Co-author
Andriy Kuleba
(junior
associate of Lavrynovych and Partners Law Firm)
 |
Photo from http://www.aratta-ukraine.com
|
One
of the crucial problems faced by those bringing lawsuits against tax
assessments is still the congestion of administrative courts in
Ukraine.
While
at the level of the courts of first instance the mentioned problem is
not heavily felt (in
most cases tax disputes are resolved within one or two months),
at the level of the courts of appeal and the Highest Administrative
Court of Ukraine (hereinafter – the “HAC”)
the situation is much more difficult. There are so many cases under
the consideration of the senior courts that you will normally have to
wait for the appointment of your court hearing for at least one year
in the court of appeal and for at least two years in the HAC. It is
obvious that bona-fide taxpayers are very unsatisfied with such state
of affairs.
With
respect to the categories of tax disputes, the situation is still
practically without changes. The cases related to shams (“fake
nature” deals) are leading in the number.
In
this context it is worth mentioning new approaches of inspectors of
taxes in their struggle against shams or perhaps it is more proper to
say
“pseudoshams”.
At present, some “taxmen” not only “cancel” input VAT and
deductible expenditure of a “guilty” taxpayer, but also compel
such a taxpayer to enter into his accounts an additional income
for the purposes of the calculation of taxes. They contend that since
the taxpayer has actually received goods/services, but the underlying
transaction was nothing, but a sham,
such goods/services
have been obtained by him free of charge and therefore should
increase his base of assessment.
It
also worth noting the landmark judgment of 14
November
2012 of
the panel of justices of the HAC chaired by Justice Bukhtiiarova I.
A.
(“PVK
“BUDIVELNYK”, LLC v State Tax Inspection in Obolon District of
Kyiv,
case
No 2а-9864/11/2670).
In
this judgment the HAC came to the following revolutionary
conclusions:
-
the tax authorities do not have a right to qualify transactions as
shams in their tax audit reports and
-
the presumption of the lawfulness of a transaction is applicable in
the tax relations (a transaction based upon which the taxpayer
obtains the tax benefit in the form of input VAT or deductible
expenditure is not taken into account for the purposes of taxation if
only there is a court judgment invalidating the transaction in
question).
The
aforesaid judgment with regard to the presumption
of the lawfulness of a transaction directly contradicts the position
of the HAC stated in its well-known letter dated 2 June 2011
No 742/11/13-11.
In this letter HAC let us expressly know that the
presumption
at hand is not applicable in tax relations.
However,
despite
so different formal approaches even at the level of the HAC, the key
role in deciding “sham cases” has been and is still attributed to
the determination of the genuine (true) nature of underlying
transactions based on primary accounting documents and other evidence
submitted to the court.
If
the fake nature of a transaction has found its confirmation during
the court hearings, it is very unlikely that such a “magic wand”
as a reference to the absence of the judgment in respect of the
invalidation of the transaction
(the
implementation of the presumption of the lawfulness of a
transactions)
can help you.
The
recently formed Ministry of Revenues and Levies of Ukraine also
expressed its opinion on shams in tax relations (letter dated 27 May
2013 No. 3642/6/99-99-19-04-01-15).
As usual,
the “taxmen”
were “unprecedentedly
clear”
in
their statements, “The
bodies of the State Tax Service in the discharge of their monitoring
and controlling functions can reflect in tax audit reports the
indicators of shams, but the additional tax assessment should be
exclusively imposed for the breaches of tax rules”.
What the Ministry was trying to say by these words remains the
mystery. As one can see, we have not obtained a clear answer to the
question whether the tax authorities are entitled to treat
transactions between taxpayers as shams anymore.
Finally,
we would like to mention an increase in the number of “transfer
pricing” cases. Perhaps, not the least role here was played by the
new transfer pricing rules (Article 39 of the Tax Code of Ukraine)
which came into force on 1 January 2013.
