Court confirmed legality of accrual totaling 16.5 million UAH to the taxpayer Chapter: News

Cassation administrative court as a part of the Supreme Court supported conclusion of the Appellate court in case № 420/3226/19 and position of Main Directorate of the State Tax Service in Odesa region regarding the non-commodity of economic operations for the purchase of agricultural products from the counterparty-supplier.

Recognizing the well-founded argumentations of the controlling body, the Appellate court assumed that totality of documents provided by the plaintiff does not make it possible to establish circumstances regarding realization of economic operations for the supply of agricultural products to the plaintiff’s address. The Appellate court noted that primary documents submitted by the plaintiff, which were compiled for these operations, do not confirm the fact of their realization. The Appellate court made such assessment of documents, taking into account circumstances related to the lack of conditions and resources necessary for realization of economic operations by the counterparty-supplier, in particular, absence of agricultural land plots suitable for growing agricultural crops, absence of real (legal) source of origin of wheat grain (code 1001990000 according to Ukrainian classification of the foreign economic activity product) and rapeseed (code 1205109000) (at level of suppliers of the counterparty-supplier of supplies "was cut off", because these business entities did not purchase wheat and rapeseed and could not be their producers), which makes it impossible for it to move along the supply chain.

In addition, the Appellate court established that in fact the plaintiff received rapeseed and wheat from the warehouse of LLC "A" according to the grain storage agreement № 15-0808-18 dated 05.06.2018 between the plaintiff and LLC "A". According to the Appellate court's assessment of acts of acceptance and transfer of products (rape) between the plaintiff (buyer), LLC "C" (supplier) and LLC "A" (keeper), according to the content of which the seller sells and the buyer accepts products storages by the keeper, these acts do not reveal origin of rapeseed, cannot be considered as proper evidence that definitely confirms presence in the warehouse of LLC "A" of rapeseed delivered by LLC "C". At the same time, the Appellate court also took into account the fact that the specified acts were compiled only in relation to the transfer of rapeseed.

Parts 3 and 7 of Article 24 of the Law of Ukraine "On grain and the grain market in Ukraine" stipulate that accepting grain for storage, the grain warehouse is obliged to carry out analysis of its quality Issuance of grain to the owner of warehouse document for grain is carried out in exchange for warehouse documents issued for this grain. Article 36 of this Law establishes that grain warehouses are required to keep register of grain accepted for storage.

Grain warehouse issues one of the following documents to confirm acceptance of grain: double warehouse certificate; simple warehouse certificate; warehouse receipt. Grain storage document is issued after the grain is transferred to storage not later than the next working day (Parts 1 and 2 of Article 37 of this Law).

Plaintiff did not provide the court with evidence regarding the grain quality, warehouse documents, while according to the stated norms of grain storage in the grain warehouse, such documents are required, in particular, regarding the transfer of wheat and rapeseed grain from LLC "C" to LLC "A" for storage. The Appellate court assessed this circumstance as making it impossible to check supply chain from LLC "C" directly to the plaintiff.

Taking into account the fact that the grain origin has not been established, the Appellate court concluded that the plaintiff did not provide substantiated argumentations regarding economic and business feasibility of purchasing agricultural products from the counterparty-supplier who is not a producer of these products and who was not provided with documents regarding the grain origin.

Cassation administrative court noted that current tax legislation does not make the taxpayer's right to expenses and/or tax credit dependent on the fulfillment of tax obligation by other payers – suppliers of products (services). However, if circumstances are established in the court process that indicate that the taxpayer was or could be aware of illegal activity of his counterparty, which consists in illegal minimization of tax liabilities, in particular, in creation of artificial grounds for increasing expenses and/or tax credit, or in case when the taxpayer acted without due diligence or caution choosing the counterparty who does not fulfill tax obligation, under established circumstances that refute reality of economic operations, the tax benefit received by such taxpayer in the form of a right to expenses and tax credit is groundless.

Panel of judges noted that, taking into account circumstances established by the Appellate court regarding nature of activities of LLC "C", as well as conclusion of the Appellate court that the plaintiff did not provide substantiated argumentations regarding economic and business feasibility of purchasing agricultural products from the counterparty-supplier who is not a producer of these products and which have not been provided with documents regarding the grain origin, it is impossible to claim that the plaintiff showed due diligence choosing this counterparty, and also that the plaintiff could not have reasonable grounds to doubt the good faith of the specified business entity.

Cassation administrative court summarizes that there are no grounds for applying principle of individual responsibility to the taxpayer, because contrary to argumentations of the controlling body, the plaintiff did not prove that he acted with due diligence choosing the counterparty and took reasonable measures to verify authenticity of primary documents on the basis of which he formed indicators of his financial and tax accounting.

Therefore, by decision of the Cassation administrative court as a part of the Supreme Court as of 28.02.2023 in case № 420/3226/19, the plaintiff’s cassation appeal was dismissed and decision of the Appellate court as of 01.04.2020, which confirmed legality of accrual totaling of 16.5 million UAH to the taxpayer was left unchanged.