Court confirmed legality of issued tax notifications-decisions for 12.46 million UAH

Court upheld position of Main Directorate of the STS in Kyiv city regarding issued tax notifications-decisions for a total amount of 12.46 million UAH.

The Administrative Cassation Court within the Supreme Court upheld position of Main Directorate of the STS in Kyiv city and concluded that grounds for including expenses incurred for the purchase of products (works, services) are a set of conditions such as real (actual) purchase of products (works, services) and its use in own economic activity, as well as documentary proof of incurred expenses. Only those primary documents that are drawn up in the case of actual implementation of business operation can be taken into account to confirm the tax accounting data, if it caused real changes in the taxpayer’s property status.

If actual implementation of business operation was not conducted, the relevant documents cannot be considered as primary documents for the tax accounting purposes, even in the presence of all formal requisites of such documents provided by applicable law.

The Cassation Court paid attention to the fact that such circumstances in the case as existence of criminal proceedings registered on the fact of committing a crime against fictitious enterprises – contractors of the buyer and involvement in a criminal offense on the fact of fictitious entrepreneurial activity could not be ignored by the Court of first instance, as a status of fictitious enterprise is incompatible with legal entrepreneurial activity, even if it is formally confirmed by primary documents. 

The panel of judges noted that in order to resolve dispute on the merits and assess the legality of plaintiff’s tax accounting, the Court checks legislative compliance of primary documents and their availability required by regulations and directly concluded agreements. Herewith, in addition to the minimum documents required by tax law, the Court must check other documents and circumstances that should confirm reality of the disputed operation, which is reflected in tax accounting.

The Supreme Court summarized that the LLC “Novaklin” has not proved existence of grounds with which norms of tax legislation connect the possibility of lawful formation of disputed amounts of tax benefits. Accordingly, in making the contested decisions, the supervisory body acted lawfully within powers granted to it.

The Administrative Cassation Court within the Supreme Court made a Decision as of 01.06.2021 in the case № 826/5214/17 to dismiss cassation appeal of the LLC “Novaklin” and to leave unchanged Decision of the Appellate Court which denied satisfaction of the administrative appeal of the LLC “Novaklin” on the recognition of tax notifications-decisions as illegal and its cancellation.

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