At one of tax-related
events I had the honor to meet Mr. Ruslan Ternovy, a
partner with “Invicta”, Advocacy Union (http://aoinvicta.com.ua).
Ruslan shared, in my opinion, a very interesting scheme aimed at delaying the consideration of
tax disputes by a court of cassation.
The scheme enables prolonging the cassation
proceedings by the period of time between the completion of the appeal consideration
in respect of a claim brought against a tax assessment notice and the issuance
of the tax demand notice. Since the tax authorities do not often hurry to send tax demand notices, it is possible to delay
the consideration of the case by the court of cassation for several months or
even years.
Why may such a
delay be sensible for the taxpayer is a good question to answer. The delay may well make
sense when your legal position
in the case is, to put it mildly,
quite modest, and you have almost no
chance to win the case at the Highest Administrative Court of Ukraine
(hereinafter – the “HACU”).
By applying Mr.
Ternovy’s scheme,
you can put off the enforcement of the
tax debt for a certain period of time which is a great
relief for the taxpayer.
How
does the scheme work?
The first thing to be done by the taxpayer
for the scheme to apply is to ensure the non-appearance of his representatives
at the court hearings held by the court of appeal. This step is essential for the
further renewal of a time limit for submitting an appeal to the court of
cassation. Without such a renewal the scheme is merely impossible altogether.
After the resolution of the case by the court
of appeal not in your favor, you do not obtain the judgment of this court and do
not hurry to submit an appeal to the court of cassation.
You would rather expect a tax demand notice
to be served on you by the tax authorities.
After the receipt of the tax demand notice you:
1. Bring a legal action aimed at the cancellation
of the tax demand notice. Mr. Ternovy suggests discharging an insignificant
portion of the tax debt, so as to create certain grounds for the challenge. Thus,
the actual amount of the tax debt and the amount of the tax debt specified in
the tax demand notice vary. Accordingly, you may try to justify the legal
action by the wrong amount of the tax debt indicated in the tax demand notice.
2. Submit an appeal to the court of
cassation accompanied by a request to renew an expired time limit for the above
appeal. The renewal of the expired deadline can be justified by the failure of
the court of appeal to send its judgement to the taxpayer. It is not a rare
occasion that the courts of appeals fail to send their judgements to the
litigants. However, they must do so in accordance with the requirements of para
4 of Section 205 and para 3 of Section 167 of the Code of Administrative
Procedure of Ukraine (hereinafter – the "CAP of Ukraine"). Those rules directly bind the courts of appeals
to forward their judgements to litigants whose representatives were not present
at the court hearings. That is why, as mentioned above, the non-appearance of
the taxpayer’s representatives at the court hearings held by the court of
appeal is critical.
The HACU usually
renews a time limit for filing an appeal to it in such
situations even if the contested
judgement of the court of appeal dates
back a few years. See, for example, the
HACU’s judgement in the case brought by an individual entrepreneur against
the Belotserkivska State Tax Inspection (http://www.reyestr.court.gov.ua/Review/38442474). In
the present case the HACU renewed the time limit for an appeal to the
court of cassation due to the failure of the court of appeal to forward its
judgement to the taxpayer over more than 1,5 years after the announcement of its introductory and resolution parts.
3. Following the submission of
the appeal to the HACU, you ask the court of first instance to
postpone the consideration of the case brought in respect of the tax demand notice in view of
the impossibility of the resolution of this case before
the resolution of the appeal filed with the HACU (para 1 (3) of
Section 156 of the CAP of Ukraine). The court of the first instance postpones the proceedings.
Benefits
Here are some thoughts on the actual outcome of the
operation of the scheme. As stated earlier, the application of scheme may delay
the enforcement of the tax debt. Let me expand a little bit on this point.
Neither challenging the tax demand notice,
nor brining the appeal to the court of cassation creates a direct obstacle to the
further enforcement of the tax debt on its own. Yet, those court proceedings
can be effectively leveraged by the taxpayer to counteract the tax authorities’
attempts to get the tax debt collected.
This is a statutory procedure that for
getting a tax debt collected the tax authorities should obtain a court order
allowing them to do so. Due to the existence of the above proceedings, the taxpayer
may well request the court to decline to issue the above order on the grounds
that there is still an unresolved dispute as to a point of law (para 5 (2) of
Section 183-3 of the CAP of Ukraine).
Faced with the
decline to issue the above court order, the tax authorities can resort to the
general court procedures and file a legal action seeking a court judgment
sanctioning the collection of the tax debt. However, even in this situation the
taxpayer is not doomed. He may well ask the court to postpone the consideration
of this case before the completion of the case brought against the tax demand
notice (para
1 (3) of Section 156 of the CAP of
Ukraine).
Instead of conclusion
In sum, the scheme appears to be an extremely interesting and
promising course of action. However, I must
confess that it seems to be ideally
suited just for small troubled taxpayers
that are not seriously concerned with a tax
lien and other "pleasant"
effects of the existence of the tax debt. If you
are a large taxpayer involved in far-reaching economic activities, it is
best to think a hundred times before implementing the
scheme in practice.
