TAX MONITORING IN UZBEKISTAN: PROBLEMS AND ISSUES

Uzbek government tries to simplify and improve its tax administration system. Tax monitoring is the one of the results of the tax reforms. Benefits of tax monitoring for both taxpayers and tax authorities thoroughly examined. Despite that this form of tax control was introduced in 2018 taxpayers are still unwilling to apply for this procedure. The authors have analyzed specifics of the tax monitoring procedure and highlighted provisions of the tax monitoring rules which prevent taxpayers for using this from of the tax control. Having analyzed international experience in introducing the tax monitoring andprovisions of national tax monitoring regulation, the authors formulated own suggestions on improvement of the tax monitoring rules in order to attract more taxpayers for this procedure.

VOLUME 3 ISSUE №1 E-ISSN: 2181-1024 A P R Volume I L1 (2022) 3, Issue 2022 TSUL Legal Report 1

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TSUL LEGAL REPORT INTERNATIONAL ELECTRONIC SCIENTIFIC JOURNAL

Rustambekov Islambek Rustambekovich Deputy Rector on Academic Affairs, Tashkent State University of Law, Doctor of Law, Professor

Salaev Nodirbek Saparbaevich Deputy Rector on Research and Innovations, Tashkent State University of Law, Doctor of Law, Professor

Latipov Samir Ildusovich Director of the Center for Legal Initiatives and Innovations, Tashkent State University of Law

Nematov Jasur Aminjonovich Professor of the Tashkent branch of the Russian University of Economics named after GV Plekhanov

Umarkhanova Dildora Sharipkhanovna Dean of the Faculty of International Law and Comparative Legislation, Tashkent State University of Law, Doctor of Law, Associate Professor

Abzalova Khurshida Mirziyatovna Acting Professor of the Department of Criminal Law, Criminology and Anti-corruption, Tashkent State University of Law, Doctor of Law

Nematov Jurabek Nematulloyevich Acting Professor of the Department of Administrative and Financial Law, Tashkent State University of Law, Doctor of Law

Akhmedova Guzalkhon Utkurovna Associate Professor of Criminalistics and Forensic Examination Department of Tashkent State University of Law, Doctor of Law

Ergashev Ikrom Abdurasulovich Head of Scientific Department, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law.

Yusupov Sardorbek Bahadirovich Head of the Department of Administrative and Financial Law, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law

Gafurova Nozimakhon Eldarovna Head of the Department of International Law and Human Rights, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law

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Khujaev Shokhjakhon Akmaljon ugli Head of Intellectual Property Law Department, Tashkent State University of Law, Doctor of Philosophy in Law

Uzakova Guzal Sharipovna Head of Environmental Law Department, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law

Turdiev Khayitjon Usmonkul ugli Acting Associate Professor of the Department of Theory of State and Law, Tashkent State University of Law, Doctor of Philosophy in Law

Ramazonova Nargiza Abdirashidovna Head of the International Relations Department, Intellectual Property Agency under the Ministry of Justice of the Republic of Uzbekistan, Doctor of Philosophy in Law

Kurbanov Maruf Mamadaminovich Acting Associate Professor of the Department of Criminal Law, Criminology and Anti-corruption, Tashkent State University of Law, Doctor of Philosophy in Law

Narziev Otabek Sadievich Acting Professor of International Private Law Department, Tashkent State University of Law, Doctor of Philosophy in Law

Pirmatov Otabek Shavkatovich Acting Associate Professor of the Department of Civil Procedural and Economic Procedural Law, Tashkent State University of Law, Doctor of Philosophy in Law

Yakubova Iroda Bakhramovna Acting Associate Professor of Intellectual Property Law Department, Tashkent State University of Law, Doctor of Philosophy in Law

Shamsutdinov Behruz Sadriddin ugli Head of the Department of Commercialization of Scientific and Innovative Projects, Tashkent State University of Law

Saydakhmedov Umid Murodovich Judge for Economic Affairs, Tashkent Regional Court, Doctor of Philosophy in Law, Associate Professor

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Contacts Editorial office address: Tashkent, st. Sayilgoh, 35. Index 100047. Principal Contact Tel.: ([phone number hidden] Fax: ([phone number hidden] E-mail: info@legalreport.tsul.uz

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IKHTIYORJON TURABOEV, IKROM ERGASHEV Tax monitoring in Uzbekistan: problems and issues ............................................................8

DILMURODJON RAKHIMOV Organizational and legal issues of gender equality in the civil service .............................. 15

NOILA NURMAMATOVA Mechanism of appeal to the Constitutional Court .............................................................. 23

