BOC defends the company's legal right to a tax credit
Subject of complaint: General Directorate of the State Fiscal Service in Kyiv City (GD SFS), The SFS of Ukraine (SFS)
Complaint in brief: On October 3, 2018, a Ukrainian subsidiary office of the world's leading manufacturer of farm machinery turned to the Council. The Complainant did not agree with the GD SFS conclusions of the legitimacy of a tax credit amounting to UAH 7 mn.
In 2016-2017, the company signed a farm machinery supply agreement for a total cost of over UAH 400 mn. According to the Tax Code (TC), such an import transaction is subject to VAT. Accordingly, upon receipt of the goods, the Complainant paid the VAT and received the tax credit for its amount.
During two years the Ukrainian company was paying for the received machinery in instalments. However, when it was necessary to pay the last 9% of the cost, the company faced financial problems. The Complainant could not repay the remaining amount. Taking this into account, the parent company did a favor and waived a debt worth about EUR 1 mn.
When auditing the company's activities in 2018, GD SFS treated this debt waiving transaction as free of charge goods. According to the TC, under these conditions, the Complainant is not entitled to the tax credit. Disagreeing with the tax authority position, the company filed a complaint with the SFS and the Business Ombudsman Council.
Actions taken: The Council’s investigator examined a case file, investigated relevant legislation and judicial practice. He made sure that the right to the tax credit arises in case of payment of tax when importing goods and provided the reality of the transaction and availability of primary documents. The Tax Code does not contain any other requirements to get the tax credit. In the event of debt waiving – as in the Complainant’s case, there is no change in compensation and the seller is not obliged to issue a calculation adjustment to the buyer.
Therefore, the Council wrote to the SFS of Ukraine regarding possible violations of the company’s legitimate interests. The Council recommended the tax authority to comprehensively and impartially consider the Complainant’s case. The investigator also participated in the consideration of the case at the SFS, where he had articulated the arguments outlined earlier and supported the Complainant’s position.
Result achieved: With the Council’s support the Complainant managed to convince the tax authority. The SFS satisfied the company's complaint. The Complainant reserved his right to the tax credit of UAH 7 mn. The case was closed successfully.