Tax violations and responsibility

FROM THE REDACTION

The tax structure cannot exist without the institute of responsibility. The new tax law, like the previous one, envisages financial sanctions as well as administrative and criminal responsibility for breaching the tax legislation.

Applying of sanctions to an organization for tax violations does not release its functionaries, in case of existing of reasonable grounds, from administrative, criminal and other kinds of responsibility envisaged by the Georgian legislation (Article 125, Paragraph 4).
This time we present you consideration of Articles 130, 131, 132 with practical examples. Applying of sanctions towards a tax payer/tax agent because of breaching of the tax legislation does not release him/it from his/its obligations to pay appropriate taxes and dues.
The dues make up 0.07% of the tax debt for each overdue day. In case of exceeding the tax limit, the day of tax paying is considered as an overdue day. Thus, if an enterprise or an organization has to pay a tax in the amount of 5000 GEL, the payout period of which is March 31, 20X4, but it was paid during the period from March 31 to April 5, the dues in the amount of 21 GEL (6X3,5) will be added on to it, since the six days will be considered as overdue ones which will be multiplied by the sum of the tax debt – 0,07% (0,07% of 5000), and 5021 (5000+6X3,5) will be liable to payment.
According to the previous law, if an organization or enterprise carries out economic activities without registration with tax authorities, it must pay a fine in the amount of 10% of the income obtained from its activities, but not less than 100 GEL (Article 130). Thus, if an enterprise, which is not registered with the tax authorities, obtained a profit in the amount of 2000 GEL as a result of its activities, it must pay 200 GEL as a fine.
If the fact of evasion from registering with the tax authorities is established, in particular if an enterprise or an organization does not notify the tax authorities about its economic activities within the period of more than 90 days after the schedule day, it is fined for 20% from the sum of the obtained profit, but not less than in the amount of 1000 GEL; but if the economic subject carries out its activities so that the term of his registration with the tax authorities exceeds the period of 180 days, it is fined for 50% from the sum obtained as a result of its economic activities, but not less than in the amount of 5000 GEL.
Thus, if an enterprise’s or an organization’s income from its economic activities makes up 5000 GEL and it evades from registration with the tax authorities within the period of more than 90 days after the schedule day, it is fined for the sum of 1000 GEL, but if its income is 4000 GEL under the same conditions, it will have to pay 800 GEL as a fine (20% of 4000), but according to the amendments to the law, where it is said that the amount of fine should be not less than 1000 GEL, an enterprise or an organization will be fined for 1000 instead of 800 GEL.
A tax paying subject suffers more losses if it exceeds 180 days envisaged for the registration with the tax authorities. In this case, according to Article 130, Paragraph 3 the subject will have to pay 50% of 5000 GEL which makes up 250 GEL, but this sum is less than 5000 GEL, that is why the tax paying subject will be fined for 5000 instead of 2500 GEL for breaching the law.
As we can see Article 130 of the Tax Code is rather explicit and severe, but it is fair towards those subjects that breach the rules related to registration with the tax authorities.
According to Article 131 of the same law, (unlike Article 253 of the previous Tax Code) exceeding of the time limit envisaged by the tax legislation by a tax payer/tax agent for submitting of a tax declaration to the tax authorities entails a fine based on this declaration in the amount of 5% of the sum liable to payment for each complete or incomplete tax month, but not less than 200 GEL non-submitting a declaration for each complete or incomplete month.
For example, if by March 15 an enterprise was to submit to the Tax Inspection February’s VAT declaration for 10.000 GEL, but submitted it on September 1, the period of delaying with submitting the declaration makes up 6 months, and correspondingly the sum of fine for each month will make up 500 GEL (5% of 1000). Thus the sum of the fine for 6 months will make up 30%, or 3000 GEL.
But according to Article 253 of the previous Tax Code, the sum of the fine liable to payment by a tax payer/tax agent should not have exceeded 25% of the sum indicated in the tax declaration, that is 2500 GEL. In this case a tax payer, according to the old rules, had to pay 2500 GEL as a fine, but not 3000 GEL.
