03 march 2025

Tax authority violations in account blocking

Suspension of operations on a taxpayer's bank accounts: certain violations and liability of the tax authority.

Challenging the decision to suspend operations on a taxpayer's bank account is not the shortest path to lifting the blockade.

Marina Mungalova

The termination of all outgoing transactions on a taxpayer's account by a bank at the instruction of a tax authority is one of the methods for securing the fulfillment of a tax obligation (para. 1, Art. 76 of the Russian Tax Code). Account blocking may also be an organizational measure in cases where a tax return has not been submitted (Resolution of the Higher Arbitration Court of the Russian Federation dated October 10, 2012, No.VAS-4246/12; Letter of the Ministry of Finance of Russia dated February 12, 2018, No.03-02-07/1/14714).

The grounds for suspending operations on taxpayers' accounts are exhaustively outlined in Article 76 of the Tax Code of the Russian Federation:

To ensure compliance with the decision to impose (or refuse to impose) tax liability (para. 1, Art. 76; para. 10, Art. 101 of the Tax Code of the Russian Federation);
In the event that the tax authority issues a decision to collect outstanding debt (para. 2, Art. 76 of the Tax Code of the Russian Federation);
Due to the taxpayer's failure to submit a tax return to the tax authority within 20 days after the expiration of the prescribed submission deadline (subpara. 1, para. 3, Art. 76 of the Tax Code of the Russian Federation). In such cases, the suspension of operations applies to the entire amount of funds held in the taxpayer's accounts (Letter of the Ministry of Finance of Russia dated April 15, 2010, No.03-02-07/1-167);
Due to the taxpayer's failure to fulfill their obligation to ensure receipt of documents from the tax authority via telecommunication channels through an electronic document exchange operator (subpara. 1.1, para. 3, Art. 76 of the Tax Code of the Russian Federation);
Due to the taxpayer's failure to deliver a receipt confirming acceptance of a request for document submission, explanations, or notification of a summons to the tax authority (subpara. 2, para. 3, Art. 76 of the Tax Code of the Russian Federation). It should be noted that this subclause has been repealed (para. 20, Art. 1, Federal Law dated August 8, 2024, No.259-FZ): starting February 5, 2025, any document sent electronically via telecommunication channels through an electronic document exchange operator will be considered received by the taxpayer on the sixth day following dispatch (para. 8, Art. 1, Federal Law dated August 8, 2024, No.259). Consequently, it will no longer be necessary to provide a receipt confirming acceptance of the document sent by the tax authority;
In the case of non-submission by a tax agent (insurance premium payer) of a personal income tax (PIT) calculation or social insurance contribution report to the tax authority within 20 days after the expiration of the prescribed submission deadline (para. 3.2, Art. 76 of the Tax Code of the Russian Federation).

No later than 14 days before the decision to suspend operations on accounts is made, the tax authority is entitled to notify the taxpayer of their failure to fulfill the obligation to submit a tax return (calculation) (para. 3.3, Art. 76 of the Tax Code of the Russian Federation).

Marina Mungalova, a lawyer at INTELLECT, examines certain violations committed by tax authorities in connection with the suspension of operations on taxpayers' accounts, as well as the liability of the tax authority due to unlawful issuance or untimely revocation of such decisions.

Violations committed by tax authorities in relation to suspension of operations on taxpayers' accounts

Suspension of operations on accounts of persons not subject to such measures

Suspension of operations on accounts applies only to the following categories of taxpayers: legal entities, individual entrepreneurs, notaries, and advocates (para. 11, Art. 76 of the Tax Code of the Russian Federation; Ruling of the Supreme Court of the Russian Federation dated July 13, 2021, No.305-ES21-6579 in Case No.A41-19216/2020).

In the case of suspending operations on the accounts of individual entrepreneurs, it is essential to distinguish between accounts used for business purposes and those used for personal needs. It is impermissible to suspend operations on accounts opened by individuals for personal (non-business-related) purposes (Ruling of the Supreme Court of the Russian Federation dated August 23, 2021, No.305-ES21-6579 in Case No.A41-19216/2020; Ruling of the Far Eastern District Arbitration Court dated October 5, 2021, No.F03-5228/2021 in Case No.A04-9866/2020).

