Court supported position of the State Tax Service regarding legality of the penalty fee accrual

Cassation administrative court as a part of the Supreme Court cancelled ruling of the Appellate court, decision of the Court of first instance and supported position of the controlling body in case № 160/16020/21 regarding legality of the penalty fee accrual for the understatement period of monetary liability accrued by the tax authority based on the tax audit results and agreed in the judicial procedure in case that such obligation was paid by the taxpayer within ten days from the date of its agreement.

Courts of the first and appellate instances, resolving dispute, proceeded from the fact that, taking into account actual circumstances of this case, wording of tax legislation, which is subject to application to the disputed legal relationship, was changed from 01.01.2017 according to rules of Sub-paragraph 129.1.1 Paragraph 129.1 Article 129 of the Tax Code of the Code of Ukraine, the penalty fee begins to be accrued from the first working day following the last day of a deadline for payment of tax liability by the taxpayer specified by this Code (including for a period of administrative and/or judicial appeal). Taking into account actual circumstances of this case, the tax authority had a right to accrue the penalty fee after conducting audit and registering its results, given that presence of this circumstance is a mandatory condition for starting procedure for accrual of the penalty fee and given that at the time of applying such procedure, rule of Paragraph 129.1 Article 129 of the Tax Code of Ukraine in new version was already in force, and such accrual should take place according to rules of this norm. Similar legal position during solution of such relations was set forth by the Supreme Court in Resolutions as of 27.11.2018 in case № 822/2591/17, as of 05.12.2019 in case № 520/10442/18 and as of 11.02.2021 in case № 825/1198/ 17.

Considering this case, the panel of judges took into account conclusions of the Supreme Court as a part of the Judicial chamber on consideration of cases regarding taxes, levies and other mandatory payments of the Cassation administrative court in Resolution as of 27.09.2022 in case № 380/7694/20.

In this Resolution, the Supreme Court departed from conclusions set forth, in particular, but not exclusively, in Resolutions of the Supreme Court as of 19.06.2018 in case № 820/3878/17, as of 27.11.2018 in case № 822/2591/17, as of 20.11. 2019 in case № 280/411/19, as of 14.05.2020 in case № 822/3190/17, according to which Article 129 of the Tax Code of Ukraine, in version effective from 01.01.2017, does not establish accrual of the penalty fee in case that the controlling body detects understatement of tax liabilities for the amount of such understatement, for the entire understatement period and formulated the following legal opinion.

Beginning of the penalty fee accrual, determined in Sub-paragraph 129.1.1 Paragraph 129.1 Article 129 of the Tax Code of Ukraine in version effective from 01.01.2017, is connected with expiration of a deadline for payment of tax obligation by the taxpayer, which should have been fulfilled if the taxpayer had not violated norms of tax legislation and did not understate it in the relevant period. That is, the penalty fee accrual begins on the first working day following the last day of a deadline for payment of this obligation by the taxpayer for relevant tax (reporting) period in respect of which understatement was detected and for the entire understatement period (including period of administrative and/or judicial appeal).   

Taking into account requirements of Paragraph 129.2 Article 129 of the Tax Code of Ukraine, in case that a part of monetary obligation (part thereof) accrued by the controlling body is left unchanged in a course of the court appeal, the penalty fee accrued for its non-payment is reflected in the taxpayer’s Integrated card and is payable for the entire understatement period of such obligation, including during a period of administrative and/or judicial appeal.

Panel of judges noted that in Resolution as of 27.09.2022 in case № 380/7694/20, the Supreme Court also analyzed judicial practice on the application of Article 129 of the Tax Code of Ukraine (in edition until 01.01.2017) regarding accrual of tax amount by the controlling body if its underestimation is detected. According to the established judicial practice, Sub-paragraph 129.1.2 Article 129 of the Tax Code of Ukraine stipulates application of financial sanction to taxpayers in the form of the penalty fee accrual from the due date of tax liability and for the entire understatement period of tax liability for the amount of such understatement, since the taxpayer used funds during the entire period when he did not declare and pay taxes, which were payable to the budget.

Cassation administrative court noted that the defendant’s actions, within limits contested by the plaintiff, correspond to the legal regulation established by Sub-paragraph 129.1.1 Paragraph 129.1 and Paragraph 129.2 Article 129 of the Tax Code of Ukraine at the time of emergence of disputed legal relations and according to the penalty fee accrual available in the case file, such penalty fee is charged precisely on the amount of understated tax liability, legality of the increase of which has been confirmed in the court and for the entire time of its understatement (including during the period of court appeal).

Therefore, by decision of the Cassation administrative court as a part of the Supreme Court as of 31.01.2022 in case № 160/16020/21, cassation appeals of Main Directorate of the State Tax Service in Dnipropetrovsk region and Eastern Interregional Directorate of the State Tax Service for work with large taxpayers were satisfied, decision of the Dnipropetrovsk district administrative court as of 18.01.2022 and decision of the Third administrative appellate court as of 20.09.2022 were cancelled, new decision was adopted, which completely refused to satisfy the plaintiff's claims.