According to Article 131, Paragraph 2 if a tax payer/tax agent does not submit a tax declaration with the purpose of tax evading, in particular after expiration of a one year period envisaged by the tax legislation, and if the sum of the unpaid taxes exceeds 25% and 100.000 of the sum of the taxes that had to be paid, it will be considered as tax evasion and entails responsibility in accordance with the Georgian Criminal Code. But the criminal prosecution will not take place if the additional and the basic sum along with the sanctions liable to payment is paid within 15 days’ period after receiving “the tax paying demand”.
Thus if an enterprise was to submit to the Tax Inspection 20X2 February’s VAT declaration for 10.000 GEL by March 15, and it has not done it till March 15, 20X3, and the sum of the unpaid taxes makes up 6000 GEL (12X500), its actions are considered as tax evasion and entail responsibility in accordance with Georgian Criminal Code. But criminal prosecution will not take place and the case will not be handed over for investigation if the additional and the basic sum in the amount of 10.000 along with the sanctions in the amount of 6000, 16.000 in all, is paid within 15 days’ period after receiving “the tax paying demand”.
Article 132 of the new Georgian Tax Code envisages responsibility for underdeclaration of taxes, and it is indicated in it that underdeclaration in the tax declaration or/ and accounts (up to 50 000 GEL) entails fining in the amount of 25% of the underdeclared sum. For example, if an enterprise submitted to the Tax Inspection the VAT declaration for November, where the sum in the amount of 15.000 GEL is indicated, and as a result of tax inspection it turned out that the tax sum makes 17.000 GEL, that is the sum is reduced by 2000 GEL, the enterprise will be liable to financial sanctions in the amount of 500 GEL.
According to the previous tax law, in case of tax payer’s underdeclaration of the tax sum, the tax payer had to pay the sum of the underdeclared tax along with the fine in the amount of 25% of the underdeclared sum. Thus in our case the enterprise had to pay 500 GEL along with the sum of the underdeclared tax in the amount of 2000 GEL, that is 2500 in all.
According to Paragraph 2 of Article 132, underdeclaration in the tax declaration or/and accounts for the amount from 50 000 to 100 000 GEL , if the sums indicated the declaration or/and accounts are more than 25% of the tax , it entails fining in the amount of 50% of the underdeclared sum. For example, if the enterprise submitted to the Tax Inspection November VAT declaration for 15.000 GEL, but as a result of the check-up it turned out that the actual sum of the tax makes up 65.000 GEL, and in this case the tax sum is underdeclared for 50.000 GEL, which is more than 25% (3750 GEL), than the tax sum indicated in the declaration, then the enterprise will have to pay 50% – 25.000 GEL of the underdeclared sum (50.000 GEL) in the form of financial sanction.
Tax underdeclaration in the tax declaration or/and accounts for 100 000 GEL or more, if the sums indicated in the declaration or/and accounts are more than 25% of the tax, entails fining in the amount of 75% of the underdeclared sum. For example, if the enterprise submitted to the Tax Inspection November VAT declaration for 45.000 GEL but as a result of the check-up it turned out that the actual sum of the tax makes up 145.000 GEL, in this case the tax sum is underdeclared for 100.000 GEL, which is more than 25% (11.250 GEL) of the tax sum indicated in the declaration, then the enterprise will have to pay 75% – 75.000 GEL of the underdeclared sum (100.000 GEL) in the form of financial sanction.
If the underdeclared tax sum exceeds 25% and 100 000 GEL of the tax liable to payment, it is considered as large-scale tax evasion and entails responsibility in accordance with Georgian Criminal Code. At the same time, criminal prosecution will not take place and the case will not be handed over for investigation if the additional and the basic sum along with the sanctions liable to payment are paid within 15 working days’ period after receiving “the tax paying demand”.
For example, if an enterprise submitted to the Tax Inspection the VAT declaration for November, where the sum in the amount of 45.000 GEL is indicated, and as a result of check-up it turned out that the tax sum makes up 147.000 GEL, that is the sum is reduced by 102.000 GEL, which is more than 25% (11.250 GEL) of the tax sum indicated in the declaration, then its actions are considered as tax evasion and entail responsibility in accordance with Georgian Criminal Code. At the same time criminal prosecution will not take place and the case will not be handed over for investigation if the additional and the basic sum in the amount of 45.000 along with the sanctions in the amount of 76.500, 121.500 in all, is paid within 15 days’ period after receiving “the tax paying demand”.