Court confirmed legality of tax notification-decision for 139.81 million UAH

Cassation administrative court as a part of the Supreme Court supported position of Eastern interregional directorate of the State Tax Service for work with large taxpayers in case No. 280/4556/19 that tax legislation (Clause 2 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine) defines only one criterion for connection of secondary tax notification-decision in relation to the primary one is its receipt and not the fact of agreement or validity.

Courts of previous instances found that on April 23, 2019, the controlling body conducted in-place audit of the plaintiff regarding lack of registration of tax invoices (adjustment calculations) in the Unified Register of Tax Invoices, which established the plaintiff’s violation of requirements of Paragraph 201.10 Article 201 of the Tax Code of Ukraine, namely: lack of registration of tax invoices/ adjustment calculations in the Unified Register of Tax Invoices within a deadline provided by Article 201 of the Tax Code of Ukraine and tax notification-decision dated 05.20.2019 on the application of a fine of 50% of the amount of tax liabilities was adopted on the basis of Clause 1 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine for lack of compiling and registration of tax invoices/ adjustment calculations of the VAT amounts within the deadline.

In addition, the controlling body on June 4, 2019 conducted in-place audit of the plaintiff regarding the lack of registration of tax invoices (adjustment calculations) in the Unified Register of Tax Invoices after expiration of 10 calendar days following day the taxpayer received tax notification-decision as of 20.05.2019.

According to the audit results, the contested tax notification-decision in this case was adopted - decision dated 07.09.2019, by which a fine of 50% of the amount of unregistered tax invoices and adjustment calculations was applied to the plaintiff, which is provided for in Clause 2 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine according to the lack of registration of tax invoices/adjustment calculations after expiration of 10 calendar days following day the taxpayer received tax notification-decision as of 20.05.2019.

Satisfying the plaintiff's claims, the courts of previous instances assumed that enforcement of a fine provided for in Clause 2 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine is possible and legally justified, provided that there is an initial tax notification-decision, which is valid at the time of determination repetition of the fact of non-registration of tax invoices and adjustment calculations.

In this case, the court established that at the time of determination of such repetition, tax notification-decision No. 0001624709 as of 20.05.2019 on the application of a fine was in a state of administrative and judicial appeal, and therefore could not be taken into account by the controlling body as providing the controlling body a right to reimpose a fine to the plaintiff in amount of 50% of the amount of unregistered tax invoices and adjustment calculations.

Therefore, there are no grounds for applying a fine to the plaintiff on the basis of Clause 2 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine.

In addition, the courts also took into account existence of court decisions that have entered into force in cases No. 640/15445/19 and No. 280/3012/19.

Panel of judges of the Supreme Court noted that the taxpayer is obliged to register tax invoice and/or adjustment calculation to such tax invoice in the Unified Register of Tax Invoices, absence of registration in the Unified Register of Tax Invoices of tax invoice and/or adjustment calculation to such tax invoice indicates presence of a violation for which liability is provided in the form of a fine in amounts provided for in Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine.

Absence of registration in the Unified Register of Tax Invoices of tax invoice and/or adjustment calculation to such tax invoice, specified in Clause 1 of this Paragraph, after expiration of 10 calendar days following the date of receipt of tax notification-decision by the taxpayer, entails imposition of tax penalty to the taxpayer in amount of 50 percent of the amount of tax liabilities from the value added tax specified in such tax invoice and/or adjustment calculation to the tax invoice or from the value added tax amount charged on the provision of products/services, if tax invoice was not prepared for such operation (Clause 2 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine).

The Supreme Court noted that in order to qualify the taxpayer’s actions (inaction) as a basis for applying financial and legal responsibility under the specified Article, neither occurrence of any negative consequences nor the fact of agreement of previously issued tax notification-decision on the application of fines according to Clause 1 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine, and it is sufficient to prove the fact of offense itself, which is manifested in illegal act (inaction), i.e. failure to take actions regarding registration of tax invoice in the Unified Register of Tax Invoices and/or adjustment calculation to such tax invoice, specified in Clause 1 of this Paragraph, after expiration of 10 calendar days following the date of receipt of tax notification-decision by the taxpayer adopted on the basis of Clause 1 of Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine.

As follows, criteria with which Clause 2 of Paragraph 120-1.1 Article 120-1 of the Tax Code of Ukraine actually links application of a fine is receipt of tax notification-decision by the taxpayer, applied on the basis of Clause 1 of Paragraph 120-1.1 Article 120-1 of the Tax Code of Ukraine and failure to register tax invoice and/or adjustment calculation to such tax invoice within 10 days (after receiving tax notification-decision) in the Unified Register of Tax Invoices.

Cassation administrative court summarizes that responsibility defined by Clause 2 Paragraph 120-1.2 Article 120-1 of the Tax Code of Ukraine does not include the need to agree on the initial tax notification-decision or its validity, and such qualifying feature of tax offense as repetition of the corresponding act, and therefore calling courts in their decisions on its presence are erroneous.

Therefore, by ruling of the Cassation administrative court as a part of the Supreme Court dated 06.06.2023 in case No. 280/4556/19, cassation appeal of tax authority was upheld, decision of the courts of first instance and appellate was annulled, and new decision was adopted on the refusal to satisfy administrative claim for declaration of illegality and annulment tax notification-decision for the total amount of 139.81 million UAH.