Separate division - open, close and pay taxes

T. N. Milyutina author of the article, Deputy General Director for Audit of ALT-AUDIT LLC

Lately, organizations often have questions: do situations such as an employee being on a long business trip, leasing equipment with a crew, or a mobile construction site lead to the formation of a separate unit. These issues, as well as the peculiarities of filing tax returns and paying taxes by separate divisions, will be discussed in this article.

According to paragraph 2 of Art. 11 of the Tax Code of the Russian Federation, a separate division of an organization for the purpose of calculating taxes and fees is understood to be any territorially separate division from it, at the location of which stationary workplaces are equipped.

A division is recognized as separate regardless of whether its creation is reflected or not reflected in other organizational and administrative documents, and regardless of the powers vested in it. In this case, a workplace is considered stationary if it is created for a period of more than one month.

From the definition given in the Tax Code of the Russian Federation it is clear that a division is considered separate if:

• it is territorially isolated from the organization;
• it has stationary workplaces.

The legislation on taxes and fees does not contain a definition of “workplace”. In accordance with paragraph 1 of Art. 11 of the Tax Code of the Russian Federation, institutions, concepts and terms of civil, family and other branches of legislation of the Russian Federation, used in the Tax Code of the Russian Federation, are applied in the meaning in which they are used in these branches of legislation, unless otherwise provided by the Tax Code of the Russian Federation.

Thus, to determine the content of the term “workplace” it is necessary to be guided by the provisions set out in Art. 209 Labor Code of the Russian Federation. According to this standard, a workplace is a place where an employee must be or where he needs to arrive in connection with his work and which is directly or indirectly under the control of the employer.

Based on the above, a number of workplace characteristics can be identified:

• existence of an employment contract between the employee and the employer;
• workplace equipment;
• stationary workplace;
• direct or indirect control of the employer.

However, almost all of these signs are not as simple as they seem at first glance, and their interpretation becomes the cause of numerous disputes between taxpayers and inspectors. Therefore, let's look at each of them in more detail.

The concept of a branch of a legal entity

The branch itself will not be considered a legal entity. It is part of the organization and cannot exist separately.

Such a division performs the functions of the enterprise in whole or in some part. Its main feature is that it is located in a different place (not necessarily in a different locality).

In practice, branches are often created to conduct a separate area that differs from the main activity of the legal entity.

For example , an LLC is engaged in providing legal services, but in the course of its activities it began to act as an intermediary in real estate transactions. For convenience, a branch is created that operates separately, but within the framework of the original company.

All information about the branch must be entered into the Unified State Register of Legal Entities, that is, such a division is subject to state registration. In this regard, specific features of taxation and reporting arise.

General information about branch closure

From the point of view of current legislation, the concepts of branch and representative office have certain differences. The branch carries out full-fledged activities, and the representative office is limited in functionality. There is also the concept of a separate unit. And each type of additional location of the organization must be registered in the required way, that is, registered with the Federal Tax Service.

Any division of the organization conducts its activities only until the moment when the company itself operates. In this case, all licenses and permits apply to the auxiliary unit.

When liquidating a structural unit, the organization is obliged to:

• close a special bank account that was created to service the activities of the branch;
• terminate the lease agreement, if concluded;
• transfer the property of the division to the parent organization;
• transfer personnel to other divisions, the head branch or terminate employment contracts with them.

It is also worth remembering that if a branch is audited by the tax authorities, it can be closed only after such an audit is completed.

Employer control

A mandatory feature of a workplace is control (direct or indirect) over it by the employer. Let's try to figure out what this means. It seems that this should be understood as the employer’s right:

• legally enter the premises in which the workplace is equipped; equip this place in accordance with its functional purpose (in compliance with labor protection rules);
• directly exercise control over the activities of the employee, for which he must be in an employment relationship with the latter, formalized in the manner prescribed by law.

When considering disputes about the presence (absence) of a separate division, arbitration courts, first of all, pay attention to this point. For example, if an organization provides services on the territory of a customer who provides all conditions for the work of the organization’s seconded employees, then in this case a separate division of the organization is not formed. Indeed, in such a situation, stationary workplaces are under the control of the customer, but the organization itself does not create them (Resolution of the AS of the West Siberian District dated June 11, 2015 N F04-20325/2015).

Thus, taking into account the above features, the following comprehensive definition of the concept of a stationary workplace can be applied for tax purposes.

