Monitoring in the financial sector: current administrative and procedural trends

Agamagomedova Saniyat ORCID: 0000-0002-8265-2971 Senior Research Fellow, Institute of State and Law of the Russian Academy of Sciences 119019, Russia, Moscow, Znamenka str., 10 saniyat_aga@mail.ru Other publications by this author

Introduction

The current economic situation in Russia is conditioned by the influence of a number of external and internal factors and requires a certain transformation of economic and financial mechanisms in order to counter primarily external threats and challenges. Such a transformation should be based on the revision and updating of the principles of managerial influence, as well as its tools and forms. In this regard, scientific research of control and supervisory instruments in the financial sphere is in particular demand, an area that naturally acts as a basis for other forms of managerial influence on modern public relations. It is no coincidence that scientists, when justifying the prospects for the development of financial law, rightly note that administrative and financial law will play a leading role in the legal mechanisms that are being formed today ^{[1, p. 231]}. In this regard, we consider it possible to identify the concept of monitoring in the financial sector and analyze the features of its implementation and trends in administrative and procedural regulation in modern conditions in order to increase its effectiveness.

Monitoring in the financial control system

Traditionally, monitoring refers to financial control and supervision tools. Thus, scientists state the fact that significant opportunities are inherent in such a form of control as monitoring. Most likely, it should be about the harmonious interaction of banking, financial monitoring with accounting in business entities and bodies with distributive functions ^{[2, p. 6]}. In relation to tax relations, scientists use the concept of "horizontal tax monitoring", which is associated with "a conceptually new format of the fiscal function" ^{[3, p. 30]}.

In most cases, scientists investigate monitoring in the tax ^[3-8] and customs spheres ^[9], while taking into account the temporary delineation of monitoring in these areas, naturally united by public financial interest, some authors talk about the translation of the experience of using monitoring in the tax sphere to the customs ^[10]. In addition, there is a positioning of the financial monitoring system carried out by authorized bodies and focused on interdepartmental interaction aimed at conducting effective control over the implementation of legislation in the field of countering illegal financial transactions ^{[11, p. 169]}.

Taking into account the proximity of tax and customs control, while distinguishing them from the point of view of financial orientation (part of customs control is financial in nature, and part of financial control has a cross-border or customs aspect ^[12]), it makes sense to compare the use of monitoring in these areas of public relations.

Currently, tax monitoring is a form of tax control enshrined in the current tax legislation. This form of control was developed on the basis of the Horizontal Monitoring project and has been in effect since 2015 ^{[4, p. 179]}.

Customs monitoring is currently used in an experimental mode, regulated at the level of subordinate regulatory legal acts (Decree of the Government of the Russian Federation dated 02/16/2023 No. 240 "On conducting an experiment on monitoring by customs authorities of information available to them and received from persons participating in this experiment from accounting systems of goods" // NW RF. 02/27/2023. No. 9. St. 1476 (hereinafter - Decree of the Government of the Russian Federation dated 02/16/2023 No. 240)). Currently, customs monitoring cannot be classified as a form of customs control, while it is permissible to position it as a measure ensuring customs control ^[9]. Some authors identify monitoring with surveillance and refer them, along with inspections and supervision, to methods of state control in the customs sphere ^{[13, pp. 20-21]}.

Tax monitoring also began with an experiment, upon completion of which appropriate amendments were made to the Tax Code of the Russian Federation, which now provides for an independent section V.2. dedicated to tax control in the form of tax monitoring. It should be noted that the priorities in relation to tax monitoring are different, among which we consider it necessary to emphasize the reduction of conflict in the financial sector. Thus, according to M.V. Mishustin, the Federal Tax Service of Russia has radically changed approaches to the organization of control work as initially the most controversial procedure for interaction with taxpayers. In order to introduce and improve conciliation procedures, the tax department continues to develop new mechanisms for pre-trial settlement of tax disputes, including tax monitoring ^[14].

Monitoring, auditing and evaluation in the financial sector: common approaches

Quite often, the concept of monitoring is used in conjunction with the concept of auditing. Thus, O.Y. Bakaeva and E.V. Pokachalova consider monitoring and auditing as a tool to achieve a balance of private and public interests in tax and customs relations ^[15]. Other authors consider strategic audit to be a new area of financial monitoring with its own distinctive features ^[16]. Foreign authors in the study of tax monitoring use the national system and practice of auditing international transfer pricing, which is considered as a means to limit the manipulation of international transfer pricing in China ^[8].

