TOP-5 judgments on tax disputes for the first half of 2022

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We are sure that no one will be surprised by the results of our analytical work to determine the most significant category of litigation among the total number of court decisions contained in the Unified State Register of Court Decisions since its launch on June 01, 2006.

Undoubtedly, tax disputes are considered to be the mentioned category of litigation.

Their relevance is really difficult to overestimate.

Despite the branching of the tax legislation of Ukraine, a taxpayer can often face inconsistency in the settlement of a particular issue (the so-called conflict of law), or, on the contrary, might not find a way to solve it (the so-called gap in the legislation).

The above often becomes the basis for the tax authority to decide on the need for the taxpayer to pay the amount of taxes (for example, corporate income tax or personal income tax, etc.) or a generally obligatory fee that has not been paid or underpaid by the latter, and / or the application of penalties for violation of the requirements of the tax legislation of Ukraine, in the opinion of the tax authority, by charging penalties for the delay in fulfilling the taxpayer’s duty (duties), exhaustively set forth in Art. 16 of the Tax Code of Ukraine.

On the other hand, the legislator also gave the tax authority the right to file a lawsuit against a taxpayer having a tax debt to collect funds from his bank accounts (see below) or to seize the taxpayer’s funds or recognize disputed transactions invalid, etc.

Many years of experience of the Law Company “PERVAYA YURIDICHESKAYA” shows that the legal relationship of the taxpayer with the tax authority should be based on the requirements of the current legislation, knowledge of which is owned by professionals in their field – lawyers (legal counsels) in the field of tax law.

We assume that not all taxpayers are aware of one of the principles of the tax legislation of Ukraine on the presumption of the legitimacy of the taxpayer’s decisions if the rule of the law or other regulatory legal act issued on the basis of the law, or if the rules of different laws or different regulatory legal acts imply an ambiguous (multiple) interpretation of the rights and obligations of taxpayers or regulatory authorities, as a result of which it is possible to make a decision in favor of both the taxpayer and the regulatory authority.

However, having promptly engaged a specialist – a lawyer to resolve a tax dispute at the stage of its occurrence, the taxpayer finds himself in a situation prone to resolution in favor of the latter.

Of course, there is also a way to avoid any dispute with the tax authority by satisfying the request regarding the support by the law firm of the economic activities of the taxpayer (legal entity or individual entrepreneur) on a regular basis in terms of compliance of such activities with the requirements of Ukrainian legislation.

In any case, the Law Company “PERVAYA YURIDICHESKAYA” has specialists in its staff in the field of tax and commercial law, specialists in accounting and other specialists. At the same time, our company also cooperates with lawyers in the implementation of judicial representation of the interests of the clients of the Law Company “PERVAYA YURIDICHESKAYA”, on an outsourcing basis.

Having numerous cases of positive settlement of tax disputes of our clients, both at the stage of administrative appeal of decisions (actions or inaction) of the tax authority, and at the stage of their judicial appeal, we are sure that the involvement of lawyers (legal counsels) in the settlement of tax disputes retains valuable time and money of clients that can be invested in another business.

Below are the Top 5 judgments on tax disputes taken by the courts in the first six months of 2022 in view of raising an awareness of this issue.

The reorganization of a taxpayer (legal entity), which, in particular, entails a change in the location of a legal entity whose economic activity was terminated by reorganization, merging with another legal entity, does not relieve its successor from the burden of fulfilling the tax obligation of the legal entity, which is terminated.

This conclusion was made by the Khmelnytskyi District Administrative Court when deciding to satisfy the claims of the Main Department of the State Tax Service in the Khmelnytskyi region against the taxpayer for the recovery of funds to pay off the tax debt in resolving a litigation in the case No. 560/14821/21 on an administrative claim (Decision of February 27, 2022 in case No. 560/14821/21).

The court established the existence of a tax debt of a legal entity-taxpayer, which was terminated by reorganization by joining the defendant in the case. The presence of the aforementioned tax debt is confirmed by the opinion of the Supreme Court in case No. 560/4309/18 (decision dated March 23, 2020). Instead, the argument against satisfaction of the claims was the fact that the tax claim, which is the basis for the plaintiff’s appeal to the court, was not sent to the court, precisely at the location of the latter.