A stationary workplace is a place created for a period of more than one month, where an employee must stay or where he needs to arrive in connection with his work, and which is directly or indirectly under the control of the employer.

The absence of any sign of a separate unit listed in paragraph 2 of Art. 11 of the Tax Code of the Russian Federation, does not lead to the creation of a separate division by the organization (Appendix to the Letter of the Federal Tax Service of Russia dated December 29, 2006 N ШТ-6-09/ [email protected] ).

Having understood the main signs of the emergence of a separate unit, we will apply them to practical situations.

Situation 1: Long business trip

In order to provide audit services, the contractor sends its employees on a long business trip (more than 1 month) to another city. The contract for the provision of audit services provides for an audit to be carried out at the customer’s office. According to the terms of the contract, the contractor during the inspection is subject to the internal labor regulations and working hours of the customer. The customer undertakes to provide the contractor’s representatives with conditions for timely and high-quality audit.

In this case, all conditions for the work of seconded employees are provided not by the contractor, but by the customer. Consequently, it is the customer who controls these jobs. And since the contractor himself does not create stationary jobs at the place of business trip, he does not have a separate division there.

So that in such a situation the contractor does not have disagreements with the tax authorities, it is advisable to indicate in the contract with the customer that it is he who is entrusted with the responsibilities for creating all the conditions necessary for the performance of work by the contractor’s employees.

Arbitration courts confirm that if there is such a condition in the contract, the contractor does not form a separate unit at the place of business trip (Resolutions of the Federal Antimonopoly Service of Moscow dated December 20, 2010 N KA-A41/15744-10, dated March 2, 2009 N KA-A40/817-09 and Northwestern dated February 15, 2010 in case No. A05-9705/2009 districts).

However, it must be taken into account that regulatory authorities also express a different opinion on this issue. Thus, the Russian Ministry of Finance believes that the actual place of work is the place where the employee performs most of his work duties. And if for a long time an employee performs a significant part of his functions outside his place of permanent work, for example abroad, then a business trip cannot be considered a business trip (Letter of the Ministry of Finance of Russia dated April 28, 2010 N 03-03-06/1/304).

In addition, the sending organization may be faced with the need to register its separate unit if at the place of business trip it has equipped stationary workplaces for its posted workers (Letter of the Ministry of Finance of Russia dated April 10, 2009 N 03-02-07/1-176).

Situation 2: Providing rental equipment with a crew

Under a rental agreement for equipment with a crew, the lessor organization provides the lessee with construction equipment for a fee for temporary possession and use and provides its own services for the management and technical operation of the provided equipment.

Based on Art. 635 of the Civil Code of the Russian Federation, crew members are employees of the lessor. They are subject to the lessor's instructions regarding the management and technical operation, and the lessee's instructions regarding the commercial operation of the vehicle.

In this situation, in our opinion, there is no such sign of a separate unit as the creation of stationary workplaces due to the fact that the equipment itself cannot be a stationary workplace.

A similar opinion is expressed in the Resolution of the Arbitration Court of the North-Western District dated September 16, 2015 N F07-7313/2015 in case N A05-9557/2014. The judges, guided by the concept of a workplace, came to the conclusion that dump trucks could not be a stationary workplace.

When considering disputes regarding the obligation to register a separate unit, the arbitrators indicate the need for documentary evidence of the creation of stationary jobs. Thus, the Arbitration Court of the North-Western District, in Resolution No. F07-7313/2015 dated September 16, 2015 in case No. A05-9557/2014, refuted the tax authority’s argument that the presence of the Company’s employees at the construction site for a long period of time already indicates creation of stationary jobs outside the location of the company. According to the judges, the mere conclusion of a subcontract agreement and sending employees on a business trip for a period of more than a month does not indicate the creation of a separate division by the company, since sending employees on a business trip without creating stationary jobs does not lead to the formation of a separate division. The main reason for rejecting the tax authority’s argument was the tax authority’s failure to prove the creation of stationary jobs by the company. Similar conclusions were made in the Resolutions of the Arbitration Court of the North-Western District dated June 17, 2015 N F07-3858/2015 in case No. A05-7419/2014 and dated May 27, 2015 N F07-2939/2015 in case N A05-11564/2014

Situation 3: Mobile construction site

The organization carries out construction and installation work on the gas pipeline. The territory where the gas pipeline is located belongs to different constituent entities of the Russian Federation and is under the jurisdiction of different Federal Tax Service Inspectors. The construction site is constantly moving as work progresses.

