“Goods without supporting documents” is one of the most frequent violations subject to penalties and confiscation of the goods. Even companies that had no intentions to break the law may also be held administratively liable. They often forget that each transaction should be supported by a primary document. That document should be drawn at the time or immediately after the transaction. Our experts: Olga Ivanenko, founder of BusinessStart Company, and Dmitry Semashko, lawyer of Stepanovski, Papakul and Partners Attorneys-at-Law, explain how to avoid the violation.
— According to the Supreme Court, Part 4 of Article 12.17 of the Administrative Offense Code held the record among administrative cases reviewed by economic courts in 2015; it provides for liability for procurement, storage, transportation and sale of “goods without documents”, as it is commonly called.
2015 was the peak year, though the tax inspection trends show that the Article still ‘allures’ controlling authorities.
Here is one of the most recent examples. The tax inspection of the Minsk Leninsky District ran a random thematic/operative inspection of “F Ltd.” that kept 2.1 tons of sweets and dried fruit in a storage room. The company had no documents supporting the goods acquisition/receipt and storage. After the inspection, all goods were seized and damages were estimated at BYR 481.6 mln (before the denomination).
The inspection materials were submitted to the Minsk Economic Court for review and decision making in accordance with the current laws.
A common error
Most people of business have no idea about the consequences of improper compilation and storage of primary documents. This is one of the most common errors that may lead to an administrative offense according to Part 4 of Article 12.17 of the Administrative Offense Code.
Let us see, what, where and when should be documented. Procurement, storage, industrial use, transportation and sale of goods will be considered as a breach of law, when conducted:
A) without shipping documents
B) without documents supporting procurement of the goods
C) without documents supporting receipt of goods
D) without documents supporting release of goods for sale
E-shops often fall into this trap – they ignore the requirement to write out a consignment note when delivering goods to the buyer.
E) When documents are inconsistent with the reality – i.e., when the primary documents are held invalid due to relationship with false entities.
Should you become a counterparty of such a financial entity, be prepared to pay extra taxes and administrative liability with potential sanctions: confiscation of your income/goods.
F) When the sale of goods (performance of work, rendering of services) is in conflict with a ban set by the State Control Committee.
What the documents are and where they should be kept
The forms of primary documents to be submitted for inspections are approved by relevant public authorities (e.g., waybill form TTN-1, delivery note TN-2, international consignment note (CMR)).
The Tax Code is a universal regulation that specifies what documents are required, and when.
Article 22 of the Tax Code (Clause 1.12) states that the payer shall ensure availability of the following documents, unless the legislation provides otherwise:
- In commodity storage areas (e.g., in a warehouse) – documents supporting procurement/receipt of the goods.
- During transportation (i.e., in a vehicle) – documents supporting procurement/receipt of the commodities.
When the legislation requires compliance, veterinary, phytosanitary certificates, or certificates of origin of transported goods, they should be held by the carrier, when the latter accompanies the transported goods.
- During sale (in a shop):
- Documents supporting procurement of the goods, when they are delivered to the shop directly. For example, goods were custom-cleared and delivered immediately to a point of sale.
- Documents supporting release for sale, when commodities are delivered to a point of sale after processing in another location. For example, goods are delivered to a warehouse and then transferred to a shop for sale.
Situations, when documents are transferred to the accounting office for recording purposes should be discussed separately (other than transportation, when waybills should accompany the cargo).
According to explanations of controlling authorities, documents supporting procurement of goods and release of goods for sale (in particular, waybills or delivery notes) should be held at the points of storage/sale of the goods prior to transfer to the accounting office. After a report on the goods is compiled and submitted, they should be held in the company accounting office.
Simple, isn’t it? However, entrepreneurs keep swallowing the bait, committing the above-mentioned offenses. It often happens due to some technical aspects, about which the controlling agencies are most scrupulous.
How inspections are held – technical issues
Generally, each inspection follows the same scenario. In the case of retail, it would be a controlled buy. Failure to issue a receipt = violation of the requirement to provide documents for the goods.
The scheme could be longer of shorter for other types of business; the essence, however, would remain the same.
After the inspection, the inspected entity is served a demand for documents by a certain deadline.
For example, if waybills (originals or duly certified copies thereof) were requested during an inspection, they should be submitted to the tax official by the set deadline.
The demand should be read closely, regardless of what the inspectee is told during an inspection.
During an inspection, the inspectors often do not know what offense may have been committed by the inspected entity. Therefore, they request documents supporting procurement, receipt and release of goods for sale.
It is in the best interests of the inspectee to submit all these documents as soon as possible (immediately, when it is required to hold them at a specific location). When it is not required to hold the documents at the location, the inspectors should provide a reasonable time for submission thereof.
Special attention should be paid to document ‘acceptance’ by inspectors. It would be better to record it in document withdrawal certificate, to avoid proving that you gave them all documents, but some were returned as unnecessary – or that some documents were not delivered due to absent-mindedness.
At the same time, inspection stakeholders provide explanations about document availability or absence thereof. This is a key moment that should be taken very seriously. Rephrasing the saying, the written letter remains in court proceedings. From the position of litigation strategy and tactics, it is practically impossible to exclude/alter the facts provided in the initial explanations.
Consequences of such errors may cost you both a penalty and confiscation of your goods or revenue for goods sold. Hopes for a successful outcome of an inspection evaporate, when the inspectee learns that the case would be sent to court, and the goods may be confiscated. However, in the event of a violation, the statutory alternative “penalty with or without confiscation of goods” should not give the inspectee the wrong idea. There should be certain grounds for non-confiscation. Please note that revenue for goods sold may be collected for the 3 last years of operation of the company.
Thus, absentmindedness, tardiness or carelessness in dealing with primary documents is a key reason for falling under the scope of Part 4 of Article 12.17 of the Administrative Offense Code.
Therefore, before setting up your business processes, you need to check the correctness of the document flow in your company.
