Головна Analytics and judicial practice Judicial practice On some issues of tax law. Judicial practice.
On some issues of tax law. Judicial practice.
Analitics and judicial practice - Judicial practice

Example I. As for the rules violation by an entity carrying out business activities and no transfer taxes.

The position of the taxpayer: when carrying out economic activity of Ltd. "T" was not a violation of law in force in Ukraine since, according to art. 7 of the Convention between the Government of the Republic of Austria and Ukraine on avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and property of 16/10/1997, determined that the profits of the enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment therein. Thus, the company is not obliged to hold 15% in the manner prescribed paragraphs 2.13 art.. 13 Law of Ukraine "On Enterprise Profit Tax" of 28.12.94 № 334/94 – Verkhovna Rada (hereinafter - the Law number 334) with amounts credited to the Austrian company.

Position of Bodies of STS was determined: the implementation of business entity violated law in force in Ukraine since the Austrian tax authority certificate of 06.15.2007, issued by the Austrian pension fund counterparty "I", is valid within the calendar year in which it is issued and payment made for services provided in January - March 2006, and therefore, in accordance with paragraph 4 of the Cabinet of Ministers of Ukraine "On approval of the exemption (reduction) from taxation of income originating from Ukraine according to international treaties of Ukraine on avoidance of double taxation" of 6.5.01 № 470 (hereinafter - Regulations) income from non-residents originating from Ukraine according to international treaties of Ukraine on avoidance of double taxation shall be taxable to the laws of Ukraine on taxation.

Case: The Supreme Administrative Court of Ukraine (hereinafter - the SACU), supporting the position of the tax authority shall indicate the following. Guided by the acting legislation of Ukraine the state tax authorities conducted a planned inspection of "I" for compliance with the latest requirements of tax, currency and other legislation. While the inspection revealed violations of the entity of the current legislation, namely paragraph 13.1 13.2 art. 13 Law number 334 due to non-payment of charges and not to the budget income tax during their non-payment.

Based on an inspection certificate prepared and issued a tax notice, a decision which entity counted tax liabilities on profits
.
While not agreeing with counted amounts of tax liabilities  "I" appealed to the court for recognition of tax authority action illegal and the abolition of the tax notice - decision.
The court of first instance granted the claim in full. The court of appeal decision of the trial court reversed and passed a new - to deny the claim.

Considering that the deciding court of appeal a violation of applicable substantive and procedural law, and consequently made the decision that is not fully based on law, tax "I" appealed to the cassation appeal to the SACU in which requests to cancel the decision of Court of Appeal and keep in force the court of first instance on the claim.
As a result of viewing the complaint SACU concluded that the complaint will not be satisfied, given the following.

How we can see from the case between "I" and the Austrian firm "A" contracted to lease equipment to the ice area. Pursuant to the above contract "I" listed Austrian firm "A" funds.

In the case file contained: the statement issued by the Austrian tax authorities, from which it appears that the counterparty "I" a resident of Austria, the letter of the Commercial Counsellor at the Austrian Embassy, from which it appears that the Embassy of Austria took part in the regeneration ice rink; loading - declaration from which the sender is considered Austrian origin.

However, in the act of inspection, the tax authority notes that the tax of "I" not granted certificate (or notarized copies), which confirms that the resident is a resident of the country that signed the international agreement and other documents provided by international treaty.

Also in the case file contained a letter with attachments from STA of Ukraine, which is a form of help confirm the status of tax resident of Austria, sent a letter of the Ministry of Finance of Austria, to apply paragraph 4 of the Rules.

"I" was given to the tax authority a copy of non-resident, which was not notarized, however, on the basis of the foregoing, it could not be grounds for exemption from tax paid income.

According to paragraph 4 of the Rules grounds for exemption (reduction) from taxation of income originating from Ukraine is a non-resident filing with the peculiarities imposed by paragraphs 5 and 6 of this Order, the person who pays him income certificate (or notarized copy which confirms that the resident is a resident of the country that signed the international treaty (hereinafter - certificate), and other documents required by the international agreement. Help issued by the competent authority of the country by international agreement, the form in Annex 1 or according to the law of that country. In addition, certificate is valid within the calendar year in which it is issued.

From the case it appears that the payment for the lease of equipment was made in late 2005, and the services provided in January - March 2006.
In accordance with Article 3 of the Procedure in case of failure to help non-resident in accordance with paragraph 4 of the income of nonresident originating from Ukraine are subject to tax under the legislation of Ukraine on Taxation.

