SFS drops additional payments worth over UAH 3 mn for company from Cherkasy Oblast

Tax issues: Inspections by state tax and fiscal agencies Kyiv

Subject of complaint: The Main Department of the State Fiscal Service in Cherkasy Oblast (SFS) 
Complaint in brief: An oil trader from Cherkasy Oblast approached the Council. The Complainant disagreed with the tax audit conclusions, according to which he had to additionally pay UAH 3 mn. of taxes.
The SFS insisted the Complainant declared fictitious economic transactions with the counterparty and understated his VAT liabilities. The tax authority based its conclusions on the fact the counterparty did not have enough workers and transport to carry out the respective business transactions. The SFS added that the Complainant’s counterparty was involved in a criminal case, and probably, broke the law.
Disagreeing with the tax authority decision, the company appealed it in the SFS and turned to the Business Ombudsman Council for help.
Actions taken: After examining case files, the Council upheld the company’s positions. The investigator addressed the SFS in writing and noted the tax authority, when examining the disputed business transactions, did not pay attention to the actual movement of assets between parties to the agreement. 
The investigator noted that a criminal case against a counterparty’s officials was not an adequate proof of the of transactions fictitiousness and did not entail legal consequences for the taxpayer.
The case-law also testified in favor of the company. The Supreme Court has ruled earlier in similar case, that the absence of the counterparty’s material and labor resources does not exclude the possibility of real provision of its services and does not indicate getting an unreasonable tax benefit by the buyer. For example, engaging employees is possible under civil, outsourcing and outstaffing agreements. Main vehicles may be owned by the supplier under a lease or rent.
Finally, the investigator stressed that the law-abiding taxpayer in its legal relationship with the state should not depend on another taxpayer violating the law. 
Result achieved: Following the case consideration outcomes by the fiscal service, the SFS satisfied the company’s complaint and dropped additional VAT accruals worth over UAH 3 mn. The case was closed successfully.

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