In this case, the Khmelnytskyi District Administrative Court drew attention to the fact that, according to subparagraph 97.4.1 of paragraph 97.4 of Art.97 of the Tax Code of Ukraine (hereinafter referred to as the Tax Code of Ukraine), the person responsible for the repayment of monetary obligations or tax debt of a taxpayer is: in relation to a liquidated taxpayer – a liquidation commission or other body conducting liquidation in accordance with the legislation of Ukraine.

Taking into account the above order, the court recognized as lawful the actions of the Plaintiff regarding the direction of one of the tax claims – at the location of the liquidation commission of the terminated legal entity, and the other – at the location of the defendant, which, in the opinion of the court, does not negate the plaintiff’s right to take coercive measures provided for by law to pay off the tax debt.

The indication by the tax authority in the decision to refuse to register a tax invoice in the Unified Register of Tax Invoices that the taxpayer’s documents are missing when the latter submits explanations, without specifying them, is not sufficient grounds for refusing to register tax invoices, since the regulatory authority must indicate objective circumstances that prevent the registration of a tax invoice, taking into account the absence of such documents, while an assessment must be given to those documents that are actually submitted by the taxpayer.

The above conclusion is contained in the decision of the Lvivskyi District Administrative Court dated February 28, 2022 in case No. 380/25176/21 on satisfaction of the claims of a legal entity against the Main Department of the State Tax Service in the Lviv region, the State Tax Service of Ukraine on recognizing the decision of tax authorities as illegal on registration of invoices in the Unified Register of Tax Invoices (hereinafter referred to as the controversial decision), as well as the obligations of the State Tax Service to register disputed tax invoices.

The prerequisite for the adoption of a controversial decision by one of the defendants was the fact that the taxpayer (plaintiff) submitted explanations to one of the defendants with the addition of documents confirming the fact that business operations were carried out in order to register disputed invoices, as a result of which the defendant decided to refuse their registration. At the same time, as the court aptly pointed out in the above-mentioned decision on the case, the said defendant did not emphasize in the disputed decision which documents were lacking to make a decision on the registration of tax invoices.

In this regard, the Lvivskyi District Administrative Court drew attention to the conclusions of the European Court of Human Rights, given in the decision of February 10, 2010, in the case “Seryavin and others v. Ukraine”: The principle of validity of the decision requires the subject of power to take into account both the circumstances, the obligatory consideration of which is directly indicated by the law, and other circumstances that are important in a particular situation. To do this, it must carefully collect and examine materials that are of evidentiary value in the case, for example, documents, explanations of persons, etc. At the same time, the subject of power should avoid making unmotivated conclusions, justified by assumptions and unverified facts, and not by specific circumstances. A decision that is unfavorable for a person must be motivated.”

When determining the tax base for real estate tax, the defining features are the features of real estate, and not the features of its owner. After all, according to the analysis of the provisions of the Tax Code of Ukraine, which regulate the issues of its collection, it is seen that the concept of “taxpayer” is not identical to the concept of “object of taxation”.

The essence of the court case No. 380/23824/21 on the claim of an individual to the Main Department of the State Tax Service in the Lviv region on the recognition as illegal and cancellation of tax notices-decisions is as follows. The position of the tax authority is that the buildings for agricultural purposes belong by right of private ownership to the plaintiff, who is not an agricultural producer, and therefore, such immovable property is subject to taxation according to the general rules for levying a tax on immovable property other than a land plot.

According to paragraph “g” of subparagraph 266.2.2 of Article 266 of the Tax Code of Ukraine, buildings, structures of agricultural producers (legal entities and individuals) classified as “Buildings for agricultural purposes, forestry and fisheries” (code 1271) according to the State classifier of buildings and structures DK 018-2000, are not subject to taxation and are not leased, rented out, loaned by their owners.

In this regard, during the resolution of the litigation, the Lvivskyi District Administrative Court came to the conclusion that the use of pigsties and the weighing office, the intended purpose of which is their use in agricultural activities, owned by the plaintiff, as the founder of an agricultural commodity producer, on the basis of the right of ownership, complies with the essential attribute of an agricultural commodity producer. This fact provides for the application to the mentioned buildings and structures of a tax benefit in the form of non-taxation of such objects.

In addition, as the court noted in its decision of February 25, 2022, the Main Directorate of the State Tax Service in the Lviv region did not provide evidence that the plaintiff used the property belonging to him on the right of ownership in any other activity other than agricultural activity.

