Court supported position of tax authorities regarding the VAT reimbursement and penalty

Cassation administrative court as a part of the Supreme Court supported position of Main Directorate of the State Tax Service in in Kyiv region in case No. 320/5404/20 and concluded that claim for recovery of arrears for the VAT reimbursement and penalty charged on such arrears can be filed within the term established by Part 2 of Article 122 of the Code of Administrative Procedure of Ukraine.

Courts of previous instances, taking into account legal position of the Grand Chamber of the Supreme Court, set out in ruling as of 12.02.2019 in case No. 826/7380/15, came to the conclusion that the plaintiff's right to return amount of budget compensation was violated and that the protection method, which will ensure renewal of this right, is collection from the State Budget of Ukraine through the body that carries out treasury service of budget funds, in favor of the plaintiff of debt to the budget for the VAT reimbursement and penalty.

In addition, courts came to the conclusion that the plaintiff did not miss the 1095-day deadline to appeal to the court, taking into account court appeal of issued tax notification-decision, which added to the plaintiff's VAT liability and which was later canceled by the court.

Making decision on the time limit for filing this lawsuit, the courts of previous instances took into account the fact that by virtue of provisions of Paragraph 102.4 of Article 102 of the Tax Code of Ukraine, the controlling authorities are given a right to collect tax debt within the next 1095 calendar days from the date of occurrence of such tax debt. For purposes of ensuring principles of justice, equality and balance in relations between taxpayers and the state, a similar right to collect arrears from the VAT reimbursement and penalties within 1095 days must be ensured for taxpayers.

Overturning decision of the previous instances, the Supreme Court noted that courts erroneously calculated time limit for the plaintiff to apply to the court with a claim for recovery of the budget debt, since calculation of such time period must be carried out according to rules of Part 2 of Article 122 of the Code of Administrative Procedure of Ukraine, which establishes that the six-month period is established for applying to the administrative court for protection of individual’s rights, freedoms and interests, which, unless otherwise established, is calculated from the day when such individual learned or should have learned about violation of his/her rights, freedoms or interests.

Tax Code of Ukraine does not contain direct rule that would determine terms of applying to the court with requirements aimed at protecting and restoring the violated rights of taxpayers in relations that arise in connection with untimely the VAT reimbursement by the state.

Statute of limitations of 1095 days, established by Article 102 of the Tax Code of Ukraine, does not apply to these legal relationships, since this Article defines: right of the controlling body to conduct audit and independently determine amount of monetary obligations (Paragraph 102.1); collection of tax debt (Paragraph 102.4); the taxpayer’s right to submit application for the return of overpaid monetary obligations or their reimbursement (Paragraph 102.5); the taxpayer's right to appeal tax notification-decision in the court or other decision of the controlling body (Paragraph 56.18 Article 56).

At the same time, provisions of Paragraph 102.5 of Article 102 of the Tax Code of Ukraine do not regulate issues of time limits for appeals to the administrative court, but only establish the time limit for the taxpayer to submit application to the controlling body for return of overpaid monetary obligations or for their reimbursement in cases provided for by this Code.

Supreme Court noted that in case of untimely reimbursement of the VAT debt and/or penalty charged on such debt, the payer, appealing to the court, actually asks to protect his/her right to receive the specified funds, which remain unpaid in connection with failure of the subject of authority to fulfill set of duties assigned to it. Therefore, the subject of appeal in such case is relevant inaction of the subject of authority and therefore, provisions of Article 102 of the Tax Code of Ukraine, to which Paragraph 56.18 of Article 56 of this Code refers, cannot be applied.

Taking into account above specified, Article 102 of the Tax Code of Ukraine, including Paragraph 102.5 of this Article, is not the "other law" that establishes special deadlines for applying to the court with requirements aimed at protecting and renewing the violated rights of taxpayers in relations arising in connection with untimely reimbursement of the VAT budget debt and/or penalty charged on such debt, and therefore, provisions of Part 2 of Article 122 of the Code of Administrative Procedure of Ukraine, which establishes general six-month period of appeal to the administrative court, are applicable to the disputed legal relations.

Cassation administrative court summarizes that the VAT payer can apply to the administrative court with requirements to recognize as illegal inaction of the subject of authority to reimburse the VAT debt and/or penalty charged on such debt, within six months from the day when individual learned or should have learned about the violation of personal rights, freedoms or interests.

Legal claim for collection of penalty can similarly be filed within the time limit established by Part 2 of Article 122 of the Code of Administrative Procedure of Ukraine, which provides for the general six-month period of appeal to the administrative court.

Such law enforcement conclusions are set out in Resolutions of the Grand Chamber of the Supreme Court as of 19.01.2023 in case No. 140/1770/19 and as of 16.02.2023 in case No. 803/1149/18 with similar legal relations.

By ruling of the Cassation administrative court as a part of the Supreme Court as of 13.04.2023 in case No. 320/5404/20, the cassation appeal of Main Directorate of the State Tax Service in Kyiv region was partially satisfied, ruling of the previous instances was canceled and the case was referred to the court of first instance for a new consideration.  

By the decision of the Kyiv district administrative court as of 21.06.2023 in case No. 320/5404/20, the legal claim on the recognition of illegal inaction and obligation to take actions regarding recovery of the budget debt for the value added tax reimbursement in the amount of 20.84 million UAH and penalty in the amount of 23.36 million UAH were left without consideration.