Counterparty check: what should you know?

Counterparty checks today are no longer “box‑ticking bureaucracy” but a basic condition for business security, tax benefits and the owner’s peace of mind. Below is a news‑and‑expert overview of key risks and tools, and how the WINNER team helps to manage them systematically.

Why this topic is “hot” again

• The tax authority continues to build a risk‑based approach: cooperation with “problem” counterparties is becoming an independent ground for disputes, additional assessments and blocking of tax invoices.
• Court practice has confirmed that proper tax due diligence is a lawful precondition for obtaining tax benefits, in particular for VAT and expenses.
• Since 24.02.2022 a counterparty’s links with the aggressor state or its residents have become a separate risk factor – this now entails not only tax, but also security consequences.

Example: a properly documented counterparty check often becomes a decisive argument in a dispute with the tax authority about the reality of transactions and the right to a tax credit.

Key risks when choosing a counterparty

• Fictitious or “technical” counterparty: no real office, staff or assets, unclear business activity, frequent changes of directors/founders.
• Tax riskiness: inclusion of the counterparty in the list of “risky” taxpayers, mass suspension of tax invoices, mismatch between resources and transaction volumes.
• Debts and enforcement proceedings: data from the Unified Debtors Register and the Automated Enforcement System indicate poor payment discipline and a high risk of non‑payment.
• Sanctions‑ and war‑related risks: ties to Russia/Belarus among beneficiaries or management, which may trigger questions from the security service, investigative bodies and financial monitoring.
• Reputational risks: media publications, court disputes, conflicts with state authorities, bringing officials to liability.

Even a single “red flag” without explanation and documentary confirmation can destroy the business’s position in a tax dispute.

Tools and sources for checks

• Taxpayer’s e‑cabinet: the State Tax Service’s tool for checking VAT payers’ risk status and their registration standing.
• State registers: the companies register, Unified Debtors Register, court register, licensing registers, sanctions lists and registers of persons linked to the Russian Federation.
• Commercial analytical systems: services such as YouControl consolidate indicators of “proper tax due diligence” and aggregate financial, tax and legal risks.
• Internal procedures: due‑diligence checklists, questionnaires for counterparties, requests for corporate, registration and financial documents.

It is precisely a systematic approach (combining open registers, services and internal policies) that demonstrates proper due diligence in a dispute with supervisory authorities.

What the tax authority requires as “proper due diligence”

• Building an evidence base: documents confirming that you checked the counterparty’s status, resources, signatory’s powers and the reality of the transaction.
• Tax‑risk analysis: a risk‑oriented approach under which the business identifies, assesses and documents risks for each material transaction or group of counterparties.
• Consistent internal rules: a counterparty‑check policy approved by management, plus documented decisions explaining why cooperation was approved or declined.

Courts explicitly note that if a taxpayer has collected and retained adequate evidence of due diligence, it becomes much harder for the tax authority to prove that they acted “unreasonably” or “in bad faith”.

How WINNER helps
WINNER can act as an external “safety filter” for your transactions with counterparties – from one‑off checks to building a full‑scale due‑diligence system.

Main service formats:

• Comprehensive “deal‑specific” counterparty review: analysis of state registers, tax risks, court disputes, sanctions and links to the aggressor state, with a structured conclusion and recommendations (to contract or not, and which safeguards to include in the agreement).
• Building a tax‑due‑diligence policy: drafting internal regulations, checklists, decision templates and contract clauses that protect the business during audits.
• Support in tax disputes: using the accumulated due‑diligence evidence when appealing blocked tax invoices, additional assessments and in court proceedings.
• Team training: practical workshops for accounting, legal and sales teams on “red flags” and proper documentation of counterparty checks.

If you have any questions or issues related to counterparty checks, tax risks, or building a system of proper tax due diligence, please seek professional advice.

Author: Ihor Yasko, Managing Partner at JSC “WINNER Law Firm”, PhD in Law