of accounting policy for taxation purposes as approved by orders (in structions) issued by heads of organizations is contained in article 313 of the RF Tax Code (Chapter 25); the provisions setting the procedures governing the appli cation of accounting policy for taxation purposes are determined by item 12 of arti cle 167 of the RF Tax Code (Chapter 21), and so on.

On the one hand, this may be explained by the fact that taxpayers are permit ted to employ alternative methods (means) for determination of indicators of their financial and economic activities with respect to different taxes, including the cor porate profit tax and the value added tax. On the other hand, stipulations of the tax legislation concerning accounting policy for taxation purposes and contained in dif ferent chapters of the RF Tax Code often overlap or contradict each other.

For instance, item 12 of article 167 of the RF Tax Code stipulates that accounting policy for taxation purposes of a newly created organization should be approved during the first tax period. At the same time, in accordance with item 1 of article 163 of the RF Tax Code the tax period with respect to the value added tax is defined as a calendar month, whereas the tax period with respect to the corporate profit tax makes 1 year as per item 1 of article 285 of the RF Tax Code. Therefore, it remains unclear which tax period corresponding to which tax should be used to comply with the stipulations concerning approval of accounting policy for taxation purposes for a newly created organization. A similar problem arises in regard to changes made in accounting policy for taxation purposes on the initiative of the taxpayer such changes should be also effected since the beginning of the new tax period (article 313 of the RF Tax Code).

Yet another aspect of the ambiguity problem concerning the provisions of the RF Tax Code dealing with accounting policy for taxation purposes is its complete ness. In a general case, accounting policy for taxation purposes adopted by an or ganization may be deemed complete if it contains all the stipulations, for which the tax legislation allows alternative methods of accounting. It should be noted that the RF Tax Code contains a rather broad range of such provisions, and the problem is that some of these provisions (for instance, the provision concerning the reserves for future expenses related to vacation pay (item 1, article 324.1 of the RF Tax Code), the list of direct expenditures (item 1, article 318) and so on) have the direct references to the stipulation that organizations must reflect these provisions in their accounting policies for taxation purposes, whereas other provisions (for instance, the amortization premium (item 1.1, article 259), the procedures governing the de RUSSIAN ECONOMY IN trends and outlooks termination of the time of useful service of a fixed asset acquired as a contribution to the authorized (share) capital or under succession procedures (item 1.1, article 259) and so on) have no such references. At the same time, it remains unclear if the tax legislation is infringed on by an organization failing to set the method (means) of tax accounting it opted for and applied in its document concerning its accounting policy for taxation purposes taking into account the fact that the RF Tax Code does not envisage such an obligation and what sanctions may be used against such an organization.

At the same time, an analysis of court practices reveals that there are certain cases, where tax authorities interpret the lack of such stipulations in the accounting policies of organizations as the failure to apply the respective provisions in their tax accounting. For instance, court proceedings are initiated in the situations, where organizations, which are required to separately account for operations being or not being the subject of the value added tax by item 149 of the RF Tax Code fail to in clude the methods of separate accounting for such operations they develop and apply in the documents setting their accounting policies (it should be noted that the RF Tax Code does not require taxpayers to reflect the procedures governing the separate accounting for operations being or not being the subject of the value added tax exactly in the documents setting their accounting policies). As a result, organizations face additional charges as concerns taxes, penalties and tax sanc tions stipulated by item 1 of article 122 of the RF Tax Code. The same situations are faced by the organizations engaged in the sales of goods subject to different rates of the value added tax51.

Investigations carried out in the course of these court proceedings revealed that the facts that taxpayers maintained separate accounting were confirmed both by the documents of organizations (other than orders setting their accounting poli cies, for instance the Guidelines for officers of the financial department On the methods of separate accounting for taxation purposes as in the framework of case No. F04 5288/2004 (A45 3291 25), and by accounting ledgers. As concerns case No. A56 13726/03, the tax authorities even did not challenge the fact that the tax payer maintained separate accounting; however, the tax authorities state that the taxpayer wrongly requested VAT deduction with respect to purchased materials (works, services), which were used in the course of activities not subject to VAT taxation, only on that basis that these provisions were not reflected in the document setting accounting policy of the organization.

In spite of the fact that in all the cases discussed above courts took sides with taxpayers, in this way confirming that the fact that the absence of certain provisions in accounting policies of organizations did not mean that these organizations failed to implement these provisions in their practices, it is still uncertain that this issue is settled for good.

See, for instance, rulings No. F04 5288/2004 (A45 3291 25) of August 2, 2004, and No. F04/1399/A70 2003 of January 26, 2004, of the Federal Court of Arbitration of the West Siberian okrug, as well as ruling No. A56 13726/03 of May 13, 2004, of the Federal Court of Arbitration of the North West okrug.

Annexs It should be noted that the RF Tax Code contains a rather long list of provi sions, which should be reflected in accounting policies of organizations in order to avoid such negative consequences as court proceedings or more thorough tax in spections.

Therefore, while determining the completeness of their accounting policies for taxation purposes organizations have to be guided rather by growing risks of court proceedings than requirements set by the tax legislation due to their ambigu ity.

