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Several years have already passed by since the tax authorities embarked on their raid
against null transactions or, to be more precise, against the transactions that,
in their understanding, which is very difficult to share are null.
Usually, the "battlefield" is as follows. The tax authorities manage to find among the suppliers of a taxpayer some problem, in their view,
entities (not available at their registration office, under liquidation,
registered in the name of false persons, with no fixed assets, with the small number of employees, etc.). It is concluded
that the execution of the supply contracts with such problem
contractors has been leveled at attaining unlawful tax benefits (artificial
input VAT deduction or expenses). The
relevant agreements are rendered null.
The tax authorities believe that these agreements
violate public order as those directed
at the misappropriation of the public property (tax revenues). As a consequence, the taxpayer loses the right
to input VAT deduction and/ or expenses.
Typically, these battles find their final resolution in the administrative courts.
If the taxpayer can vindicate the real (true) nature of the business
transactions and his unawareness of the violations made by the suppliers, it is
in principle a good chance for him to come out of the "battle" as a winner.
More detailed information on the practice of resolving such disputes can be
found in my posts of 15 March 2012, 9 September 2011 and 6 April 2011.
Nevertheless, sometimes there occur unfortunate
exceptions when combating "pseudonullity” goes beyond the administrative proceedings by putting the taxpayer under the
extremely heavy "tracks of the criminal proceedings tank."
It so happened to the unlucky
directors of “VLATA Ltd”, LLC and "Vizavi ", LLC who were convicted in 2010 of
para 2 of s. 367 of the Criminal Code
of Ukraine (neglect of official duty) for declaring
the input VAT deduction based on the transactions with the problem (in opinion of the tax authorities) contractors.
The guilty verdicts were
delivered by Justice Anatoliy Orel (Ukrainian “orel” means “eagle” in English) of the Slavutych Court of Kyiv Region.* The verdicts
were affirmed in 2011 by the Appellate Court of Kyiv
Region. **
Failing to ascertain that there
were any dummy (not linked with the real movement of goods and services) transactions
involving "VLATA Ltd", LLC and "Vizavi", LLC, the court justified the charges in neglect of official duty in a manner like this:
...the defendant had not inquired
into the real existence of the suppliers, had not personally met their directors,
had not checked the lawfulness of the origin of the goods supplied, had not verified
the trustworthiness of the contracts and primary accounting documents, VAT
invoices included, had not visited for this purpose the offices of the
suppliers, had not determined the real identities of the contracting representatives
of the suppliers, while he had been able to do so taking account of the
information, experience, organizational and technical capacities available to
him; instead, he had unreasonably limited his enquiry only to the verification
of the suppliers’ VAT registration...
On a good note, the conviction of the directors of the taxpayers who has had the business relations with problem contractors is not a systematic phenomenon nowadays. However, it is better to be prepared for the worst. FOREWARNED IS FOREARMED.
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