Court supported position of the controlling body regarding legality of accrual of payments for principal obligations and financial sanctions

Cassation court supported position of the controlling body regarding legality of accrual of payments for principal obligations and financial sanctions for non-payment of the value added and income tax to the budget during the payer's relationship with counterparties in connection with illegal formation of tax accounting data as a result of implementation of economic operations for the purchase of works, services, goods and material values in view of fictitious (fake) nature of carried out economic counterparties.

In ruling of the Administrative cassation court as a part of panel of judges of the Supreme Court as of 07.09.2023 in case № 826/19492/15, it was emphasized that documents attached by the plaintiff to the case file are not sufficient evidence of real nature of economic operations under consideration, because the plaintiff's counterparties have common characteristics that characterize their activity as fictitious, namely: lack of fixed assets; labor resources; non-submission of financial and tax reporting, etc.

Unreasonableness of tax benefit is also evidenced by argumentations of the controlling body about existence of such circumstances as: impossibility of real operations taking into account time, location of property and amount of material resources economically necessary for production of goods, performance of works or services; failure to carry out entrepreneurial activity by a person who is listed as producer of goods; lack of necessary conditions for achieving results of the corresponding entrepreneurial activity due to the lack of management or technical personnel, fixed assets, production assets, warehouses, vehicles; accounting for taxation purposes only of those economic operations that are directly related to the occurrence of tax benefit, if this type of activity also requires implementation and accounting of other economic operations; carrying out operations with goods that were not produced or could not be produced in amount specified by the payer in accounting documents; lack of accounting documents.

Therefore, Cassation court concluded that expenses for purposes of determining the income taxation object, as well as tax credit for purposes of determining the value added taxation object tax must be actually incurred and confirmed by properly executed primary documents reflecting reality of economic operations, which are the basis for forming the taxpayer's tax accounting. At the same time, it is necessary that these documents confirm and reveal essence, inner side of economic operations, their authenticity, economic benefit (justification, risk) and business purpose.

Cassation administrative court as a part of panel of judges of the Supreme Court on 07.09.2023 in case № 826/19492/15 dismissed cassation appeal of the plaintiff; ruling of Kyiv District administrative court as of 14.04.2016 and ruling of the Sixth appeal administrative court as of 13.10.2021 were left unchanged.