ILHOM NOROV Problems of public service in the Republic of Uzbekistan: further improvement of the public service system .............................................................................................. 30

12.00.03 – CIVIL LAW. BUSINESS LAW. FAMILY LAW. INTERNATIONAL PRIVATE LAW

BEGALI XOLMIROV The concept, importance and characteristics of electronic currency ................................. 37

MUHAMMAD ALI RAMAZONOV The concept and essence of cryptocurrency ..................................................................... 44

PARIZODABEGIM MUKHAMATKULOVA Some issues of regulation of cybersport and business activities in IT .............................. 51

12.00.04 – CIVIL PROCEDURES LAW. ECONOMIC PROCEDURES LAW. ARBITRATION PROCESS AND MEDIATION

ABDUMURAD KHAKBERDIEV Types of arbitration courts and their classification ............................................................. 57

DONIYORBEK DАVRONOV Procedure and basis for application of procedural coercive measures ............................. 68

12.00.08 – CRIMINAL LAW, CRIME PREVENTION. CRIMINOLOGY. PENAL LAW

BUNYOD ISLOMOV Mitigating factors and criminal defenses in criminal legislation of the Kingdom of Norway (comparative analysis) ...................................................................... 78

JALOLIDDIN HAYDAROV Qualification of crimes of torture and other cruel, inhuman or degrading treatment ......... 88

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12.00.09 – CRIMINAL PROCEDURE. CRIMINOLOGY, OPERATION SEARCH LAW AND FORENSIC EXAMINATION

SARBON URALOV Specific aspects of proof ................................................................................................... 96

KHAYDARALI YUNUSOV Contributions of Central Asian scholars to the development of islamic sciences: Sarakhsi – founder-father of international law ................................................................ 103

DJAMALIDDIN MUSAEV Principles of international cooperation in the field of preventing illicit trafficking in narcotic drugs, psychotropic substances and precursors . ........................................... 111

SHAHNOZA ALMOSOVA The essence of parallel import and problems of its regulation in the Republic of Uzbekistan . .................................................................................................. 121

USMON ALIEV Problems of reforming the UN security council and improving its effectiveness ............. 127

DALER VALIJONOV International legal cooperation of the prosecutors bodies against corruption ................. 134

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TAX MONITORING IN UZBEKISTAN: PROBLEMS AND ISSUES

Turaboev Ikhtiyorjon Kobilovich, Senior lecturer of Tashkent State University of Law, Leading researcher of Institute of State and Law of Academy of Science of Uzbekistan. PhD e-mail: i.turaboev@tsul.uz ORCID: 0000-0003-2930-1774

Ergashev Ikrom Abdurasulovich, Associate Professor, Doctor of Philosophy (PhD) in Law. Head of Scientific Department Tashkent State University of Law e-mail: professor.ergashev@gmail.com ORCID: 0000-0002-3924-5182

ARTICLE INFO ABSTRACT Keywords: Tax monitoring, Uzbek government tries to simplify and improve taxpayer, cooperation, tax reform, its tax administration system. Tax monitoring is the information exchange one of the results of the tax reforms. Benefits of tax monitoring for both taxpayers and tax authorities thoroughly examined. Despite that this form of tax control was introduced in 2018 taxpayers are still unwilling to apply for this procedure. The authors have analyzed specifics of the tax monitoring procedure and highlighted provisions of the tax monitoring rules which prevent taxpayers for using this from of the tax control. Having analyzed international experience in introducing the tax monitoring andprovisions of national tax monitoring regulation, the authors formulated own suggestions on improvement of the tax monitoring rules in order to attract more taxpayers for this procedure.

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I. Introduction Since 2016 the Republic of Uzbekistan has conducted reforms in different spheres of its economy and social life. A special attention was paid to tax reform with the aim to simplification and modernization of tax administration system. As a result of tax reforms conducted between 2017 and 2019 several positive changes happened: a new Tax Code was enacted, several types of taxes were abolished, rates of some taxes were reduced, and new forms of tax control were introduced. Tax monitoring is one of the novelties which was introduced within the scope of the tax reform. This form of tax control aimed at ensuring tax compliance under mutual consent between the taxpayer and tax authorities[1]. Initially, this type of taxpayerrevenue body cooperation was called as an enhanced relationship. Presently it is named as horizontal monitoring or tax monitoring. It is named as horizontal monitoring so that it could be contrasted with the vertical supervision conducted by revenue authorities. Tax monitoring or horizontal monitoring is based on trust, transparency and mutual understanding of parties [2]. This form of cooperation between large taxpayers and tax authorities, which is aimed to voluntary tax compliance by taxpayers, is also defined as cooperative compliance. Cooperative compliance requires large organizations to have internal control frameworks in place that assure that they can comply with their tax obligations and can also detect uncertain tax positions and disclose them to the tax authority. In exchange, the tax authority ensures that tax matters are resolved quickly, quietly, fairly and with finality [3]. This kind of taxpayer-tax authority relationship is built upon the principles of mutual trust, mutual understanding and transparency of relations. It is a voluntary cooperation of two parities in performing tax obligations of the taxpayers. Despite the fact that tax monitoring is one of the two established tax control forms in