According to p. 13.1 p. 13.2 art. 13 Law number 334 any income received from non originating from Ukraine, from economic activities (including non-resident accounts, which are held in Euro) are taxed in the manner and at the rates set forth in this Article, a resident or permanent establishment resident performing to non-residents or persons authorized by any payment of income originating from Ukraine, received such a resident from carrying out activities (including non-resident accounts, which are held in Euro) are obliged to support tax such proceeds referred to in paragraph 13.1 of this Article, the rate of 15% of the amount and at their expense, which is paid to the budget during such payments, unless otherwise provided for by international agreements in force.

Thus, the state tax agency is rightly applied to the pension fund "and" financial sanctions in the order and manner determined by the current legislation of Ukraine.
Given the above, SACU as a result viewed in a cassation complaint "I" left her without pleasure, but disputed the decision of Court of Appeal to deny the claim - without any changes.

Example II. On some issues of personal income taxation.

The position of the taxpayer: the calculation and payment of income tax of a citizen of "C"  was not affected by the law in force, and hence of the tax authority with him crediting additional amounts of tax liabilities are illegal and those that are not based on law.

Position BSTS was determined: at the accrual of additional tax on personal income tax officers complied with the requirements of current legislation and hence "C"  is a citizen suit groundless and unsubstantiated
.
Case: SACU, supporting the position of tax authority, said the following. In 2005 a national "C" was donated to non-residential building ½ part, namely the pavilion - the bar.
In due time, a national "C" submitted to the tax authority declaration of income received in 2005, which pointed to income received under the contract of gift.
The state tax authorities on the basis of income declarations made tax notice - a decision which determined the amount of tax liability from income tax for individuals.
While not agreeing with counted amounts of tax liabilities citizen "C" turned to the court for recognition of tax authority action illegal and the abolition of the tax notice - decision.
The decision of the trial and appeal in the lawsuit denied.

Considering that when deciding court of first appeal and a violation of applicable substantive and procedural law, and consequently made the decision that is not fully based on law, a citizen of "C" turned to the second appeal to the SACU in which requests to cancel the decision of the courts previous instances and a new decision, which fully satisfy the claim.
As a result of viewing the complaint SACU concluded that the complaint will not be satisfied, given the following.
Presented to the citizen "C" Hall-bar on the right of ownership has been registered by the father of the citizen "C" is, as Hall-bar on the basis of decision of the City Council. Also, the pavilion bar, as part of non-residential premises was alienated, as evidenced by a certified notary donation agreement.

Given the above, previous instances courts have reached a reasonable conclusion that donated to the citizen "C" property is the subject of business and in terms of taxation is considered as commercial property.

Courts rejected arguments grounded citizen "C" so much that he donated part of the estate is or may be subject to independent businesses and are not integrated property complex. Since Hall-bar as to alienation, and after him, not highlighted in kind according to the percentage of citizens "C" without changing its economic purpose, and that the Hall-bar was free of charge transferred to the citizen "C" and its father in common property is as a complete object and used in business processes.

Thus, state tax authorities accepted controversial post-tax decision, according to the article "v" paragraphs 13.2.1., 13.2. Art. 13 Law of Ukraine "On income tax for individuals (in the version current at the time of contentious relations), at the rate specified in Clause 7.1 Art.. 7 of the same Act are reasonable.

Given the above, SACU as a result viewed in a cassation complaint of the citizen "C" left her without pleasure, but complained of instances of previous court decisions to deny the claim - without any changes.

Example III. On some issues to VAT.

The position of the taxpayer: when carrying out economic activity of the Open Joint Stock Company "M" was not violated law in force in Ukraine, legally formed tax credit for value added tax and the amount claimed for refund.

Position BSTS was determined: if the inspection body STS followed the law in force of Ukraine, the violations found correspond to the actual circumstances of the case and therefore the requirements of Open Joint Stock Company "M" to abolish the tax notice - a decision which reduced the stated amount of refund is unsubstantiated.

Case: SACU, supporting the position of tax authority, says the following. Guided by the acting legislation of Ukraine to state tax agency audited OJSC "M" on the reliability of the amount of refund of VAT applied to the account.

Based on an inspection certificate prepared and issued a tax notice, a decision which the entity is reduced to the stated amount of VAT refund.
While not agreeing with the given of "M" asked the court for recognition of tax authority action illegal and the abolition of the tax notice - decision.

The decision of the trial and appeal proceedings completely satisfied.
Considering that the deciding court of first instance and appellate violation of applicable substantive and procedural law, and consequently made the decision that is not fully based on law, state tax agency appealed to the cassation appeal to the SACU which asks them to cancel.

As a result of viewing the complaint SACU concluded that the complaint must be satisfied, given the following.
The cause of dispute was the question of the validity of the alleged of "M" VAT refund for the period tested.

