THERE ARE NO MORE SIGNS OF “SUSPICIOUS TRANSACTION” IN THE LAW, BUT IS THERE A REASON TO “RELAX”?

Starting in 2025. 1st of the year. Amendments to the Law “On Taxes and Duties” come into force in January, which EXCLUDE signs of a “suspicious transaction” from the Act, in case of Criminally Acquiring Funds and Prevention of Terrorism and Proliferation Financing Act (NILLTPFN Act) must report to the Control Service.

At present, the law contains only a vulgar phrase that, upon detecting a suspicious transaction in the UNDERSTANDING OF THE LAW of NILLTPFN, the entity must immediately report also to the SRS of suspicious transaction of such a person, which CREATES SUSPICIOUS that the funds involved were directly or indirectly ACQUAINED as a result of a CRIMINAL OFFENSE in the state revenue area. I have written before about what it actually means (look for the link in the comments).

Although it is expected that there could be fewer penalties in the future just because you will no longer have to report after report, but only when transactions RAISE SUSPICIOUSNESS of a CRIMINAL OFFENSE, it would not be desirable to “relax” too much. Already during the drafting of the amendments, it was promised that the SRS would prepare guidelines that will include the listing of suspicious transaction tax signs. And it must be said – the SRS has done its “homework”. The following guidelines that are based on typologies developed by FID and are very extensive are already available on its website.

Recently, the transactions described in court rulings (although they were evaluated in accordance with the “old order”) give a very good idea in which cases the transactions made by clients should be paid more attention, because they will certainly be judged as SUSPICIOUS.

EXAMPLE 1

A foreign accounting client – a company registered in Latvia – received a USD 1.3 million payment from a foreign company.

1) In the payment task, the invoice, its number and date are specified as the basis.

2) An agreement has also been signed between the parties that payment has been received for the delivery of goods.

3) An additional agreement has also been signed to the mentioned contract, which provides that since the buyer (foreign company) has not received the goods, the period of delivery of the goods is extended for 1 year.

According to the NILLTPFN Act, a suspicious transaction is defined as a transaction or activity which creates SUSPICIOUSNESS that the funds involved are directly or indirectly obtained as a result of a CRIMINAL OFFENSE or related to financing terrorism and proliferation or attempting such activity).

It is worth explaining here that a CRIMINAL OFFENSE must be understood intentionally (intentionally) or careless harmful offense (action or inaction) committed, which is provided for by CRIMINAL LAW and for which it is threatened by criminal punishment. Remember, the law DOES NOT REQUIRE TO REPORT all possible tax violations! For example, criminal liability for tax avoidance occurs only if it is done in LARGE AMOUNT (or the amount of unpaid taxes exceeds 50 minimum wage – or 37 000 euros 2025. in a year).

Returning to this example, the outside accountant had to pay attention to the following “red flags” in his client’s transaction:

4) Receiving large sums increases the risk that the transaction is made to avoid taxes in large amounts (i.e., for an amount of at least 37,000 euros). Therefore, more attention should be paid to the client’s documents and information about this transaction.

5) In the apparent case, when evaluating the documents, the SRS concluded that the contracts do not specify representatives of the client and their transactional partner, nor do their deciphers.

6) Doubt also created a considerable amount (1.3 million. euro ) advance payment without receipt of goods for a longer period of time. These doubts are further increased by the fact that the parties agreed to extend the term of delivery of goods for a year, which in itself is very atypical. Which normal company will divorce 1.3 million euros for a period of more than a year, without receiving a product in return?

7) The transaction partner is a third-country company, as are its owners – companies registered in Belize and the Virgin Islands. However, the publicly available information shows that the business partner and its owners have zero value of turnover and cash in the relevant periods.

According to the SRS assessment, the transaction “screams” that the documents have been formally designed and therefore the external accountant should have been suspicious. Looking at it already in 2024 the guidelines published in the year we see that one of the signs of suspicious transactions is – if the documents have flaws or are formally designed.

EXAMPLE 2

A client of a foreign accountant received funds in the amount of € 100,000 in a bank account for the delivery of goods to buyers from third countries. However, the external accountant could not show the SRS:

1) Contract for supply of goods (or the contract submitted has not been signed);

2) CMR;

3) but the invoice did not include a signature of the recipient of the goods, the address of delivery and transportation information.

From the SRS concluded that the transaction documents submitted by an external accountant client do not contain information on the actual conditions of the transaction conclusion. The information provided in them is not comparable and verifiable and the transactions do not find an obvious legitimate purpose.

Rewriting these IRS (and also the court) conclusions from the court’s verdict, completely hair goes up in the air. Although I do not conclude that the SRS and the court’s findings are correct, however the reasoning regarding the excused documents creates an internal protest.

First of all, a contract is not mandatory. The transaction can also be confirmed by the invoice. Therefore, the absence of a contract does not in itself indicate the signs of a suspicious transaction. In court practice, however, there is a statement from time to time that if the sums are large, it would only be normal to sign a contract between the parties, but this is too far-fetched statement that may not match reality. If the SRS shows a contract, then of course it is desirable that it should at least be signed. Flaws in the contract may indicate the formalization of documents, which may therefore create suspicions about the transaction.

Secondly, a signature is not mandatory in the VAT bill (it may not be). Similarly, the addresses of receipt and delivery of goods and transportation information do not need to be specified in the VAT invoice. The exception if the delivery document (bar mark) contains VAT invoice details and is used as a VAT invoice consecutively. However, the actual circumstances arises that the delivery took place to other countries, the consecutive delivery document is CMR. The condition that the SRS is not displayed in the CMR is not enough to make claims for props that do not need to be there.

In any case, you will pay more attention to the excuse documents set up by your clients and the flaws in them. I will repeat, the fact that the law no longer contains signs of “suspicious transactions” does not mean that you can “relax” and not report such suspicious transactions. As you can see, not only deficiencies in the documents, but also their absence (which can confirm the actual delivery of goods) can be considered to be SUSPICIOUS and can consequently create a duty to report.

Your Alice