Court confirmed legality of adopted tax notification-decision

Cassation court supported the controlling authority’s position regarding legality of adopted tax notification-decision regarding increasing amount of monetary obligation from the corporate income tax of private enterprises.

The Supreme Court agrees with conclusion of the Court of first instance that the payer’s operations with the counterparty (Swiss Confederation) are not comparable, since the resale of oil purchased from the producer involves receiving profit from such business operation, which, in turn, has impact on the financial result applying the "comparative uncontrolled price" method.

Judicial panel notes that until September 15, 2015 (inclusively), the Swiss Confederation was on the List of states (territories) in which income tax rates (corporate tax) are 5 or more percentage points lower than in Ukraine, and it was until this time that operations (if conditions stipulated in Sub-paragraph 39.2.1.7 Article 39 of the Tax Code of Ukraine) carried out with a resident of this country could be recognized as controlled.

Cassation court took into account the tax authority’s reference to the fact that price of oil determined at the auction for Ukrainian market cannot be comparable to the price of oil sold on the European market, as on the domestic market starting price for calculating oil price is customs cost of oil of the “Urals” and “Aizeri” grades, and in the controlled operation oil of a different brand was sold – Brett, price for which is determined on the world exchanges.

Instead, the Supreme Court analyzed and took into account that in received documentation the payer did not provide proper justification for choice of method of controlled operation, did not provide comparative analysis of the crude oil price used during implementation of controlled operation with range of prices for identical products in comparable operations, namely: oil prices on the world market, as required by the norms of Sub-paragraphs 39.3.3.1 of Sub-paragraph 39.3.3 Paragraph 39.3 Article 39 of the Tax Code of Ukraine (in version in force after 01.01.2015).

As follows, it was established that the oil price under the contract is lower than the price in compared oil sales operations, as a result of which the income tax of participants in the Joint Activity was understated in a period from 01.01.2015 to 15.09.2015.

Under the above specified circumstances, the Supreme Court’s panel believes that the Court of first instance reached a well-founded conclusion that the disputed tax notification-decision is lawful and not subject to annulment, and therefore decision adopted by this Court complies with the law and was erroneously annulled by the Court of appeal.

Therefore, the Cassation administrative court as a part of the Supreme Court on 20.11.2024 in case № 640/10541/20 supported cassation appeal of the Central Interregional Directorate of the State Tax Service for Work with Large Taxpayers; ruling of the Sixth administrative court of appeal as of 09.11.2020 was canceled, and decision of the District administrative court of Kyiv city as of 23.07.2020 was left in force.