The representative/branch office was not re-accredited by the Federal Tax Service: what are the risks and consequences?
Taking into account the modified accreditation regulations, all representative/branch offices of foreign companies accredited in the Russian Federation were obliged to obtain re-accreditation in the Federal Tax Service Inter-District Bureau No.47 for Moscow. It was related to the State Registration Chamber (SRC) abolition and the handover of accreditation and re-accreditation of representative/branch offices to the Federal Tax Service (FTS) of Russia.
The re-accreditation campaign was well-publicized by the Tax Service, caused a lot of commotion and most of representative/branch offices managed to obtain re-accreditation on time. Meanwhile, as experience has shown, there were those who could not do it for different reasons. It appeared that the representative office functions (it is accredited in the SRC) but it is not included in the register of accredited representative/branch offices of the FTS. What should be done?
Initially, as explained by the Tax Service, such careless representative/branch offices, which did not meet the ‘1st April’ requirement, face the accreditation termination. In other words, the accreditation is canceled and the representative/branch office is regarded to go out of business.
On the one hand, the fact that all period during which the representative/branch office was functioning without accreditation in the FTS (i.e. since April, 1) is taken as illegitimate activity. On the other hand, there is no liability for re-accreditation schedule-overrun in either law introducing new accreditation regulations or any other regulatory legal act. Also it is not clear what to do with the employees and bank accounts of such branch offices.
Employees. Providing that the accreditation is canceled, the question now arises of what to do with the employment agreements between such representative office and its employees. The Labour Code of the Russian Federation does not provide such grounds for dismissal as ‘no registration’. In case the representative office wishes to terminate employment, there is only one legal way left – to undergo a liquidation proceeding of the representative office.
Bank transactions. Although the representative/branch office was not re-accredited in the FTS of Russia, its bank accounts are still well in business. No wonder. As my experience shows, banks do not always monitor current accreditation, let alone the re-accreditation timeline. Moreover, while the Bank account agreement is still valid, the bank is obliged to execute the owner’s orders. The grounds for such agreement termination are stated in Article 859 of the Civil Code of the Russian Federation, and it has no such grounds as ‘no re-registration in the Federal Tax Service Bureau’.
What to do? As the question of responsibility for the delay is not legislated, we contacted the FTS and found out what to do in case of a late re-accreditation. The Tax Service informed us that no sanctions would be applied. However, it is not recommended to postpone the registration in the register of the FTS.
Thus, it is important to prepare the set of documents, pay the state duty and receive the Certificate of Entry in the State Register of Accredited representation/branch offices. With such a delayed accreditation in the Federal Tax Service Inter-District Bureau No.47 for Moscow the representative office will receive a new Certificate where there will be no accreditation time limit (similarly to the obtainment of the Primary State Registration Number Certificate for Russian legal entities) and the representative office will be considered as accredited for the first time but the Taxpayer’s Identification Number and Registration Reason Code of the representative office will remain unchanged.
For more information on necessary documents for accreditation in the register of the FTS, please read the following article «Re-accreditation of foreign companies: less than 3 weeks left».
In fact, the representative offices which were not re-accredited until April, 1, 2015, even if their accreditation Authorization was valid until 2017-2018, lost their right to continue business until the date stated in the Authorization, and they have to undergo primary accreditation. That means financial assets loss in return for paying the previous state duty as the previous accreditation is canceled since April, 1.
The re-accredited representative offices continue their business until the date stated in the Certificate with a registered accreditation number, and on completion of the validity period they have to undergo primary accreditation which will be time-unlimited.
In conclusion, the legal gap does not mean smooth actions. It is not worth risking and postponing the procedure. It is possible that the FTS will issue the clarification of the consequences for those who are not registered in its register of accredited representative/branch offices but still do business using the accreditation in the SRC. Otherwise you will have to liquidate your representative/branch office, de-register it with tax authority, funds and others. And after that to start the accreditation from the very beginning. That means unnecessary time spending, labour and material costs as well as emotional stress.
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