In some cases, tax monitoring and tax audit are considered synonymous. In such studies, the authors recognize that excessive spending on tax audit is ineffective as a means of reducing tax evasion and believe that this stimulates a recession ^[6].

In addition, monitoring is often considered simultaneously with evaluation in relation to a certain type of public relations. Thus, experts consider monitoring and evaluation to be an integral part of ensuring accountability. At the same time, they draw attention to the phenomenon of a culture of monitoring and evaluation, which, in their opinion, is significantly limited or completely absent in many countries for budgetary, cultural and structural reasons and is often influenced by political and other factors. Globally, the use of assessment as a tool for strategic decision-making in most countries of the world is still in its infancy ^[17].

Individual authors develop and present a system of statistical indicators of state tax monitoring necessary to assess the state and development of the national tax system as a whole ^[7].

We believe that monitoring in the financial sector is closely related to the audit and assessment, more precisely, the self-assessment of the controlled person. It is no coincidence that regulatory legal acts, as the purpose of the customs monitoring experiment, designate the approbation of customs monitoring to identify signs of violation of legislation and eliminate their negative consequences, as well as to realize the possibility of self-assessment of the results of customs monitoring by persons participating in the experiment. Thus, the self-assessment of non-government entities is part of the monitoring in the financial sector.

Self-assessment is inextricably linked with self-control, which in modern conditions is positioned by scientists as the main type of control over the activities of economic entities ^[18]. In the practice of foreign countries, tax and other financial monitoring procedures are also based on the results of the company's internal control over the correctness of taxation of transactions. The results of the internal tax examination of transactions are accepted by the tax authorities for control, which reduces the time and material costs of tax administration ^{[4, p. 178]}. In addition, in international practice, in the mode of horizontal (tax) monitoring, tax authorities use the results not only of the taxpayer's internal tax control, but also of external auditors and consultants to determine the reliability of tax reporting ^{[5, p. 70]}.

Financial sector monitoring and digitalization of state control and supervision

Of course, monitoring in the financial sector is a definite reflection of the digitalization of state control and supervision. In this regard, scientists identify methods of financial monitoring of financial stability and digitalization of federal districts, ranking districts in order to assess digitalization processes for making effective management decisions related to the formation of a single financial and economic space in Russia ^[19].

Scientists emphasize the connection between digitalization and tax monitoring, positioning the latter as a transparent and trusting interaction between business and the tax authority in electronic form, contributing to reducing tax risks for companies ^{[14, p. 26]}, rightly highlight the technological component of the process of interaction between a state body and a controlled entity ^{[4, p. 181]}.

The introduction of customs monitoring is also impossible to imagine without digitalization of administrative procedures of customs control. According to paragraph 8 of the Decree of the Government of the Russian Federation dated 02/16/2023 No. 240, during the period of the experiment on customs monitoring, information and software tools of the Unified Automated Information System of Customs authorities automatically collect information on the indicators of customs declaration (foreign economic activity) of the person participating in the experiment.

Thus, the digitalization of control and supervision in the financial sector has created conditions for the introduction of monitoring tools based on the openness of the data of a non-governmental entity, on the transparency of the activity being audited, and the availability of information about it to the state represented by regulatory authorities.

Administrative and procedural trends in the regulation of monitoring in the financial sector

Leading experts, based on factor analysis, identify the following main factors for analyzing tax revenues: socio-economic; legislative; tax administration ^{[14, p. 11]}. We believe that similar factors take place in the customs sphere of regulation, and can be used in relation to the financial sector as a whole. From this point of view, all three groups of factors have a greater or lesser impact on the realization of the financial goals of public authorities. At the same time, with regard to the tools of control and supervisory activities, it is necessary to highlight the influence of factors of legislation (or rather, its reform, optimization in the changed external conditions) and administration. It seems that these factors dominate the transformation of the instruments of control and supervisory interaction of the state in the person of controlling bodies that ensure financial discipline and non-governmental entities. Legislative innovations are designed to provide qualitatively new priorities for control and supervision in the financial sector, and changes in administration are aimed at administrative and procedural optimization of interaction between citizens and organizations with supervisors.