According to paragraph 8.1 cent. 1 of the Law of Ukraine "On Value Added Tax dated 03.04.97 № 168/97 - BP (hereinafter - the Law number 168) Budget of compensation - a sum that shall be returned to taxpayers from the budget because of overpayments of tax in cases defined by this Law.

According to the contents p. 7.7.1, 7.7.2 paragraph 7.7 Art. 7 of the Law number 168 (the version that was active at the time of the disputed legal) amount of tax payable (transfer) to the budget or budgetary compensation, defined as the difference between the amount of tax liability the tax reporting period and the amount of tax credit a tax reporting period. If the next tax period, the amount calculated in accordance with Clause 7.7.1 of this item is negative, the refund shall be of such negative value equal to the amount of tax actually paid by the recipient of goods (services) in the previous tax period suppliers of such goods (services).

Subject to Clause 7.4.1 Paragraph 7.4 of Article 7 of the Law number 168 tax credit for the reporting period consists of the amount of taxes accrued (paid) by the taxpayer at the rate prescribed in paragraph 6.1 of Article 6 and Article 8.1 hereof, during such reporting period in connection the acquisition or manufacture of goods (including during their imports) and services for their further use in taxable transactions in the taxpayer's business activity.

Due to the requirements of subparagraph 7.4.5 Paragraph 7.4 of the same section of the law not be included in the tax credit amount paid (accrued) taxes in connection with the acquisition of goods (services) are not supported by tax invoices or customs declarations (other similar documents in accordance with Clause 7.2.6 hereof).

Satisfying the claim earlier instances courts have concluded that presence of the taxpayer - of "M" - issued by his seller tax bills, issued in compliance with applicable laws are sufficient to determine the tax credit.

In addition, one of the main reasons that satisfy the claim by the courts stated the principle of personal responsibility of the taxpayer, subject to a violation of its own calculation and counterparty tax payer does not entail the latter for any negative consequences.

However, it should be emphasized that the consequences rescheduled only make business transactions actually occurred, i.e., those associated with the movement of assets, liabilities or changes in the equity payer, and the content that appears in the treaties concluded by the taxpayer. Although as a general rule VAT evasion seller and its suppliers does not in itself constitute grounds for reducing the amounts of tax credit, in the absence of economic operation, determine the tax credit would be unreasonable and not subject to VAT refund from the budget, despite the taxpayer (plaintiff in the case) the tax invoice and proof of payment of purchase cost of goods with VAT, carriage of goods, storage, performance handling, the goods in quantity and quality and so on.

In addition, courts were not provided with any legal assessment of the existence of a fictitious business signs in the activity of the "M" and its refusal to inform the tax authorities on the disputed product suppliers.

According to parts two, three Article 159 of the Code of Administrative Procedure of Ukraine is a legal decision taken by the court pursuant to applicable substantive law in the process of law, and justified - by the court based on complete and comprehensive case has been derived in an administrative case, uncorroborated, investigated in court.
Under paragraph 4 of Article 7 of the Code of Administrative Procedure of Ukraine one of the principles of administrative justice is adversarial parties, and formal optionality clarify all the circumstances of the case. Adherence to this principle requires the court, which considers the administrative case, establishing the facts of the case, even if they do not link the parties in their arguments or objections to obtaining relevant evidence including his own initiative, which is caused by the public nature of the dispute in an administrative case.

Courts of first and appellate courts, this principle was not followed, the circumstances of the case installed incompletely, and that caused an acceptance of judicial decisions that do not meet the requirements of Article 159 of the said Code on the legality and validity of a trial.

Given the above, the results of SACU review complaints tax authority is fully satisfied with it and overturned the previous court instances.

Example IV. On some issues of VAT taxation on operations with securities.

The position of the taxpayer: when carrying out economic activity of "M" was not a violation of law in force in Ukraine, because the nature of barter transactions bill does not affect the right of an entity include the costs of paying VAT to the tax credit business.

Position BSTS was determined: if the inspection body STS reported violations Ltd. "M" of the current legislation of Ukraine to engage in economic activity and hence the claim Ltd. "M" are unfounded and baseless.

Case: SACU, supporting the position of tax authority, says the following. Guided by the acting legislation of Ukraine to state tax agency audited Ltd. "M" on the reliability of the amount of refund of VAT applied to the account.

Based on an inspection certificate prepared and issued a tax notice, a decision which the entity is reduced to the stated amount of VAT refund.
While not agreeing with specified Ltd. "M" asked the court for recognition of tax authority action illegal and the abolition of the tax notice - decision.
The decision of the trial and appeal proceedings completely satisfied.

