RF Supreme Court urges proper notification of insurance premium payers

Vladimir Ryvkin

Tax lawyer

This article has been published in Nalogoved magazine, issue no. 12/2014

Link http://nalogoved.ru/art/1876

Russia considers introducing criminal responsibility for failing to pay insurance premium. In this connection, proper notification of the payer about the time and place of considering the outcomes of audit by the supervisory authority gains particular importance. However, although some of the issues has been cleared by a federal judicial precedent, the problem persists.

Recently, the Supreme Court raised the question of the method of notifying the insurance premium payers about the time and place of considering the outcomes of audit. This was caused by the uncertainty of the law and gaps in proving in court the violation the existing notification procedure.

The Supreme Court, having considered a cassation appeal of the Office of the RF Pension Fund in the Kirov district of Astrakhan (hereinafter "the Fund")1, made an important conclusion. If the Fund sends to an insurance premium payer, together with the certificate of audit, a notification about the time and place of considering the audit outcomes by registered mail, then the date of delivery of these documents will be considered the sixth day from sending such registered mail.

In such circumstances, the fact of notifying the payer in this way will be a sufficient notice and will allow the Fund to consider the certificate of audit in the absence of the Company (its authorized representative).

Background to the case and the findings of the Supreme Court

The Fund appealed to the court to recover from the Company's a fine for its failure to timely submit the individual (personalized) records for the insured persons. Having revealed this violation, the Fund issued a respective certificate and sent it to the payer by registered mail with a notice of the time and place of considering the audit outcomes.

The audit outcomes were considered in the absence of the Company's representative, who, in the Fund's view, had been properly notified. A decision was taken to hold the payer liable.

After having analyzing the submitted documents, three court instances dismissed the Fund's claims. They pointed out, that there is no reason to believe that the notice was received within six days after sending it by registered mail, since the certificate of audit and the notice have been sent to the registered address of the Company, as reflected in the registered mail records, but have not been received by the Company.

According to the court2, this fact is not in itself a proper proof of having notified The Company of the date of considering the certificate of audit, because the principle that a notice by registered mail shall be deemed received within six days from sending such notice does not apply because the Law on Insurance Premiums3 does not stipulate this.

The Fund has lodged a cassation appeal with the RF Supreme Court. The Judicial Board for Economic Disputes (hereinafter "the Judicial Board") stated that the lower courts had concluded about a material breach by the Fund of the procedure of bringing the Company to responsibility. By having examined the outcomes of auditing the insurance premium payer with no information about its proper notification and the time and place of considering the certificate of audit, the Fund thus deprived the Company of the opportunity to make use of its legal right to provide explanations, present evidence, lodge claims etc. Basing on this fact, the decision was taken on the disputed court ruling to dismiss the Fund's claim.

According to the Judicial Board, when obliging the Fund to make a series of actions prior to sending the certificate of audit by registered mail, the courts were guided by Part 4 of Article 38 of the Law on Insurance Premiums as in force before January 1, 2012.

According to the new wording of this law4 the certificate of audit  shall be delivered to the audited entity (its authorized representative) either by hand against receipt, or sent by registered mail or transmitted electronically via means of telecommunication within five days from the date of its signature. If sent by registered mail, the sixth day after the date of sending the mail shall be considered the date of certificate delivery.

As pointed out by the Judicial Board, the Fund, when taking a disputable decision to bring the Company to responsibility, has lawfully admitted that the Company's was properly notified of the time and place of considering the certificate of audit, thus enabling the Fund to consider the certificate in the absence of authorized representative of the payer. The courts, when making a conclusion about a material breach of the procedure of bringing the Company to responsibility, have referred to the obsolete wording of the Law on Insurance Premiums.

In view of this, the Supreme Court, by referring to Part 1 of Article 291.11 of the RF Arbitration Procedure Code, has reversed the appealed decisions as ones that carried a material breach of substantive law that affected the outcome of the case and need to be eliminated in order to restore and defend the infringed rights, freedoms and legitimate interests related to business and other economic activities, as well as to defend the public interests protected by law.

The case has been sent for a new trial in the court of first instance.

Questions still open


The Supreme Court has only partially resolved the dispute about the method of notification, given that the Law on Insurance Premiums does not contain a legal definition of "proper notification". Moreover, it does not define the exact moment the notice must be sent by mail, and what will be a proof of proper notification in such a case.

Previously, not any mailed notice was regarded as proper by courts. For example, the court regards a delivery to the insurance policy holder of a desk audit certificate and a notice of place and time of considering the audit outcomes as not proven if the Russian Post reports the mailed certificate and notice to be not delivered to the addressee through a fault of post employee5.