For legal relationships arising before January 1, 2023, loss of state registration as an individual entrepreneur constituted grounds for terminating the effect of the tax authority's decision to suspend operations on accounts (Letters of the Ministry of Finance of Russia dated December 6, 2019, No.03-02-07/1/94852, and August 5, 2021, No.03-02-11/63251). In such cases, the tax authority was not required to issue a decision to revoke the suspension of operations on the accounts of the individual. Federal Law No.263 dated July 14, 2022, amended subpara. 2, para. 11, Art. 76 of the Tax Code of the Russian Federation, clarifying that suspension of operations on bank accounts applies (among others) to individual entrepreneurs who have not lost such status as of the date of the collection decision. Therefore, if a decision to suspend operations on the accounts of an individual entrepreneur is issued after January 1, 2023, followed by subsequent deregistration as an entrepreneur and resumption of entrepreneurial activity, the previously issued account-blocking decision continues to apply to the accounts opened by the newly registered individual entrepreneur. Loss of individual entrepreneur status does not automatically revoke the account-blocking decision but merely suspends its effect until the individual reacquires entrepreneur status.

Suspension of operations on accounts due to defects in timely submitted tax returns

According to subpara. 1, para. 3, Art. 76 of the Tax Code of the Russian Federation, only the failure to submit a tax return constitutes grounds for suspending operations on taxpayers' accounts. Consequently, the tax authority is not authorized to issue a suspension decision if the taxpayer timely submits a tax return but violates legislative requirements—for instance, if the return is completed using an outdated form, contains errors, or is incomplete (Letters of the Ministry of Finance of Russia dated July 4, 2013, No.03-02-07/1/25589, and the Federal Tax Service of Russia dated April 18, 2014, No.PA-4-6/7440).

Suspension of operations on accounts due to non-submission of other reporting (other than tax returns)

The list of documents (reporting forms) whose non-submission authorizes the tax authority to suspend operations on accounts is closed and includes:

Tax returns (subpara. 1, para. 3, Art. 76 of the Tax Code of the Russian Federation);
PIT calculations prepared and withheld by the tax agent, social insurance contribution reports (para. 3.2, Art. 76 of the Tax Code of the Russian Federation).

Thus, the tax authority is not authorized to issue a suspension decision in cases of non-submission or violation of deadlines for other reporting forms—for example, financial (accounting) reports (Letter of the Ministry of Finance of Russia dated July 4, 2013, No.03-02-07/1/25590), quarterly corporate income tax reports (Ruling of the Supreme Court of the Russian Federation dated March 27, 2017, No.305-KG16-16245 in Case No.A40-168230/2015).

Issuance of a decision to suspend operations on taxpayer accounts after the expiration of limitation periods

Limitation periods are established for issuing decisions to suspend operations on taxpayers' accounts, beyond which the tax authority is not authorized to issue such decisions:

In the event of failure to submit a tax return within 20 days after the expiration of the prescribed submission deadline—within three years from the date specified in subpara. 1, para. 3, Art. 76 of the Tax Code of the Russian Federation. Issuing a decision prior to the expiration of the 20-day period is not permitted (para. 1.5, Letter of the Federal Tax Service of Russia dated July 16, 2013, No.AS-4-2/12705@);
In the event of the taxpayer's failure to ensure receipt of documents from the tax authority via telecommunication channels through an electronic document exchange operator—within 10 days from the date the tax authority establishes the fact of non-compliance (subpara. 1.1, para. 3, Art. 76 of the Tax Code of the Russian Federation);
In the event of the taxpayer's failure to deliver a receipt confirming acceptance of a request for document submission, explanations, or notification of a summons to the tax authority—within 10 days from the expiration of the deadline for delivering the receipt (subpara. 2, para. 3, Art. 76 of the Tax Code of the Russian Federation);
In the event of non-submission by a tax agent (insurance premium payer) of a PIT calculation or social insurance contribution report within 20 days after the expiration of the prescribed submission deadline—within three years from the date specified in para. 3.2, Art. 76 of the Tax Code of the Russian Federation (Letter of the Federal Tax Service of Russia dated August 13, 2024, No.ZG-2-15/11593).

