Expert opinions, FINANCE, LAW

Private economic investigator helps resolve tax disputes

Relations with the Federal Tax Service (FTS) is one of the most complex aspects of doing business in Russia. Entrepreneurs often face unreasonable overcharges of their taxes. When the amount is large enough, it definitely makes sense to try and challenge the tax authority’s decision, but not necessarily in court. Various pre-trial settlement options are available for tax disagreements today.

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One of the ways is to hire a private detective on economic or tax issues who can help a company handle its dispute with the tax service. This is not exactly the kind of work one would think of, from crime shows, on hearing the words private detective. We do not spy on the unfaithful wives of millionaires; yet, a detective’s license helps me handle various kinds of business disputes. I frequently use my proprietary technique in disagreements with the Federal Tax Service.

It can be applied in various industries. We’ve had clients from the construction industry, major design and construction companies, as well as large manufacturers, from the food industry to metal structures.

When the FTS charges too much

Most often, these cases involve tax audits (on-site, thematic or desk audit), when inspectors order companies to pay a higher VAT or profit tax. The Tax Service applies Article 54.1 of the Tax Code, declaring some of the company’s transactions (and the respective costs) invalid. That is, the tax authorities believe that the specified contractors do not exist, or the goods were never supplied, or the services never provided.

The tax authority refuses to take into account the costs of such transactions, and the overall tax assessed against the company becomes higher. In practice, such additional charges may range from RUR 100–200 mio to several billion ($3-50 mio). To challenge such decisions, companies need to provide some proof that the transaction was real; such proof can help resolve the dispute and reduce their accrued tax. And this is where I come in.

Proving transactions real

My private detective license actually allows me – and my employees – to conduct an investigation. We find witnesses to the transactions we need to prove real. We question them and do expert examinations, eventually providing a report that proves that the goods and services were indeed supplied under the disputed contracts.

In the majority of cases that we work on, the problem is resolved before trial because a court case against the tax service almost always ends up lost. With our evidence, in most cases, they are able to reach a settlement, and the Federal Tax Service agrees to reduce the amount they have charged after an on-site tax audit.

Polygraph tests and profiling

I have polygraph examiners on my team; we often make use of their reports to prove the reality of transactions. It often happens that a witness gives a different testimony when questioned at the tax office from the one they gave to us. Some maybe want to take revenge on their former bosses; others simply become confused when the tax authorities put pressure on them.

In such cases, we use a polygraph to get an objective picture rather than play Bluff with the tax service. We apply the Losev-Miller mutual exclusion method; it provides almost complete certainty (95%) in forensic examinations. The tax service accepts such reports as evidence.

Another tool we use is profiling. Our expert analyzes a person’s facial expressions, body language and behavior on video, just like the team from the Lie to Me crime show. The expert delivers a report saying whether the witness is lying or telling the truth. This can complement a polygraph test or be an alternative to it because a person has the right to refuse a lie detector test.

By the way, these methods can be useful not only in tax disputes, but also when interviewing potential employees or investigating information leaks or embezzlement.

Success story

One of the recent cases we handled involved a large design company from Moscow. The additional charges they faced exceeded RUR 200 mio ($3 mio), and the authorities opened a tax evasion case against them invoking Article 199, part two (concealment of funds or property). After we advised them using our methods and techniques, the Federal Tax Service revoked its orders and the criminal charges against the company were eventually dropped.

On a final note

The tax service is a huge machine with time-tested judicial practice, and a formidable opponent for an entrepreneur, even advised by lawyers. But a private detective specializing in economic or tax cases can help resolve tax controversy in favor of the business.

By Liliya Ananicheva, professional mediator for pre-trial settlement of business disputes (tax disputes); private detective on economic (tax) issues

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