Court supported position of the State Tax Service regarding conclusions about unreality of the plaintiff's business operations

Cassation court supported position of the controlling body regarding conclusions about unreality of the plaintiff's business operations and, as a result, understatement of income tax, value added tax, overestimation of the negative value of difference between amount of tax liability and amount of tax credit.

Supreme Court gave a proper assessment to the evidence collected in case as a whole and to argumentations of the controlling body, taking into account established circumstances regarding the lack of proper documentary confirmation of the actual conduction of economic operations for supply of petroleum products to the plaintiff, which is evidence of the non-merchantability of conducted relationships, in view of the above specified, the Cassation court came to a well-founded conclusion about unreliability of tax accounting data declared by the plaintiff, which, accordingly, excludes the plaintiff’s right to form expenses and tax credit for such operations.

The plaintiff's provision of conformity certificate and passports of quality of petroleum road viscous bitumen cannot be indisputable evidence of proper documentation of operations with petroleum products according to requirements of Instructions on the procedure for receiving, transporting, storing, issuing and accounting of petroleum and petroleum products at enterprises and organizations of Ukraine № 281/171/578/155as of 20.05.2008. 

Supreme Court also concluded that if circumstances are established in the court process that indicate that the taxpayer was or could be aware of the illegal activity of his counterparty, which consists in the illegal minimization of tax liabilities, in particular in creation of artificial grounds for increasing gross costs and/or tax credit, or in case that the taxpayer acted without due diligence or caution choosing the counterparty who does not fulfill tax obligation, under established circumstances that refute reality of business operations, the tax benefit received by such taxpayer in the form of a right to tax credit is groundless.

Therefore, the Cassation administrative court as a part of the Supreme Court on 19.12.2023 in case № 540/4247/21 supported cassation appeal of Main Directorate of the State Tax Service in Kherson region, the Autonomous Republic of Crimea and Sevastopol city. Ruling of the Fifth administrative court of appeal as of 27.01.2022 was canceled. Decision of the Kherson district administrative court as of 09.11.2019 was upheld.