Actions (inaction) of the taxpayer leading to suspended operations that are not unlawful (i.e., grounds for applying organizational measures do not exist, or the primary (secured) tax obligation has been terminated)

Clearly, suspension of operations on accounts as an organizational measure can only be applied in cases where the taxpayer (tax agent) fails to fulfill obligations set forth by tax legislation, i.e., in cases of unlawful actions (inaction). Recognition of the taxpayer's actions (inaction) as lawful automatically nullifies the legal basis for the tax authority's suspension decision.

For example, in Case No.A56-559/2020, the tax authority refused to accept a tax return, deeming the organization director's electronic signature invalid and establishing the inaccuracy of information regarding the legal entity's address. Believing that the taxpayer had failed to fulfill their obligation to submit a tax return, the tax authority issued a decision to suspend operations on accounts. The court ruled both the refusal to accept the tax return (the director's electronic signature was valid on the submission date, and inaccurate address information did not affect the tax authority's obligation to accept returns) and the decision to suspend operations on the organization's accounts as unlawful (Ruling of the Northwestern District Arbitration Court dated February 17, 2021, No.F07-266/2021 in Case No.A56-559/2020).

In Case No.A-27-24096/2019, the tax authority suspended operations on the taxpayer's accounts due to a decision to collect outstanding debt. The court deemed the application of this security measure unlawful because the inspectors had lost the right to enforce debt collection (considering the time limits set forth in Arts. 46–47 of the Tax Code of the Russian Federation). Termination of the primary obligation (outstanding mandatory payments) leads to termination of the security measure (Ruling of the West Siberian District Arbitration Court dated January 27, 2022, No.F04-3933/20 in Case No.A27-24096/2019).

The tax authority failed to prove compliance with the sequence of security measures set forth in para. 10, art. 101 of the Tax code of the Russian Federation (applied suspension before imposing a prohibition on property disposal)

The tax authority is authorized to suspend operations on taxpayers' accounts under para. 10, Art. 101 of the Tax Code of the Russian Federation (to secure compliance with a decision to impose/refuse tax liability) only after imposing a prohibition on disposal (pledge) of the taxpayer's property (subpara. 2, para. 10, Art. 101 of the Tax Code of the Russian Federation).

In Case No.A36-3129/2022, the court ruled the tax authority's decision to suspend operations unlawful because the tax authority failed to explain which assets listed in the taxpayer's accounting balance were excluded from the property valuation for imposing a disposal prohibition and why the tax authority did not verify the existence (absence) and quantity of finished goods, raw materials, and materials held by the taxpayer. The court found that, according to the accounting balance, the value of assets owned by the company significantly exceeded the aggregate amount of its liabilities, as recalculated in the decision following an on-site tax audit. Thus, considering the total property value and the company's accounting balance indicators, the court deemed the imposition of a property disposal prohibition sufficient security, while the suspension of account operations was excessive and unjustified (Ruling of the Central District Arbitration Court dated April 14, 2023, No.F10-1340/23 in Case No.A36-3129/2022).

It is important to note that suspension of operations on an account does not apply to payments whose execution priority under para. 2, Art. 855 of the Civil Code of the Russian Federation precedes the fulfillment of mandatory payment obligations, nor does it apply to operations involving the debiting of funds for mandatory payments (para. 1, Art. 76 of the Tax Code of the Russian Federation). For example, the bank is not authorized to suspend debits for enforcement documents requiring the transfer or disbursement of funds for employee settlements (para. 3, para. 2, Art. 855 of the Civil Code of the Russian Federation).

Liability of the tax authority for unlawful issuance of a decision to suspend operations on accounts and violation of revocation deadlines

Para. 9.2, Art. 76 of the Tax Code of the Russian Federation provides for the tax authority's liability in the following cases:

Violation of the revocation deadline or the deadline for sending the revocation decision to the bank. Interest (at the Central Bank of Russia refinancing rate) accrues on the amount of funds subject to the suspension regime for each calendar day of the deadline violation;
Unlawful issuance of a decision to suspend operations on accounts. Interest (at the Central Bank of Russia refinancing rate) accrues on the amount of funds subject to the tax authority's decision for each calendar day, starting from the day the bank receives the suspension decision until the day it receives the revocation decision.