The actual change in the provisions of the Tax Code of Ukraine on the basis of a resolution of the Cabinet of Ministers is unacceptable due to the fact that, according to p. 2.1 Art. 2 of the Tax Code of Ukraine changing the provisions of the Tax Code of Ukraine can be carried out exclusively by amending this Code.

Due to the conclusions given in the decision of February 25, 2022, in case No. 600/2899/21-а, the Seventh Administrative Court of Appeal recalled that the resolution of the Cabinet of Ministers of Ukraine dated February 03, 2021 No. 89 “On reducing the validity period of restriction in terms of the moratorium on the conduct of some types of inspections” which determined to reduce the period of validity of the restrictions established by paragraph 52-2 of subsection 10 of section XX of “Transitional provisions” of the Tax Code of Ukrainein terms of the moratorium on certain types of inspections, and then allowing them to be carried out in compliance with paragraph 77.4 of Art. 77 of the Tax Code of Ukraine, contradicts the norms of paragraph 52-2 of subsection 10 of section XX of “Transitional provisions” of the Tax Code of Ukraine.

After all, according to par. 1 clause 52-2 of subsection 10 of section XX of the Tax Code of Ukraine (as amended by the Law of Ukraine dated 17.03 .2020 No. 533-IX and Law of Ukraine dated 05.13.2020 No. 591-IX) a moratorium was established to conduct documentary and factual inspections for the period from March 18, 2020, to the last calendar day of the month (inclusive), in which the quarantine established by the Cabinet of Ministers of Ukraine on the entire territory of Ukraine ends in order to prevent the spread of coronavirus disease (COVID-19) on the territory of Ukraine, except for a clearly defined list of inspections, which did not include an inspection appointed by the defendant in relation to the plaintiff by a controversial order.

Satisfying the taxpayer’s claims against the Main Directorate of the State Tax Service in the Chernivtsi region on declaring illegal and canceling the order to conduct a documentary unscheduled audit, the court also applied the principles set forth in paragraph 4.1.4 of art. 4 and a clause on the priority of application of abstract 1 of paragraph 52-2 of subsection 10 of section XX of the Tax Code of Ukraine.

If the employer pays a single contribution in the amount of at least the minimum contribution for an employee who is also an individual entrepreneur not receiving income from economic activity, the Law of Ukraine “On the collection and accounting of a single contribution for compulsory state social insurance” dated 08.07.2010 No. 2464-VI excludes the obligation of the latter to pay a single contribution by an individual entrepreneur in the period of its payment by the employer.

The above conclusion was reached by the Eighth Administrative Court of Appeal during the consideration of the appeal of the Main Department of the State Tax Service in the Lviv region against the decision of the Lvivskyi District Administrative Court of October 06, 2021, in case No. 380/11457/21 on the administrative claim of an individual entrepreneur against the Main Directorate of the State Tax Service in the Lviv region on recognition as unlawful and cancellation of the requirement to pay the debt. By the decision of February 25, 2022, the above-mentioned appeal was left without consideration, and the decision of the Lvivskyi District Administrative Court was left unchanged.

In this regard, the court recalled that the necessary conditions for a person to pay a single contribution to obligatory state social insurance is the implementation by such a person of economic activities and the receipt of income from such activities, which is the basis for accruing single contributions. Consequently, it is the income of a person from economic activity that is the basis for accrual, however, under any conditions, the size of the single contribution cannot be less than the minimum monthly insurance premium. In the case when a person is an employee for whom the employer pays a single contribution in the amount of its minimum size, the purpose of collecting a single contribution for obligatory state social insurance is achieved through its payment by the employer.

We shall note that a feature of administrative proceedings is that the duty (burden) of proof in a dispute rests with the defendant – the tax authority, which must provide evidence indicating the legality of its actions or the legality of the decisions taken. If the plaintiff is a tax authority, then the general rule of Art. 77 of the Code of Administrative Procedure of Ukraine is applied on the need to prove by each party to the litigation all the circumstances on which its claims and objections are based.

Analysis of the above court decisions gives grounds to conclude that neither the requirement of the law to establish a moratorium on the conduct of an audit, nor the assumption that it is possible to resolve a tax issue due to the taxpayer’s independent access to tax legislation, guarantees such a taxpayer the resolution of the tax dispute that has arisen in favor of the latter, in the absence of involvement of specialists (lawyers, legal counsels) in the field of tax law.


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