Court supported position of tax authorities regarding the VAT reimbursement

Cassation administrative court as a part of the Supreme Court by its resolution as of 23.01.2023 in case № 640/2076/19, satisfying cassation appeal of Main Directorate of the State Tax Service in Kyiv city and canceling Decision of the District administrative court of Kyiv city as of 22.10.2019, resolution of the Sixth administrative appellate court as of 22.09.2020 and additional decision of the Sixth administrative appellate court as of 23.06.2021 came to the following conclusions.

Main regulatory legal acts that regulate legal relations in certain temporarily occupied territories of Ukraine between physical and legal entities located in the temporarily occupied territory or outside its borders are, in particular, the laws: "On ensuring rights and freedoms of citizens and legal regime in the temporarily occupied territory of Ukraine" № 1207-VII as of 15.04.2014 with changes and amendment (hereinafter – Law № 1207-VII), "On creation of free economic zone "Crimea" and on peculiarities of economic activity in the temporarily occupied territory of Ukraine" № 1636-VII as of 12.08.2014 (hereinafter – Law № 1636-VII; Law became invalid on 21.11.2021 based on the Law № 1618-IX as of 01.07.2021).

By the Law № 1636-VII, which entered into force on 27.09.2014, Sub-section 10 of Section XX "Transitional Provisions" of the Tax Code of Ukraine was amended with Paragraph 26 with the following content: "During period of validity of the Law of Ukraine "On ensuring rights and freedoms of citizens and legal regime in the temporarily occupied territory of Ukraine", this Code is applied taking into account specifics defined by the Law of Ukraine "On creation of free economic zone "Crimea" and on peculiarities of economic activity in the temporarily occupied territory of Ukraine".

In Sub-paragraphs 1, 11, 12 of Paragraph 12.3 Article 12 of the Law № 1636-VII it is determined that during temporary occupation, collection of taxes and levies, single social contribution and use of registrars of settlement operations in relation to territory of the Crimean free economic zone are carried out taking into account the fact that:

- national taxes and levies defined in Article 9 of the Tax Code of Ukraine, Article 271 of the Customs Code of Ukraine, single contribution introduced by the Law of Ukraine "On collection and accounting of single contribution to obligatory state social insurance" and obligatory state pension insurance fee, payment of which is carried out according to the Law of Ukraine "On levy for mandatory state pension insurance", do not deal with income received by legal entities (their separate divisions) and individuals in the temporarily occupied territory, operations and/or from other taxation objects (including objects related to taxation) in the temporarily occupied territory;

- to taxpayers who, as of the beginning of temporary occupation, were on territory of the Autonomous Republic of Crimea and Sevastopol city, starting from the first day of a month following month in which temporary occupation began, financial and penal sanctions for violation of requirements for the order of submission, calculation, correctness of filling in tax declarations (tax reporting) and complete payment of taxes and levies amounts are not applied (Sub-paragraph 11 Paragraph 12.3 Article 12 in edition of the Law № 685-VIII as of 15.09.2015);

- application of provisions of Articles 59, 60, 87-101, 124, 126 and 129 of the Tax Code of Ukraine to taxpayers located in territory of the Crimean free economic zone is suspended.

Tax information on the tax debt amount of taxpayers located in territory of the Crimean free economic zone is stored and processed in the information databases of the controlling bodies in a separate (off-balance) order.

Paragraph 15.1 Article 15 of the Law №1636-VII stipulates that for any legal entity – resident of Ukraine, that changes (has changed) its location from the temporarily occupied territory to another territory of Ukraine, the tax debt, amounts of deferred (installed) monetary obligations for any taxes (levies, mandatory payments) arising from the moment of temporary occupation are written off.

Taxpayers who, as of the beginning of temporary occupation, were in territory of the Autonomous Republic of Crimea and Sevastopol city, starting from the 1st of a month in which beginning of temporary occupation falls, are not subject to financial sanctions, fines and penalties for violation of procedure for submission, calculation, correctness of filling in tax declarations and completeness of payment amounts of taxes and levies, allowed during the conduction of economic activities on the territory of the Autonomous Republic of Crimea and Sevastopol city.

Paragraph 45.2 Article 15 of the Tax Code of Ukraine stipulates that the legal entity’s tax address (its separate subdivision) is a location of such legal entity, information about which is contained in the Unified State Register of Legal Entities and Individuals – Entrepreneurs.

