The new Supreme Court is working and tax disputes are no exception here.
Over the first half of 2018, the new Supreme Court managed to consider 6,900 tax disputes.
Undoubtedly, among such an array of cases there are a lot of important and interesting positions of the new Supreme Court, which just need to be known in order not to lose face while representing a taxpayer before court.
Below is just the "top of the iceberg" which is TOP-3 most important, in our opinion, judgements of the new Supreme Court rendered from the beginning of 2018.
No 1: the ruling of the investigating judge on the appointment of an inspection is subject to appeal
For a long time, there has been a debate as to whether an investigating judge has the right to appoint a tax inspection at the request of law enforcement agencies, and whether it is possible to challenge a ruling of the investigating judge on the appointment of such an inspection.
The Grand Chamber of the Supreme Court (ruling dated 23 May 2018 in case No. 237/1459/17) made a clear conclusion that it is possible to appeal from rulings of investigating judges on the appointment of inspections.
The Great Chamber did not give a straight answer to the question on whether such inspection were lawful. Actually, this question was not placed before the Grand Chamber. However, the Grand Chamber hinted that such a ruling of the investigating judge is not provided for by the criminal-procedural legislation. Such a hint in itself indicates the illegality of the investigating judge's ruling on the appointment of an inspection.
Formally, the ruling of the Grand Chamber concerns the appeal of the appointment of a labor inspection, not that of tax rules. However, this in no way reduces its importance to tax litigation. According to the analysis of the data of the Unified State Register of Court Judgements, the legal position of the Grand Chamber has been already successfully used many times by the court of appeal to reverse the ruling of the investigating judges on the appointment of tax inspections.
The Grand Chamber of the Supreme Court (ruling dated 23 May 2018 in case No. 237/1459/17) made a clear conclusion that it is possible to appeal from rulings of investigating judges on the appointment of inspections.
The Great Chamber did not give a straight answer to the question on whether such inspection were lawful. Actually, this question was not placed before the Grand Chamber. However, the Grand Chamber hinted that such a ruling of the investigating judge is not provided for by the criminal-procedural legislation. Such a hint in itself indicates the illegality of the investigating judge's ruling on the appointment of an inspection.
Formally, the ruling of the Grand Chamber concerns the appeal of the appointment of a labor inspection, not that of tax rules. However, this in no way reduces its importance to tax litigation. According to the analysis of the data of the Unified State Register of Court Judgements, the legal position of the Grand Chamber has been already successfully used many times by the court of appeal to reverse the ruling of the investigating judges on the appointment of tax inspections.
No 2: sham entrepreneurship of a counterparty
Again, this is practically the "eternal" issue for tax litigation. If the corporate officers of a counterparty have been convicted of sham entrepreneurship (section 205 of the Criminal Code of Ukraine), is it possible for the taxpayer to retain his input VAT and deductible expenditure on the purchase of goods or services from this counterparty.
In the past, some administrative courts supported a rather rigorous taxpayer-unfavourable approach. According to this approach, the sham entrepreneurship of a counterparty excludes the right of the taxpayer to enjoy input VAT / deductible expenditure in relation to the transactions with this counterparty under any conditions.
Other administrative courts maintained a more taxpayer-favorable "liberal" approach. According to the approach sham entrepreneurship charges brought against the corporate officers of a counterparty, should not deprive the taxpayer of the right to input VAT and deductible expenditure, if the taxpayer can prove that the underlying transaction has in fact occurred.
In the past, some administrative courts supported a rather rigorous taxpayer-unfavourable approach. According to this approach, the sham entrepreneurship of a counterparty excludes the right of the taxpayer to enjoy input VAT / deductible expenditure in relation to the transactions with this counterparty under any conditions.
Other administrative courts maintained a more taxpayer-favorable "liberal" approach. According to the approach sham entrepreneurship charges brought against the corporate officers of a counterparty, should not deprive the taxpayer of the right to input VAT and deductible expenditure, if the taxpayer can prove that the underlying transaction has in fact occurred.
The turning point was the end of 2015, when the former Supreme Court of Ukraine in its ruling of 1 December 2015 in the case No 826/15034/14 actually "legitimized" the unfavorable approach.
After the creation of the new Supreme Court, there were some examples of support by the Administrative Court of Cassation of both approaches (for example, the ruling of 27 February 2018 in the case No. 813/3594/17 for the first approach and the ruling of 27 February 2018 in the case No. 813/ 1766/17 for the second approach).
Finally, the Administrative Court of Cassation dared to trouble the Grand Chamber with this "ambiguous" issue.
Attention here! The Grand Chamber (the ruling of 26 March 2018 in the case No. 826/19939/16) has abandoned the consideration of this issue, noting that it does not make up "the existence of an exclusive legal problem" and "in each particular case the court must carry out a legal assessment of the actual circumstances of the case ".
Some optimists see in the words of the Grand Chamber that "in each particular case the court must carry out a legal assessment of the actual circumstances of the case " its support to the position that the taxpayer can keep input VAT and deductible expenditure provided that the true nature of the transaction with the “sham” counterparty has been confirmed.
Attention here! The Grand Chamber (the ruling of 26 March 2018 in the case No. 826/19939/16) has abandoned the consideration of this issue, noting that it does not make up "the existence of an exclusive legal problem" and "in each particular case the court must carry out a legal assessment of the actual circumstances of the case ".
Some optimists see in the words of the Grand Chamber that "in each particular case the court must carry out a legal assessment of the actual circumstances of the case " its support to the position that the taxpayer can keep input VAT and deductible expenditure provided that the true nature of the transaction with the “sham” counterparty has been confirmed.
No 3: right remedy for recovery of overdue VAT refund
This is an issue of a real "intellectual battle" happening between the former High Administrative Court of Ukraine and the former Supreme Court of Ukraine. The High Administrative Court of Ukraine was the supporter of a more effective remedy “collection of the overdue VAT refund from the state revenues” (for example, the ruling of 4 February 2016 in the case No. 806/2256/15).
The Supreme Court of Ukraine adhered to a more moderate position regarding the exclusive role of the tax authorities in providing VAT refund and insisted on the obliging the tax authorities to handing over a document initiating VAT refund to the body of the state treasury (for example, the ruling of 16 September 2015 in the case No. 2а / 0570 / 17001/2012).
In case No 826/7380/15, the Administrative Court of Cassation sided with the High Administrative Court of Ukraine and preliminary recognized “the collection of the overdue VAT refund from the state revenues” as the correct remedy.
Since this position of the Administrative Court of Cassation is at odds with the position of the former Supreme Court of Ukraine, the Administrative Court of Cassation by its ruling of 26 June 2018 referred the case to the consideration of the Grand Chamber.
As of the day of writing, the Grand Chamber has not yet rendered its judgement on this issue. Hopefully, the Grand Chamber will have enough common sense to agree with the Administrative Court of Cassation’s stance on the correct remedy.
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