The fact that the Russian tax legislation lacks uniform requirements with re spect to accounting policy for taxation purposes results not only in the ambiguity of certain provisions of the RF Tax Code, but also in the inclusion in the Tax Code of certain provisions contradicting the stipulations already in force due to fact that principal terms of tax accounting are not clearly defined. As an example, there can be cited the situation regarding the stipulation contained in sub item 1, item 1 of article 264, in accordance with which other expenditures borne by organizations in relation to production and sales should include the amounts of taxes, fees, and customs duties and fees charged under the established procedures.

This stipulation was effected by federal law No. 58 FZ of June 6, 2005, On the introduction of amendments to Part Two of the Tax Code of the Russian Federation and certain other acts of tax and levy legislation of the Russian Federation and contradicts the RF Tax Code stipulations concerning the formation of costs of acquisition of fixed assets (see item 1 of article 257 of the RF Tax Code) and inventories (see item 2 of article 254 of the RF Tax Code), in accordance with which customs duties, fees, and other expenditures related to the acquisition of assets form their costs.

However, in its letter No. 03 03 04/1/130 of February 20, 2006, the RF Fi nance Ministry referring to item 4 of article 252 of the RF Tax Code, in accordance with which the taxpayer is granted the right to independently determine the group, in which expenditures should be included, in the case such expenditures may be at the same time and on equal grounds classified in several groups, states that the use of this provision should be determined in the framework of accounting policy for taxation purposes.

Yet another example illustrating the ambiguity of the set of terms used in the framework of tax legislation is the interpretation of the term long technological cy cle. While the RF Tax Code defines long technological cycle as a cycle taking more than one tax period (see paragraph 2 of item 2 of article 271), at the same time in accordance with letter of the RF Tax Ministry No. 02 5 10/54 of September 15, 2004, for the purposes of calculation of the profit tax, long cycle production should be defined as production, which starting and completion dates are in differ ent tax periods notwithstanding the number of days the completion of production requires. Gaps in the tax legislation as concerns tax accounting and accounting policy for taxation purposes are often closed by letters issued by the financial or tax au thorities. Perhaps, this procedure could be viewed as suitable; however, as the RUSSIAN ECONOMY IN trends and outlooks practice demonstrates a large number of different stipulations requiring interpreta tion results in the fact that published explanations often lack system.

It appears that in the case all necessary stipulations were directly set in laws (or a single document) there could have been much less such situations.

The ambiguity of requirements set in the tax legislation not only makes it more difficult to comply with it on the part of taxpayers, but also creates difficulties as concerns the work of the tax authorities. For instance, the fact that there are practi cally no restrictions with respect to the choice of different methods (means) of tax accounting across periods facilitates an increase in the possibilities for tax planning and tax evasion.

In the Russian practice, there is enunciated the principle of consistent application of stipulations and rules of tax accounting (see article 313 of the RF Tax Code); however, there are no conditions to implement this principle, since the leg islation lacks clear procedures governing changes in the methods of tax account ing as concerns respective events and operations.

At present, article 313 of the RF Tax Code stipulates that accounting policy for taxation purposes may be adjusted in the case of changes in the legislation con cerning taxes and fees or applied accounting methods. The latter means that the taxpayer has the right to introduce changes in the accounting policy for taxation purposes on the taxpayers initiative. However, it remains unclear what rules or ganizations should use with respect to changes in the methods of tax accounting they apply.

It should be noted that certain criteria are set by the Regulations on account ing Accounting policy of organizations (RA 1/98); however, this document does not regulate tax accounting.

In accordance with item 16 of the Regulations, accounting policy may be changed, for instance, in the case the organization develops new means of book keeping. At the same time, it is stressed that the use of any new method should re sult in a more reliable presentation of facts of economic activities in accounting and reporting of organizations, or a less labor intensive accounting process without de terioration of reliability of information. Besides, in accordance with the RA 1/98 ac counting policy may be changed in the case of a significant changes occurring in the activities of the organization, i.e. reorganization, change of owners, change of the type of activities, and so on. In accordance with item 17 of the Regulations, any changes in accounting policy should be justified.

It appears that in the framework of tax accounting there can be also devel oped and set the respective criteria ensuring the justification of changes in the methods (means) of tax accounting of events and operations. In this case, the ad aptation of practices accumulated in the sphere of financial accounting will play a positive role.

The Russian Tax Code provides the taxpayer with the option to change ac counting policy for taxation purposes (as concerns the tax on corporate profits) on the taxpayers own initiative no more than once a year. However, there is an excep tion: the procedures governing the distribution of direct expenditures (formation of Annexs costs of work in progress) (see item 1 of article 319) and the procedures governing the formation of costs of acquisition of goods (see article 320 of the RF Tax Code) may be changed no more frequently than once in two years.

As it has been already noted above, frequent or unjustified change of methods of tax accounting, as well as the failures to comply with the limits of reporting or tax periods may result in distortion of amounts of tax liabilities, since in this case or ganizations face more complicated tax accounting procedures and it becomes more difficult for tax authorities to carry out inspections. In this context, it is of in terest to analyze the practices adopted in the USA as concerns the imposition of restrictions on the use of different methods (means) of tax accounting.

In the USA, the organization taking decision to change the method of tax ac counting with respect to a certain item should fill in a special form52, in certain cases supplementing it with additional documents clarifying both the used and planned to be used methods of accounting. At the same time, there are envisaged two differ ent procedures for obtaining of approval of tax authorities:

1. Automatic accounting method change, which suits the majority of taxpayersand does not envisage confirmation on the part of the respective tax authority;

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