With regard to the latter aspect, it is appropriate to cite the scientific position that tax monitoring is not a form of tax control, but a way to resolve and prevent the occurrence of a tax dispute. Along with traditional administrative and judicial forms of tax dispute resolution, scientists identify alternative forms, which in Russian legislation include tax monitoring and the conclusion of an agreement in a tax dispute litigation ^{[20, pp. 58-59]}. In some states, the practice of issuing preliminary conclusions by tax authorities (Sweden) or preliminary decisions (Israel) is used as an analogue of a measure to prevent a tax dispute ^{[3, p. 27]}. We believe that monitoring in the financial sector represents a certain stage of interaction between the supervisory authority and a non-governmental entity, preceding not only the administrative or judicial review of disputes, but also preceding the control itself (the pre-control stage), or representing its alternative (monitoring instead of traditional inspections).

Thus, based on the analysis of tax and customs monitoring institutions as typical types of monitoring in the financial sector, the following administrative and procedural trends in legal regulation and implementation of these management tools in the financial sector can be identified.

1. Administrative monitoring procedures in the financial sector are based on the digitalization of state control and supervision.

2. The procedural feature of monitoring in the financial sector is the sign of "initiative from below", that is, these procedures are generated voluntarily, on the initiative of a controlled person ^{[20, p. 59]}.

3.                 Monitoring in the financial sector can be considered as a way of informing (transmitting information) about the activities of a controlled entity.

4.                 Monitoring in the financial sector is characterized by a limited nature ^{[20, p. 60]}, it applies to a small category of controlled entities (large taxpayers in tax monitoring, authorized economic operators and representatives of industrial clusters in customs monitoring). Similar limitations are inherent in foreign monitoring practices. In particular, horizontal monitoring in the Netherlands was applied only to large companies ^{[3, p. 27]}.

5.                 An important feature of monitoring in the financial sector and at the same time its goal is to reduce conflict and develop fiduciary ^[15] in the financial sector. Monitoring in the financial sector is positioned as an independent way to resolve and prevent disputes. The practice of post-control, traditionally used by regulatory authorities as a priority verification method, is giving way to the regime of crime prevention ^{[5, p. 66]}.

6. Regulation of monitoring in the financial sector is characterized by a transition from regulatory to individual regulation based on the conclusion of agreements with controlled entities.

7.                 We believe that the legal regulation of monitoring in the financial sector reflects a certain easing of regulation, the introduction of elements of self-regulation and self-assessment. According to modern global trends, when planning control and verification work, the main emphasis is not on the fiscal approach, but on the analytical one ^{[5, p. 65]}.

This is not a complete list of administrative and procedural trends in the development of the Institute of monitoring in the financial sector. Scientists and practitioners have yet to assess the specifics of its legal regulation, to justify its place in the structure of state control and supervision in the financial sector.

Conclusion

We have considered tax and customs monitoring from the point of view of typified types of monitoring in the financial sector. Of course, the latter may include other forms of monitoring as an instrument of state control and supervision.

Despite the lack of uniformity in the development of monitoring in various areas of financial relations (tax monitoring is enshrined in legislation as a form of tax control, and customs monitoring is still being implemented in an experimental mode), their general administrative and procedural trends can be distinguished.

The importance of further development of monitoring issues in the financial sector is due to the fact that the parameters of such a control and supervision tool affect the effectiveness of public administration in general ^[7]. Monitoring in the financial sector is considered in the context of the development of financial management aimed at ensuring the financial stability of territories and taking into account the need to digitalize their economies ^[19].

It is necessary to agree with the position of specialists in relation to tax monitoring that this mechanism allows tax authorities to replace control checks with constant monitoring of the taxpayer's activities and reach a higher level of creating favorable conditions for the fulfillment of tax obligations ^{[14, p. 26]}. This assessment can be applied with good reason to monitoring in the financial sector in general, to all types of monitoring as a tool of control and supervision. The mechanism under consideration makes it possible to fundamentally change the nature of control and supervisory interaction in the financial sector, reduce conflict in it and increase mutual trust between the parties to control and supervisory relations.

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