Systematic analysis of provisions of the specified norms provides grounds for conclusion that the tax debt incurred by the taxpayer (legal entity – resident of Ukraine) during the conduction of economic activities with tax address in the temporarily occupied territory of the Autonomous Republic of Crimea and Sevastopol city is subject to write-off in a period from the date of beginning of temporary occupation of territory until the moment of change of location from the temporarily occupied territory to another territory of Ukraine (according to Part 2 of Article 1 of the Law № 1207-VII, date of the beginning of temporary occupation of the Autonomous Republic of Crimea and Sevastopol city is 20.02.2014).

Such conclusion regarding the application of norms of Paragraph 15.1 Article 15 of the Law № 1636-VII was made by the Supreme Court in decision as of 18.11.2022 in Case № 826/2767/16. Panel of judges conducting the cassation review of this case (case № 640/2076/19) sees no reason to deviate from this conclusion.

Refusing to satisfy claim of the JSC “DTEK Krymenergo” in case № 826/2767/16, the Supreme Court proceeded from the circumstances established in this case, that the JSC “DTEK Krymenergo” changed its location from the temporarily occupied territory (Ukraine, Autonomous Republic of Crimea, Simferopol city, Kyivska street, building 74/6) to another territory of Ukraine (Kyiv city, Lva Tolstogo street, building 57) from 05.23.2014, which is confirmed, in particular, by an extract from the Unified State Register of Legal Entities and Individuals – Entrepreneurs and Public Organizations. According to results of the VAT declarations submitted by the JSC for June 2014 (№ 9040574158 from 16.07.2014) and July 2014 (№ 9049937719 from 29.08.2014), amounts of unpaid tax liabilities under these declarations amounted to 29 780 475.09 UAH and 58 250 094.00 UAH respectively. Payment of tax liabilities in these amounts to the JSC was deferred with interest in equal parts until an end of 2014 according to agreements on installment payments of monetary liabilities № 19 as of 02.09.2014 and № 22 as of 19.09.2014. Tax debt, which was repaid automatically on 19.11.2015 at the expense of declared amounts of budgetary refunding (VAT declaration № 92370909037 as of 19.11.2015), consists of amounts of deferred VAT liabilities for June, July 2014 – 88 030 569.09 UAH and accrued interest and penalties in the amount of 3 315 794.25 UAH for a period of non-payment of installments of monetary obligations.

Taking into account establishment of the specified circumstances in decision of the Supreme Court as of 18.11.2022 in case № 826/2767/16, they are not proven in this case (case № 640/2076/19) according to provisions of Part 4 of Article 78 of the Administrative Judicial Code of Ukraine.

The same circumstances are referred to by the Main Directorate of the State Tax Service in Kyiv city in the cassation appeal. The JSC "DTEK Krymenergo" does not deny these circumstances either, just as it does not deny that reason for refusing the budgetary VAT refunding in the amount of 91 346 363.34 UAH was the automatic crediting of this amount by the controlling body to the tax debt on 19.11.2015.

Payment sources of monetary obligations or repayment of the taxpayer's tax debt are defined by Article 87 of the Tax Code of Ukraine.

Clause 3 of Paragraph 87.1 Article 87 of the Tax Code of Ukraine stipulates that payment of monetary obligations or repayment of the taxpayer's tax debt from the corresponding payment can also be made at the expense of the overpaid amounts of such payment (without payer’s application) or at the expense of mistakenly and/or overpaid amounts from other payments (on the basis of appropriate payer's application) to the relevant budgets.

Procedure for determining payable tax amount (transferred) to the State budget of Ukraine or refunded from the State budget of Ukraine (budgetary refunding) and terms of settlements are provided for in Article 200 of the Tax Code of Ukraine.

Payable tax amount (transferred) to the State budget of Ukraine or budgetary refunding is defined as difference between the tax liability amount for the reporting (tax) period and the tax credit amount for such reporting (tax) period (Paragraph 200.1 of the specified Article).

Taxpayers who are entitled to budget refunding according to this Article and, who have submitted appropriate application and meet criteria specified in Paragraph 200.19 of this Article, have a right to the automatic budgetary tax refunding (Paragraph 200.18 Article 200 of the Tax Code of Ukraine).

At the same time, taxpayers who do not have the tax debt have a right to receive the automatic budgetary tax refunding (Sub-paragraph 200.19.4 Paragraph 200.19 Article 200 of the Tax Code of Ukraine).

That is, only after VAT debt repayment, the remaining negative tax value can be used in other directions.

Summarizing what has been specified, the panel of judges comes to the conclusion that evidence of Main Directorate of the State Tax Service in Kyiv city in the cassation appeal about the incorrect application of norms of substantive law by Courts of the first and appellate instances was confirmed during the cassation review of the case and therefore there are no grounds for satisfying claim of the JSC “DTEK Krymenergo”.