LLC “A” filed a lawsuit with the State Tax Service to declare illegal and cancel tax notices-decisions (hereinafter – TND), issued as a result of a scheduled on-site inspection of the company. The dispute concerned the use of the methodology for discounting long-term accounts payable, which is determined by International Financial Reporting Standards (hereinafter –IFRS). The company noted that the conclusions of the STS were false, given that they were made due to unfavorable for the plaintiff interpretation of the tax provisions of accounting standards, which do not define clear procedures and methodologies and do not correspond to the essence of the plaintiff’s business. About the course of the case and the conclusions that may be useful – below.
Important arguments
In resolving the case, the court noted the following:
- the appellate court reasonably found and noted that the loans received by the plaintiff under the disputed agreements meet the definition of “financial instrument” provided for in item 4 of NAS 13, as well as, taking into account the provisions of item of NAS 13, a loan is a financial asset because it is a contractual right to receive funds in the future, and a loan is a financial liability because its repayment will result in a future payment. NAS 13 does not contain a definition of the amortized cost of a financial liability or references to such a concept in other regulations, does not provide a procedure for determining fair value and does not consider a methodology for accounting for current and non-current financial liabilities;
- the appellate court reasonably noted the groundlessness of the supervisory authority to apply to the disputed legal relations the procedure for amortization of the cost of financial investments defined in NAS 12 Financial Investments, as item 4 of UAS 13 establishes that financial investments are assets, which are held by the company in order to increase profits (interest, dividends, etc.), increase the cost of capital or other benefits to the investor. That is, a financial investment is a financial asset and a loan received by a plaintiff is a financial liability. In this regard, there are no grounds for applying the method of determining the amortized cost of financial investment to the disputed legal relationship;
- in addition, NAS does not define a methodology for determining the fair and amortized cost of financial liabilities, while such a methodology is defined by IFRS. However, it should be borne in mind that Part 3 of Art. 12 of Law of Ukraine “On Accounting and Financial Reporting in Ukraine” No. 996-XIV of July 16, 1999 (hereinafter – the Law on Accounting) established that enterprises (other than those listed in Part 2 of this article) independently determine the feasibility of application of international standards for the preparation of financial statements and consolidated financial statements. That is, the plaintiff as a person whose accounting is based on NAS and not on IFRS (which is not refuted by the defendant by any relevant, sufficient and admissible evidence), given that NAS does not define a methodology for determining the fair and amortized cost of financial liabilities does not have to determine such a methodology for estimating financial liabilities independently. In turn, the supervisory authority has no right to determine this methodology and give instructions to such taxpayers (who are guided only by NAS) on the methodology, as rightly noted by the appellate court.
The decision of the Supreme Court of September 10, 2021 in the No. 160/6203/20: the cassation appeal of the body of the State Tax Service to be dismissed.
