State Tax Service proved in court the illegality of collection for 1.23 million UAH

The Grand Chamber of the Supreme Court considered cassation appeal of the Main Directorate of the State Tax Service in Cherkasy region in case № 925/556/21 on the enterprise's claim regarding prosecution in the form of recovery of losses as a result of illegal behavior of the state authority.

Satisfying the plaintiff's claims in full, courts of previous instances proceeded, in particular, from the fact that payment made by the plaintiff in favor of the counterparty-buyer is objective reduction of the Seller's property assets, that is, it is his losses and causal connection between actions of tax authority and these losses is that the Seller's violation of obligation to the Buyer under Agreement regarding the timely registration of Tax invoice was objective consequence of the conduct of Main Directorate of the State Tax Service, which unlawfully suspended registration of the specified Tax invoice in the Unified Register of Tax Invoices.

The Grand Chamber of the Supreme Court considers such conclusions erroneous, since courts of previous instances did not take into account that the plaintiff exercised his right as a taxpayer in tax relations and took actions aimed at restoring the counterparty's property interest in obtaining right to form tax credit, namely: he appealed to the administrative court with a lawsuit alleging the illegality of actions of Main Directorate of the State Tax Service, which consists in the illegal registration suspension of Tax invoice in the Unified Register of Tax Invoices, based on the resolution results of this case, Main Directorate of the State Tax Service registered Tax invoice in the Unified Register of Tax Invoices on the date of its submission for registration, namely 22.07.2020. Execution of court decision in the specified case resulted in realization of property interest of the counterparty-buyer in the emergence of rights to form tax credit, since in accordance with Clause 2 of Paragraph 201.10 Article 201 of the Tax Code of Ukraine, tax invoice was compiled and registered in the Unified Register of Tax Invoices, who carries out supply of products/services, for the buyer of such products /services is the basis for charging tax amounts related to tax credit.

In addition, in this case, the plaintiff does not claim that he suffered other losses as a result of the illegal decision of the controlling body. Court decision in the administrative case resolved issue regarding existence of grounds for obligation of the controlling body to register Tax invoice and its implementation effectively removed the only obstacle caused by the illegal decision of the controlling body for the counterparty to exercise property interest in obtaining right to the VAT tax credit. The Plaintiff does not claim existence of other obstacles caused by the illegal decisions, actions or inaction of the controlling body.

In this regard, there is no reason to conclude that there is a cause-and-effect relationship between the costs incurred by the Claimant after paying a fine of 21% of the amount of delivery under the Agreement and illegal decision of the controlling body, as the Claimant managed to eliminate consequences of this decision. However, payment in favor of the counterparty-buyer of a fine is related to compensation of other losses, in particular, from the depreciation of funds, or necessary expenses that are in a cause-and-effect relationship with the illegal decision, action or inaction of the controlling body in this case, the Plaintiff did not assert and did not submit relevant evidence to the court.

The Grand Chamber of the Supreme Court observes that in context of disputed legal relations, causal connection as a mandatory element of responsibility for losses caused was that as a result of illegal actions of Main Directorate of the State Tax Service to block registration of Tax invoice in the Unified Register of Tax Invoices, the counterparty-buyer would have lost opportunity to be included in the composition tax credit of 981 680 UAH, which was the VAT amount for supply operation under Agreement.

Since the plaintiff in the administrative process was able to prevent the counterparty-buyer from causing losses of 981 680 UAH (the VAT amount for operation under Agreement), which he could have incurred due to the impossibility of including this amount in the tax credit, the Grand Chamber of the Supreme Court concludes that in the disputed legal relationship there was no objective reduction of Buyer's property benefits, and 981 680 UAH, which Seller paid in his favor as a part of a fine according to Agreement, were not necessary expenses that he had to make to restore the violated property interest of Buyer, which makes it impossible to recover the specified amount from the State Budget of Ukraine as losses.

Remaining 255 236.80 UAH paid in favor of Buyer cannot be recovered from the State Budget of Ukraine as losses due to the lack of causal connection between actions of Main Directorate of the State Tax Service and to block registration of Tax invoice and Seller's incurring such costs for performance of Agreement, since the plaintiff did not assert and did not prove their composition and connection with violation by the controlling body, in addition to referring to the fact that they were paid to the Buyer under Agreement.

The Grand Chamber of the Supreme Court summarizes that appeal of decision, action or inaction of the controlling body as aimed at the restoration of a subjective right or legal interest, and claim for compensation for losses caused by the loss of this right or interest, is appeal to competing methods of protection, which court cannot provide simultaneously.

Therefore, by decision of the Grand Chamber of the Supreme Court in case № 925/556/21 as of 01.03.2023, cassation appeal of Main Directorate of the State Tax Service in Cherkasy region was partially satisfied, decision of the Economic Court of Cherkasy region as of 07.12.2021 was cancelled, decision of the Northern Appellate Economic Court as of 25.05.2022 was cancelled and new decision was adopted, which rejected claim for collection of 1.23 million UAH of losses from the State Budget of Ukraine.