If these documents are sent to a legal entity by registered mail with no delivery acknowledgement, such method of notification does not provide a proof of the date of its receipt by the authorized representative of insurance policy holder6.

In addition, a written acknowledgement by the Russian Post of delivery of registered mail sent by the RF Pension Fund to the policy holder cannot, by itself, be a proof of proper notification, because it does not confirm the Fund's knowing the date of delivery of the certificate and the notice when taking the decision to bring the policy holder to responsibility7.

It should be also noted that the head or deputy head of the body overseeing the payment of insurance premiums must notify the auditee about time and place of reviewing the audit outcomes (see Part 2, Art. 39 of the Law on Insurance Premiums).

Please note that the approved form of the certificate of audit8 does not contain information about the notification. In this connection, it is still questionable whether the Part 4 of Article 38 of the Law on Insurance Premiums is applicable in cases where only the notice with no certificate of audit has been mailed, since the certificate does not specify the time and place of considering the outcomes of audit9.

Please note, that since the fact of auditee's evading to receive the mailed notice could not be proven, the court found that the Company had not been properly notified of the time and place of considering the outcomes of audit 10.

If the Company's representative is served the certificate of audit at the date of its issuing, then there is no reason for the Fund to send a notice by mail, as it could be served together with the certificate. If a notice sent by registered mail is returned to the sender, it will understand that the addressee did not receive the notice. Thus, the Fund will know prior to making a decision on the audit outcomes whether the notice was received or not and whether the company is aware of considering the outcomes of audit11.

A postal receipt and a mailing log confirming the fact of mailing the notice do not prove that the company has been timely notified of considering the outcomes of audit. To properly prove the notification the Fund should have documents confirming that the notice has been (or has been not) served to the auditee12.

Also, a notice by registered mail with a simple acknowledgement of receipt, which was being processed by the post office at the time of making a disputable decision13 will not be considered a proper notice.

If the fact of payer's evading to receive the mailed notice could not be proven, it will be considered to be not properly notified of the time and place of considering the outcomes of audit 14.

***

This judicial precedent, of course, will affect the conclusions of the courts on appeals of decisions of the bodies that supervise the payment of insurance premiums. However, the discussion on proper notification of the payer about the time and place of considering the outcomes of audit is not completed yet. The fact that proper notification will be assessed taking into account the circumstances of each case, because the observance of the procedure of bringing the payer to responsibility is an important guarantee for its lawful right to have its interests protected.

1 See: Ruling of the RF Supreme Court of 08.10.2014 on Case No. 306-ES14-84, A06-6118/2013.

2 See: Ruling of the Federal Arbitration Court of Povolzhskiy Okrug of 15.05.2014 on Case No. A06-6118/2013.

3 The Federal Law of 24.07.2009 No. 212-FZ On Insurance Contributions to the Pension Fund of the Russian Federation, the Social Insurance Fund of the Russian Federation, Federal Compulsory Medical Insurance Fund.

4 See: The Federal Law of 03.12.2011 No. 379-FZ On Amendments to Certain Enactments of the Russian Federation on Setting Insurance Premiums to be Paid to the State Non-Budget Funds.

5 See the Ruling of the Federal Arbitration Court of Central Okrug of 23.12.2013 on the Case No. A14-1894/2013; Federal Arbitration Court of Moscow Okrug of 31.01.2014 on the Case No. A40-1774/13.

6 See: Ruling of the Federal Arbitration Court of Severo-Zapadny Okrug of 10.06.2013 on Case No. A56-25336/2012.

7 See: Ruling of the Federal Arbitration Court of Severo-Zapadny Okrug of 23.05.2013 on Case No. A56-25338/2012.

8 Decree of the Ministry of Labor of Russia of 27.11.2013 No. 698n.

9 See: Ruling of the Federal Arbitration Court of Moscow Okrug of 21.07.2014 on Case No. A40-176157/2013.

10 See: Ruling of the Federal Arbitration Court of Vostochno-Sibirsky Okrug of 06.08.2013 on Case No. A33-17568/2012.

11 See: Ruling of the Moscow Arbitration Court of 06.08.2014 on Case No. A40-52009/2014.

12 See: Ruling of the Federal Arbitration Court of Severo-Kavkazsky Okrug of 13.04.2011 on Case No. A32-19879/2010.

13 See: Ruling of the Federal Arbitration Court of Vostochno-Sibirsky Okrug of 21.03.2013 on Case No. A19-15120/2012.

14 See: Ruling of the Federal Arbitration Court of Vostochno-Sibirsky Okrug of 06.08.2013 on Case No. A33-17568/2012.

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