Court confirmed legality of tax notifications-decisions for 5.49 million UAH

Cassation administrative court as a part of the Supreme Court supported conclusion of courts of previous instances and position of Main Directorate of the State Tax Service in Kyiv city in case № 640/20378/19 regarding unreality of business operations, namely supply of construction materials and performance of construction works.

Refusing to satisfy the claim, courts of previous instances assumed that primary documents provided by the plaintiff are not sufficient to confirm actual execution of business operations with the specified counterparties.

Giving a legal assessment of disputed legal relations, courts of previous instances noted that legal consequences in the form of buyer's right to form the value added tax credit arise in the presence of a combination of the following circumstances and grounds, in particular: actual (real) execution of taxable operations and their documentary confirmation by a set of legally significant (valid) primary and other documents that usually accompany operations of a certain type; that parties have a special tax legal entity and properly prepared tax invoice; business purpose, reasonable economic reasons for carrying out operation and further use of the purchased products (works, services) within limits of the payer's economic activity.

Analysis of reality of economic activity should be carried out on the basis of the taxpayer's tax and accounting records and their compliance with actual economic content. At the same time, in primary documents, which are the basis for accounting, data are recorded only about the actual business operations.

If the business operation did not actually take place, then primary documents compiled by the taxpayer and his counterparty to confirm such operation do not correspond to reality and testify to the lack of will on the part of parties regarding the actual execution of business operation. 

Panel of judges agreed with conclusions of the courts of previous instances that the fact of carrying out repair works in the non-residential premises precisely on the plaintiff’s order and in fulfillment of general contracting agreement is not confirmed by written evidence attached to the case materials in connection with the transfer of these premises for use to another person. At the same time, the sub-lessee was assigned with an obligation to perform repair works on the leased object.

In addition, the courts of previous instances noted that the nomenclature and quantity of construction materials specified in the expenditure invoices do not agree with information contained in the acts regarding the transfer of materials for repair works.

Claimant did not provide evidence of the transportation of construction materials received under the specified invoices.

Cassation administrative court noted that the courts of previous instances reasonably noted that during the case review the plaintiff did not provide evidence of the actual receipt of construction materials and execution of repair works, as well as of causing real changes in the plaintiff's property status in connection with conduction of such operations.

The specified circumstances, together with information provided by the controlling body about the counterparties’ activities, give grounds for conclusion that the actual execution of business operations between the plaintiff and the specified counterparties is not confirmed.

Cassation administrative court summarizes that content of documents provided by the plaintiff, approach to their compiling and completeness of information presentation do not give grounds for concluding that they were compiled in connection with economic operations that were actually carried out.

Therefore, by decision of the Cassation administrative court as a part of the Supreme Court as of 02.03.2023 in case № 640/20378/19, the taxpayer’s cassation appeal was dismissed, decisions of the courts of previous instances, which refused to satisfy claims for recognition of tax notifications-decisions for the total amount of 5.49 million UAH as illegal and their cancellation, were left unchanged.