Since the construction site is constantly moving, the organization, in our opinion, does not create stationary jobs. And, accordingly, there are no grounds for recognizing the place where such work is carried out as a separate division of the organization. A similar opinion was expressed by the Russian Ministry of Finance in its Letter dated 08/08/2006 No. 03-02-07/1-212. Arbitration practice confirms this opinion. Thus, the Arbitration Court of the North-Western District in Resolution No. F07-2270/2016 dated 03/02/2016 in case No. A42-8726/2014 came to the conclusion that the Company did not create stationary jobs, since the controversial work was of a field, traveling nature , it is not possible to establish whether an employee is assigned to a particular place of work under these circumstances as a stationary workplace.

If the construction site does not move for more than one month, then the organization has the obligation to register a separate division, since jobs are created that have signs of stationarity.

In accordance with paragraph 9 of Art. 83 of the Tax Code of the Russian Federation, if an organization has difficulty determining the place of registration of a separate division, the decision is made by the tax authority on the basis of the data presented.

In addition, to resolve the issue of the presence or absence of signs of a separate division of an organization at the place of its activities, tax authorities take into account the nature of the relationship between the organization and its employees and other actual circumstances of the organization’s activities outside its location. This position was expressed by the Russian Ministry of Finance in Letter dated March 17, 2010 No. 03-02-07/1-114.

Therefore, in our opinion, if the obligation to register a separate division arises, the organization should provide the tax authority with information about the location of the work, taking into account its long-term nature. When moving a construction site, there is no need to deregister with one tax authority and register with another.

Reasons for closing a branch

In general, an organization should not explain the reasons for closing a territorial unit. However, such a decision must be made by a body authorized to do so in accordance with the statutory documents (meeting of founders, board of directors or executive body).

In practice, the most common reasons are:

• lack of profit of the branch or its insufficient size;
• termination of the type of activity that the branch was engaged in;
• presence of violations repeatedly committed by the branch;
• termination of the activities of the main enterprise;
• revocation or expiration of the license if the licensed activity was carried out by a branch.

A division is closed whenever continuation of activities seems impossible or does not make sense.

Read: Liquidation of an LLC through reorganization through a merger

Corporate documents

The decision to terminate the activities of a company through a separate division, which is not a representative office or branch, is usually made by the head of the company alone (unless, of course, the charter provides for another procedure for this). That is, in most cases, a simple order or instruction from the director is sufficient, which indicates the need to liquidate the unit, sets deadlines and appoints responsible persons to resolve all issues arising during liquidation.

How to register a branch: features

Based on current legislation, organizations do not have an obligation to indicate in their statutory documents the possibility of opening branches. However, such a requirement existed previously, and some organizations that created divisions in accordance with previously existing regulations have such an indication in the charter. This is not prohibited, and it is not at all necessary to remove this item.

It turns out that before closing a branch, if the charter reflects its existence, the documentation will still have to be changed. If there is no such information in the charter, then exclusion from the register is carried out using an application in form P13014.

Step-by-step instructions for closing a branch

When closing a branch, it is necessary to follow a certain order, that is, perform actions in strict sequence:

1. Drawing up and execution of a decision to close a branch of a legal entity. Based on “On Limited Liability Companies,” the decision is made by the meeting of participants or the board of directors (depending on the statutory documentation). A branch cannot be closed by a decision of one executive body. But another division that is neither a branch nor a representative office may cease to operate in this way.
2. Transfer of the completed decision to the Federal Tax Service. This must be done in the form of notification C-09-3-2. The document is sent by mail, in person, with the help of a representative by law or power of attorney, or through your personal account on the tax website.
3. Filling out form P13014 and submitting such a document to the Federal Tax Service. This can be done through the tax office, as well as through the MFC.
4. Wait for a response from the Federal Tax Service.

In this case, you will not need to contact the Pension Fund, as well as other authorities. The Tax Service will do everything on its own.

Registration

The answer to the question from what moment a separate division of an organization should be considered created is important for the correct fulfillment of the organization’s responsibilities as provided for in the Tax Code of the Russian Federation:

notify in writing the tax authority at the location of the organization about all separate divisions created on the territory of the Russian Federation (clause 3, clause 2, article 23 of the Tax Code of the Russian Federation).

