Agency contract - what can draw attention of tax authorities

Jul, 23 2018

Some companies use agency contract as an instrument of tax reduction. Federal Tax Service fight against it, however sometimes even companies performing legal activities may be under suspicion. To avoid suspicion is better to take into account the following points:

Performance of agent’s obligations by the third parties
In this case there is a risk of agency contract transformation to work contract and considering performers as subcontracting parties.

Providing reports by the agent
According to current legislation, agent should provide principal (customer) with reports on performed work. In case of reports absence, tax authorities may doubt the reality of the contract.

Agent’s reward
Agent shall receive payments under the agency contract. Therefore, absence of information about agent’s reward or too low reward can draw attention of tax authority.

We would like to notice that if agency contracts will be prepared incorrect, tax authorities can consider that it aims on tax base understatement. It may lead to additional tax charge or penalty.