At the past meeting of the Tax Committee of the European Business Association Olexandr Mininin, senior partner of KM Partners Law Firm presented a new approach to challenging tax notification-decisions in court.
This manner makes possible to protract tax litigation and thus is primarily of interest to those who in the realities of today's court practice do not have high chances to win the case and accordingly seek to postpone the effective date of the future court judgment. The realties of today's court practice are such that even in the situation with the prohibition on carrying forward the losses of previous tax periods (please, see my post of 23 September 2011), where the view taken by the tax authorities is apparently groundless, taking into the consideration the importance of the question for the state budget of Ukraine, one can not be certain on winning the respective case.
The approach lies in appealing to court not only a tax notification-decision issued by the local tax authorities but also the decision of the State Tax Service of Ukraine (STSU) granted based on the consideration of the repeat administrative complaint lodged against such a tax notification-decision. Consequently, this approach finds its application provided that there are both an initial administrative complaint submitted to the tax authorities of regional (oblast) level and a repeat administrative complaint submitted to the STSU.
The point of law enabling to challenge the decision of STSU issued in respect of the repeat administrative complaint on the tax notification-decision appears to be para 56.10 of the Tax Code of Ukraine. This para states, "The decision of STSU ... issued in respect of the complaint of a taxpayer shall be final and is not to be the subject of any further administrative appeals, but may be appealed to court".
There are the two following options: (i) the taxpayer files a separate claim against the decision of the STSU; (2) the tax payer joints two claims (against the tax notification-decision and against the decision of the STSU) in one legal action.
As a rule, courts refuse to institute the court proceedings in such cases: in full if there is the separate claim against the decision of the STSU and partially (to the extent it concerns the claim against the decision of the STSU) if there is the jointed claim. The courts take view that the respective claim is not within the jurisdiction of administrative courts of Ukraine (para 1 section 1 Article 109 of the Code of Administrative Proceedings of Ukraine).
It is likely that while refusing to institute the court proceedings the courts adhere to the previously established practice, according to which a taxpayer was not entitled to appeal against the decisions of the tax authorities of higher level issued with regard to the tax notification-decisions. Nonetheless, it is worth noting that there was no analogue of para 56.10 of the Tax Code of Ukraine at the time when the above practice emerged and in principle taxpayers then did not have the right to appeal against such decisions indeed.
Once the court declines to institute the court proceedings, the taxpayer can appeal the respective ruling first to the court of appeal and then to the Highest Administrative Court Of Ukraine thereby prolonging the length of the tax litigation for several months. In the case with the separate claim against the decision of the STSU there is the possibility to ask the court considering the claim against the tax notification-decision to suspend the court proceedings in the latter case until the first appeal and the second (cassation) appeal against the ruling to decline the court proceeding have been resolved. In many cases the courts do suspend the court proceedings.
If by a miracle the court allows the claim against the decision of the STSU, there is the possibility to equate the abolishment of such a decision to the failure to forward it to the taxpayer within the prescribed time frame. It is well known that the delay with forwarding the decision concerning the administrative complaint of a taxpayer against the tax notification-decision renders such a tax notification-decision rescinded (para 56.9 of the Tax Code of Ukraine).
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