Considering that the deciding court of first instance and appellate violation of applicable substantive and procedural law, and consequently made the decision that is not fully based on law, state tax agency appealed to the cassation appeal to the SACU which asks them to cancel.

As a result of viewing the complaint SACU concluded that the complaint must be satisfied, given the following.
Previous instances courts found that "M" entered into with a private "T" contract of barter transactions (barter), which is the subject of a counter supply of goods equal contract price, which is done without payment of cash compensation basis. On the performance of the contract Ltd. "M" delivered the goods, and private "T" set ordinary bill, which is the maker Ltd. "D" nominal value the same as the cost of goods. Based on the tax bill received from the PC "T" and discharged on the value of bills of exchange, Ltd. "M" formed a tax credit.

However, the steps of the entity does not comply with the law because, under clause 1.4 Art. 1 of Law number 334 precious paper - a document that shows ownership or relationship loans and compliance with the legislation on securities.

According to paragraph 6.1 Art. 1 of Law number 334 provides that goods are tangible and intangible assets, as well as securities and derivatives that are used at all - which operations except operations with their release (emission) and maturity. The above applies to all securities, including bills. Thus, in all operations except operations with registration and payment, bills appear as goods under the rules of tax legislation, and therefore negotiation previously emitted by a third person, not a form of cash payments for purchased taxable goods and services.

This is consistent with the provisions of paragraph third item 4.8 of Article 4 of the Law number 168, according to which bills for tax purposes are not considered as a means of payment. This provision of the tax legislation is primarily for use in determining the tax rules against the standards of other areas of legislation and finance and banking.

In turn, the business transaction that provides for payments for goods (works, services) in any form other than cash, including any kind of mutual credit and debt, in which not provided for crediting funds to the seller to offset the cost of such goods (and services), is barter under paragraph 1.19 of Article 1 of Law number 334.

In such circumstances, in operations with promissory notes previously issued by third parties, such as bills are the product that is transmitted within the barter.
Thus, negotiation (including, by way of endorsement) previously emitted by the third party to offset the cost of the purchased taxable goods or services is accompanied by transfer of ownership of this bill, given that this transaction is a supply of goods in accordance with paragraph 1.4 of Article 1 Law number 168.

As for the appearance of Ltd.  "M" right to a tax credit for the consequences of such an operation, the courts have not considered the previous instances, that features a tax on value added transactions using bills of exchange set by item 4.8 of Article 4 of the Law number 168. The above paragraph regulates charging VAT when making transactions with goods (services) that are subject to tax in accordance with paragraph 3.1 of Article 3 hereof, secured debt buyer, provided such taxpayer in the form of simple or a bill or other debt instruments issued in such purchaser or a third party.

According to the third paragraph of item 4.8 of Article 4 of the Act for purposes of tax bills (excluding promissory notes) issued or received are not considered as means of payment and do not change the amount of tax credit or tax liabilities this tax, but tax bills. Consequently, the issuance of a bill (excluding tax) is not accompanied by the appearance of the taxpayer any additional tax liabilities, particularly in the form of charges VAT on the cost bill. The above applies to all bills, specified in item 4.8 of Article 4 of the Law number 168, including promissory notes issued directly by the taxpayer or issued by third parties and subsequently transferred in payment for goods or services, in particular in order endorsement. At this rate of item 4.8 of Article 4 of the Law number 168 is a special relation to other provisions of law specified that define the objects of taxation, as well as rules added tax value of the securities.

Nature of barter transactions using bills to offset the cost of purchased goods or services need not affect the calculation of tax liabilities in the considering operations as item 4.8 of Article 4 of the Law number 168 is put into the continuity dependence of tax liabilities under the grant (transfer) of bills the method of payment. Item 4.8 of Article 4 of the Act is a peremptory norm, which imposes no additional tax liability for all cases of bills taxpayers, including within the barter. Moreover, according to the content of 3.1 to Article 3 of Law number 168, barter is not a separate independent object of taxation, but because of barter transactions must be extended to those same rules tax on value added and the operation of, cash payments.

In view of the legislative regulation of legal disputes, the conclusion about the absence of controlling authority in Ltd. "M" right to inclusion in the tax credit the VAT bill of supply operations and the consequent inability to take into account when calculating the amounts of VAT refund is consistent with the requirements Paragraph 8.4 Art. 4 of the Law number 168.

Given the above, the results of SACU review complaints tax authority is fully satisfied with it and overturned the previous court instances in the lawsuit entity refused completely.

Deputy Director - Chief
Division of Legal Department STA of Ukraine                                                                       V. Rozmosh

January 17, 2011 | Legal Department of STA of Ukraine
http://www.sta.gov.ua