Uzbekistan, presently it is not widely applied by taxpayers. According to the information presented by State Committee of Uzbekistan no tax payer applied for this procedure since its initiation. Similar tax control procedures were introduced and applied in several CIS countries. According to information given by Federal Tax Service of the Russian Federation, tax monitoring has been carried out in relation to 209 companies from 15 industries in 2021. Tax monitoring is intended to be a new form of cooperation between taxpayers and the tax authority and aims to decrease the cost of tax compliance of the taxpayer through prompt interaction between tax inspectorate and the taxpayer on a trust basis. But in practice this cooperation is going very slow. In this article we try to analyze this situation. II. Tax monitoring procedure A) Initiation of tax monitoring Why taxpayers are unwilling to apply for this procedure? According to the established rule, only those taxpayers that have income not less than 10 billion Uzbek soums may apply for tax monitoring procedure [4]. It can be presumed that the established limit of proceeds might prevent small taxpayers to use this procedure as tax monitoring is applied only for large taxpayers. As a matter of fact, in many countries this type of cooperation is mostly applied by large taxpayers. But the current legislation of Uzbekistan defines large taxpayers as legal entities which have net proceeds at the amount of 100 billion Uzbek soums for the calendar year [5]. Thus, it becomes clear that not only large taxpayers but also taxpayers with medium income may apply for tax monitoring procedure. As we mentioned above tax monitoring should be conducted upon mutual consent between a taxpayer and the tax authority. If the mutual consent is a core of the taxpayer and tax authority relationship, both parties must formalize their relations under the agreement. However, Tax Code of Uzbekistan stipulates that information interaction between a legal entity participating

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in tax monitoring and a tax authority is carried out on the basis of the special document called Regulations. The Regulations reflect the procedure for submitting documents (information) in electronic form to the tax authority that serve as a basis for calculating and paying (withholding and transferring) taxes and fees, and (or) the procedure for accessing the information systems of a legal entity that contain these documents (information) [6]. The Tax Code does not use the term “agreement” concerning the document which shall depict rights and obligations of the tax monitoring parties. The form and requirements for the regulation of information interaction are approved by the State Tax Committee of the Republic of Uzbekistan. Thus, tax authorities unilaterally define what should be indicated in the document that shall serve as a base for conducting tax monitoring.

Accordingly, tax monitoring initiation reminds an administrative procedure rather than cooperation. In order to initiate tax monitoring a taxpayer shall submit an application for tax monitoring to the tax inspectorate at the place of its registration.

The taxpayer shall attach to application the following documents:

1) The regulation of information interaction in the prescribed form; 2) information about legal entities and individuals that directly and (or) indirectly participate in a charter capital of the taxpayer; 3) current accounting policy for tax purposes.

The tax inspectorate does not have rights to consider the application, and within 3 days from submission of the application it sends the application to the regional tax department for further consideration.

The regional tax department unilaterally considers the application and attached documents and decides whether to implement tax monitoring or refuse it. Based on the results of consideration of the application, the regional tax department within a month makes a decision on whether to implement or refuse to conduct the tax monitoring. The current tax legislation does not contain any information on the participation of a taxpayer during consideration of its application. The decision of the regional tax department on conducting the tax monitoring shall be sent to the applicant within five days from the date of adoption. The next stage involves the preparation to tax monitoring, in which tax authorities explain the requirements and procedure of the tax monitoring to the taxpayer.

The tax authority officials shall conduct primary introduction with the communication system of the taxpayer and develop the plan of tax monitoring.

B) Procedure of providing information The main purpose of public services provided by state tax authorities with the use of information and communication technologies is to improve the efficiency of interactive government services based on information technologies, reduce the time and process of providing services, including economic costs, and ensure transparency and transparency of tax authorities [7].

Taxpayer- tax authority relations concerning the exchange of information is conducted under the Regulation. As was indicated above the form of Regulation shall be adopted by the State Tax Committee of Uzbekistan. But until now no official document was adopted in relation to the form and requirements of the Regulation. As mentioned above, the application of the taxpayer should also include the Regulation on information interaction.

