Court supported position of tax officials regarding refutation of reality of business operation

Cassation court supported position of the controlling body regarding refutation of reality of the plaintiff's business operation for the purchase of petroleum products under the contract for supply of petroleum products, which resulted in the plaintiff's monetary obligations for payments of the value added tax and income tax in the total amount of 1.8 million UAH.

Ruling of the Administrative cassation court as a part of the panel of judges of the Supreme Court as of 23.08.2023 in case № 440/12447/21 emphasized that assessing tax consequences of business operations, the Administrative court should not limit itself to establishing only formal conditions for the taxpayer's application of tax regulations by submitting primary documents that meet legal requirements in terms of form and content, and taking into account argumentations of tax authority, it must investigate actual legal relationships of participants in business operations, verify actual movement of assets in the process of performing operations and establish connection between the primary documents prepared and the real facts of economic activity.

In particular, the freight invoices provided by the plaintiff do not contain information about the supplier, and address specified in column "Loading point" does not correspond to legal address of the counterparty. Also, there is no information about loading and unloading operations and information about the departure time from the consignor to consignee in the consignment notes.

Cassation court took into account analysis carried out by the controlling body in databases of the Information and communication system "Tax block" and Archive of electronic reporting of the Unified Register of Tax Invoices regarding the plaintiff's counterparty, which established lack of material, technical and technological capabilities, and a small number of labor resources, as well as absence of documents certifying conformity of products (quality passports/certificates of conformity).

Panel of judges of the Supreme Court noted that argumentations of the controlling body were ignored by the courts of previous instances, not checked, not investigated and not evaluated, which additionally confirms incompleteness of clarification of the case circumstances and the prematureness of conclusions made by the courts in this case.

Therefore, Cassation administrative court as a part of the panel of the Supreme Court judges as of 23.08.2023 in case № 440/12447/21 supported cassation appeal of Main Directorate of the State Tax Service in Poltava region and canceled decision of the Poltava District administrative court as of 09.02.2022 and decision of the Second appeal administrative court as of 21.12.2022; case № 440/12447/21 was sent for a new trial to the Court of first instance.