Court confirmed legality of additional accrual of 13.67 million UAH for violation of tax legislation

Cassation administrative court as a part of the Supreme Court upheld conclusion of the appellate court and position of Main Directorate of the State Tax Service in Poltava region in case № 440/1390/20 that the plaintiff’s business operations with counterparties were not of a real nature.

Appellate court noted that according to the database analysis of the Automatic Identification System "Tax Block" and the Unified register of tax invoices it was established that there is no supplier of vehicle to the counterparty and therefore it is impossible to find out origin of this product, the counterparty company does not have fixed assets on its balance sheet and there is no product supply chain. It was also established that the counterparty did not submit the VAT reporting and did not declare tax obligations selling vehicle and the plaintiff did not provide certificates, quality passports and the source of origin of this vehicle.

Supreme Court noted that the product quality certificate does not belong to documents on the basis of which accounting and tax records are formed, however, in combination with other circumstances of the case, presence or absence of such documents or circumstances may indicate a refutation or confirmation of position of the controlling body.

Appellate court established that the contract concluded between the plaintiff and the counterparty (individual – entrepreneur) for maintenance and repair work does not contain information about address and place of maintenance and repair work of vehicles; information about the list of provided works and terms of their execution; list of documents, which is provided to confirm performance of technical maintenance or repair and the contractor's warranty obligations regarding performance of work, is not defined. Court also noted that similar services for maintenance and repair of vehicles were provided by other business entities.

Supreme Court agreed with conclusion of the appellate court regarding a failure to confirm reality of business operations regarding delivery of a truck, as well as the fact that primary documents do not reveal the content of business operation, lack of information about the vehicle in need of repair in applications for vehicle repair services, taking into account full employment of person who carried out the repair, according to the main place of work.

In addition, the appellate court established that between the plaintiff and counterparties (individual – entrepreneur) contracts were concluded on the provision of driver services, forwarder services, transport and forwarding services, in particular, the counterparties provided services using not their own production capacities, but the plaintiff’s capacities, which gives grounds for doubts about the expediency of such services from the indicated counterparties, since fees for such services are significantly overestimated, cost of which does not include the costs of using motor vehicles and which were included in account 93 "Sales costs", which significantly affected reduction of financial result. 

Appellate court also noted that acts of the handover and acceptance of works (provision of services) received from the individual – entrepreneur contain information on the provision of Driver services, Forwarder services, services for organization of cargo transportation, transport and forwarding services, however, these documents do not contain any information that confirms functions and obligations stipulated by terms of contracts, that is, it is impossible to establish exactly which services (works) and in what quantity were performed according to the specified contracts, that is, the content of services (works) provided is not disclosed.

Cassation administrative court summarizes that preference must be given to the reality of business operation and its economic content. Primary documents must be evaluated taking into account specifics of each business operation – content of provided services, etc. At the same time, presence of primary documents by itself is not a basis for conclusions about the implementation of business operation, if it is clear from other data that the actual movement of assets did not take place.

Therefore, by the resolution of the Cassation administrative court as a part of the Supreme Court as of 22.09.2022 in case № 440/1390/20 the taxpayer’s cassation appeal was dismissed, resolution of the Appellate court as of 08.06.2021, which refused to satisfy claims for recognition of tax notifications-decisions for the total amount of 13.67 million UAH as illegal and their cancellation – remained unchanged.