In the Regulations on information interaction, a legal entity shall indicate:

1) the procedure for reflecting income, expenses and taxable items in the accounting registers; 2) information on analytical tax accounting registers; 3) information on the system of internal control over the correctness of calculation (withholding), completeness and timeliness of payment (transfer) of taxes and fees.

The taxpayer must provide access to its information. Access to the taxpayer’s

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information is carried out by utilizing one of the following methods: • Providing right to the tax authority a distant access to the accounting and bookkeeping system of the taxpayer which is party to the tax monitoring; • Publishing a special analytical showcase of accounting and bookkeeping information of the taxpayer. The analytical showcase of information gives an opportunity to the tax authority to independently examine, analyze and inquire a scanned copy of primary accounting documents of the taxpayer; • Sending information via personal cabinet of the taxpayer in the website of the tax authority.

The procedure of conducting tax monitoring includes: • Distant examination of operations and documents of the taxpayer in real time mode; • Analysing the accounting of taxes and duties; • Examining the documental confirmation of each operation; • Controlling the formation of the tax base according to the tax legislation; • Controlling the performance of tax obligations of the taxpayer; • Controlling the appropriate usage of tax incentives [8].

If, during tax monitoring, contradictions are found within the information contained in the submitted documents, or there is a discrepancy between the information provided by the taxpayer and that which has the tax authority, the tax authority shall inform the taxpayer and require to provide the necessary explanations or make appropriate corrections. Such explanations should be submitted by the taxpayer within five days, and corrections shall be made within ten days from the date of receipt of the request.

The main document issued during tax monitoring is the motivated opinion of the tax authority. Motivated opinion of the tax authority reflects position of the tax authority concerning the correctness of calculation, completeness and timeliness of payment of taxes and fees. The tax authority shall draw up the motivated opinion by its own initiative or by the request of the taxpayer.

Certainly, the taxpayer may agree or disagree with the motivated opinion. If the taxpayer agrees with the motivated opinion, it shall perform it by providing the amended tax return.

In case of disagreement with the motivated opinion, the taxpayer shall submit his disagreements to the tax authority within a month of its receival. In this case, the tax department that conducts the tax monitoring initiates a mutual agreement procedure which will be held in the Tax Committee of the Republic of Uzbekistan.

The mutual agreement procedure is led by the chairman (deputy chairman) of the State Tax Committee and parties to the tax monitoring. They review the motivated opinion of the tax authority and the justification of taxpayer’s disagreement. Upon the results of the mutual agreement procedure, a report on altering the motivated opinion or leaving it unchanged shall be signed.

C) Termination of tax monitoring Tax monitoring could be terminated upon expiring of the tax monitoring period or before its ending period by the decision of the tax authorities.

The period for which tax monitoring is carried out is the calendar year following the year in which the legal entity submitted an application to the tax authority for tax monitoring.

The Tax law also provides legal bases for terminating tax monitoring earlier. Tax monitoring is terminated early in cases of:

1) non-compliance by the taxpayer with the rules of information interaction, if such failure has become an obstacle to tax monitoring; 2) detection by the tax authority of the fact that the taxpayer has provided inaccurate information in the course of tax monitoring; 3) systematic (twice or more) nonsubmission of documents (information) to

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the tax authority during tax monitoring..

III. Benefits of tax monitoring for the parties Less extensive tax inspections for taxpayers Tax monitoring, as an enhanced relationship, offers benefits for revenue bodies as well as taxpayers. Taxpayers can have greater certainty and easier resolution of tax issues with less extensive audits and lower compliance costs [9].

Thus, the taxpayer may enjoy less extensive tax inspections during tax monitoring period. In Uzbekistan tax inspections are deemed to be time consuming and high cost tax control events. The tax legislation establishes that off-site tax inspection shall not be carried out for a tax (reporting) period if the tax monitoring is conducted for this period. It is obvious, that if the tax authority has access to the information of the taxpayer, there will be no need for conducting off-site inspections. Exclusion from tax inspections could be a main reason for the tax monitoring to be attractive for taxpayers. However, the legislation does not imply the exclusion of other types of tax inspections such as on-site tax inspection and tax audit for tax monitoring period. For example, in Russian Federation the taxpayers that participate in tax monitoring are exempted from any types of tax inspections [10].