According to some courts, a separate division can be considered created from the moment when a stationary workplace is equipped (Resolution of the Federal Antimonopoly Service of the Moscow District dated April 10, 2008 N KA-A40/2751-08 (left in force by the Supreme Arbitration Court of the Russian Federation dated July 31, 2008 N 9752/ 08), FAS Far Eastern District dated October 13, 2009 N F03-5338/2009).

You can confirm the creation of a stationary workplace, for example:

• order on job creation (Resolution of the Federal Antimonopoly Service of the Far Eastern District dated 06.08.2008 N F03-A24/08-2/2535);
• a signed lease agreement for the premises in which the workplace will be located (Resolution of the Federal Antimonopoly Service of the Far Eastern District dated 06.08.2008 N F03-A24/08-2/2535);
• an order to hire the head of a separate division (Resolution of the Federal Antimonopoly Service of the North-Western District dated 02/05/2010 N A56-10280/2008).

In Letter dated 02/19/2016 N 03-02-07/1/9377, the Russian Ministry of Finance expressed a different point of view, according to which the period is calculated from the beginning of the organization’s activities through the corresponding separate division.

In our opinion, using the universal rule, the date of creation of a separate division should be determined by the earliest document in date that recorded the presence of all the signs established by Art. 11 of the Tax Code of the Russian Federation.

If the branch is located in another city

In general, the closure of a branch that operates in another locality is carried out according to general rules. But there are certain features that must be taken into account.

So, if the branch is located in another locality, the management of the company, when closing the division, has the right to dismiss the remaining employees (on the basis of ). This possibility is understandable, since transfer would only be possible to another municipality.

In this situation, dismissal can be implemented in relation to any category of employees. Even pregnant women are no exception. In this case, when dismissing employees of a non-resident structural unit, the following actions must be taken:

1. Warn all employees against signature within at least two months.
2. Send notifications to the trade union, as well as to the employment service.
3. Prepare documentation indicating the termination of employment contracts in connection with the liquidation of the branch. These documents will be called orders.
4. Correct the personal records of employees subject to such dismissal.
5. Make notes about dismissal in work books and issue them to employees.
6. Make wage payments, etc.

It turns out that the closure of a branch that operates in another locality also implies the termination of labor obligations to all employees who worked in this division. The company can fire everyone, regardless of their category.

Read: Liquidation of an LLC by changing the director and founders

What else needs to be done when closing a branch

Dismissal of employees and notification of the Federal Tax Service are far from the only actions that must be performed when closing a branch. You should also pay attention to the following points:

• determine tax liabilities . If the branch was located in another locality, then it could pay some taxes at its location. On the one hand, the branch is not an independent payer, since it is not an individual legal entity. On the other hand, tax liabilities may arise, but they are inextricably linked to the central firm. In practice, even if the tax is not paid by the branch, the responsibility passes to the central firm;
• transfer the affairs of the branch . It rarely happens that a branch closes without having any obligations to counterparties. Undoubtedly, any contracts are concluded on behalf of the main company, but some contracts are implemented through a branch. Accordingly, such cases must be transferred either to another separate division or to a legal entity. It is also recommended to notify all counterparties of the closure;
• transfer property and documentation . Some documents are transferred to the archive, others - to personal files and in other areas. It is important to transfer the property that was at the disposal of the branch.

Closing a branch is not just a formal cessation of its activities. It represents a whole series of related actions aimed at actually completing the work and transferring authority to another division or legal entity as a whole.

Stationary workplace

Workplace in accordance with clause 2 of Art. 11 of the Tax Code of the Russian Federation is considered permanent if it is created for a period of more than one month.

Recognition of a workplace as stationary does not depend on the frequency of visits by the employee and the time spent at it.

The form of organization of work (rotation work or business trip) and the period of stay of a specific employee at a stationary workplace created by the organization have no legal significance. This, with reference to judicial practice, is indicated in Letters of the Ministry of Finance of Russia dated November 13, 2015 N 03-02-07/1/65879 and dated May 24, 2013 N 03-02-07/1/18634, dated October 12, 2012 N 03- 02-07/1-250.

Thus, the fact that an organization is present with its personnel and material and technical means in a separate territory for a month is a sufficient sign of stationarity, regardless of the actual duration (continuity) of the direct implementation of production activities.