There is no uniformity in judicial practice regarding whether the taxpayer must prove damages resulting from such unlawful actions (inaction) of the tax authority. According to one view, the taxpayer is not obligated to justify damages to recover interest from the tax authority (Ruling of the Tenth Arbitration Appellate Court dated February 8, 2023, in Case No.A41-64317/2022). However, another position holds that to recover interest, the taxpayer must prove material losses incurred due to the tax authority's unlawful actions (Ruling of the North Caucasus District Arbitration Court dated August 16, 2018, in Case No.A32-39771/2017).

If no funds are available in the taxpayer's accounts throughout the suspension period, there are no legal grounds for calculating and paying interest (Ruling of the Higher Arbitration Court of the Russian Federation dated May 15, 2013, No.VAS-5501/13 in Case No.A40-59298/12-99-342).

A tax authority's failure to revoke a suspension decision in a timely manner is not considered a violation if the tax authority lacked information about the taxpayer's submission of a tax return via telecommunication channels due to software issues (errors) (Ruling of the Volga District Arbitration Court dated January 25, 2023, in Case No.A12-437/2022). In Case No.A12-437/2022, the tax authority substantiated the technical error by providing a screenshot of the page on the «Nalog-Service» portal indicating a widespread issue with receiving reports via telecommunication channels, as well as the inspection's inquiry to the technical support site and the response from the technical support of the AIS «Nalog-3» regarding ongoing efforts to resolve the problem.

In addition to interest under para. 9.2, Art. 76 of the Tax Code of the Russian Federation, damages may also be recovered from the tax authority (Art. 15 of the Civil Code of the Russian Federation). For this, the taxpayer must prove the fact of incurring damages in the claimed amount (the calculation must be precise and documented) and establish a causal link between the tax authority's violation and the incurred damages.

For example, in Case No.A12-6220/2022, the court dismissed the taxpayer's claims because they failed to substantiate the specific amount of damages. The taxpayer claimed as lost profits amounts paid by their potential contractor to other contractors for construction and repair work due to the inability to enter into a contract with the taxpayer. The taxpayer calculated damages solely by summing the amounts paid to other contractors without considering costs they would have necessarily incurred (e.g., employee hiring, equipment rental, material procurement, etc.). The court found that without engaging such resources, the taxpayer could not have performed the construction and repair work (there were no employees on staff, and the company lacked vehicles). However, the taxpayer did not account for these costs when calculating lost profits (Ruling of the Volga District Arbitration Court dated March 9, 2023, No.F06-1088/23 in Case No.A12-6220/2022).

A favorable case for the taxpayer regarding recovery of damages from the tax authority occurred in Case No.A60-26874/2019. Due to the suspension of operations on accounts, the taxpayer was forced to enter into a loan agreement to meet their credit obligations to the bank promptly, avoid payment delays, and prevent penalty charges. During the loan period, the taxpayer paid interest and subsequently claimed the paid amount as damages. Considering the evidence presented in the case (a revolving credit line agreement with the bank, a loan agreement with a counterparty for the next credit payment, and the bank's certificate of the account block period), the court fully satisfied the taxpayer's claims (Ruling of the Ural District Arbitration Court dated February 4, 2020, in Case No.A60-26874/2019).

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Thus, in the event of suspension of operations on settlement accounts, taxpayers should carefully review the relevant tax authority decision, paying attention to the grounds, issuance deadlines, and compliance with the sequence of security measures. Upon identifying violations by the tax authorities, taxpayers should promptly notify the inspectors of the absence of grounds for blocking, appeal the suspension decision, and demand recovery of interest (para. 9.2, Art. 76 of the Tax Code of the Russian Federation) and damages (if applicable).

It is also important to recognize that appealing a suspension decision is not the quickest way to lift an account block. In some cases (considering that every day of a block is critical for the taxpayer), a more expedient approach may involve fulfilling the tax authority's requirements (e.g., resubmitting a tax return, sending a receipt confirming document acceptance, etc.).

Source: «Advokatskaya Gazeta» (No.23 (424) / 2024)

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