Another benefit is that, the motivated opinion of tax authorities may assist a taxpayer to strictly comply with tax law. Besides that, the motivated opinion of tax authorities may also release a taxpayer from responsibility for the breach of tax legislation. During the process of monitoring, the tax authority forms a motivated opinion containing a position on the issues of the correctness of calculation, completeness and timeliness of payment of taxes and fees. This allows the taxpayer to quickly resolve all disputes which arise. The Uzbek law provides that performance by a taxpayer of the motivated opinion of the tax authorities brings to the breach of laws, and this circumstance shall be deemed as a circumstance excluding the guilt of the taxpayer. This taxpayer cannot be responsible for tax offence, because it was the result of performance of the motivated opinion of the tax authorities.

If a taxpayer performs the motivated opinion issued by the tax authority and this leads to the breach of tax law, the taxpayer shall not be considered guilty of committing the tax offence [11].

In case disagreements arise between the taxpayer and the tax authorities, they shall be settled through the mutual agreement procedure.

B) Reduction of administrative costs by tax authorities.

The main benefit for tax authorities is getting better and accurate information about taxpayer performance. Tax monitoring allows revenue bodies to have better information about taxpayer conditions. Better information should lead to more effective risk assessment and more appropriate resource allocation, and early disclosure may also facilitate more timely responses, including remedial legislation [12].

Tax monitoring provides the opportunity for effective usage of financial and human resources of tax authorities. Statistical data shows that there are 446 566 business entities acting in Uzbekistan [13]. Inspecting their tax performance needs more human and financial resources. Tax inspections are very time consuming procedure in Uzbekistan. While on-site tax inspections are conducted within 10 days, total duration of tax audit could be up to 3 months. Besides that, tax bodies shall control compliance of other taxpayers: SME, NGOs and physical persons. Meanwhile, the total number of human resources of the State Committee of the Republic of Uzbekistan is limited to 12 131 employees [14].

If tax authorities shall apply the procedure of tax monitoring towards the large taxpayers they can allocate financial and human resources to control the tax performance of other taxpayers.

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IV. Discussions Despite the fact that the legislation provides tax authorities with a right to remotely access the taxpayer information, they are also entitled with a right to claim additional documents from a taxpayer which gives rise to the overlapp of powers of the tax authorities. This situation may be explained by the fact that not all taxpayers are transferred for electronic document flow. We think that if revenue bodies have remote access to the whole information of the taxpayer, there should not be any power like claiming additional documents from taxpayers. The government also should take additional measures for digitalizing the document flow on taxpayers, which will also simplify the the exchange of documents in tax monitoring.

Unpopularity of the tax monitoring amongst business entities shows that there was not enough outreach work on spreading the information on this procedure. Revenue bodies should actively work with taxpayers by conducting conferences, seminars, roundtables and explain the benefits of this procedure to taxpayers. In these events taxpayers could get more information about tax monitoring procedure, information exchange process and may then weigh (decide) whether to apply or not for tax monitoring.

Another obstacle that prevents the tax monitoring from being popular is uncertainty in tax inspections. As indicated above, the tax legislation establishes that off-site tax inspection shall not be carried out for a tax (reporting) period if the tax monitoring is conducted for this period. But legislation does not contain similar exclusions for other types of tax inspections such as on-site tax inspections and tax audits. Taxpayers might be unwilling to go for tax monitoring if they also would undergo tax inspections which will be additional burden for them.

The essence of tax monitoring is that, tax inspectors get remote access to the accounting base of the taxpayer and control the correctness of calculation and payment of taxes. In return, the taxpayer should be exempted from all types of tax inspections during the tax monitoring period.

The experience of countries which successfully implemented tax monitoring indicates that gradual approach is the best way. Many countries began cooperative compliance by piloting the program for a certain number of large taxpayers and later began to widely use this procedure. Ideally, any pilot program should commence with entities that have a relatively simple risk profile, so that the pilot can successfully work through and resolve the procedural issues that arise [15]. It would be better piloting the procedure of tax monitoring with certain number of large taxpayers. The experience and lessons gained from the piloting would assist to conduct tax monitoring more effectively.

We assume that taxpayers may still not rely on this procedure by thinking that they could be subject to tax audits by tax authorities despite their participation in tax monitoring procedure. The current tax law releases taxpayers which participate in tax monitoring from off-site tax audits. But the law doesn’t have such provisions concerning the on-site tax audits. The Tax Code which was valid until December 31, 2019 provided that the legal entities which participate in tax monitoring could not be subject to any form of tax audits. Thus, we recommend that Tax Code of Republic Uzbekistan should be amended by provisions which ban conducting on-site tax audits during the tax monitoring period.

Not exempting taxpayers from tax audits make tax monitoring less attractive for them. Thus, taxpayers who participate in tax monitoring should be out of tax audits. Otherwise it would be of no sense to implement the tax monitoring.

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