SE “P” appealed to the court with an administrative lawsuit to the State Tax Service in Kyiv, in which it requested to declare illegal and cancel tax notice-decision (hereinafter –TND), made as a result of a documentary scheduled on-site inspection. By the decision of the court of first instance, left unchanged by the appellate court, part of the claims of SE “P” was denied. By the decision of the Sixth Administrative Court of Appeal of June 1, 2021, the claim was partially satisfied: TND No. 0057050603 of November 18, 2019 was declared illegal and canceled. The remaining claims were denied. The case was considered by the Supreme Court on the basis of a cassation appeal of the State tax Service in Kyiv.
Arguments in this situation from judicial practice – below.
Consideration of the dispute
Assessing the established circumstances of the case and the conclusions of the courts of previous instances, the court noted the following.
- According to the case file, the reason for the defendant to make the TND was the latter’s failure to recognize the reality of the plaintiff’s business transactions with the counterparty. SE “P” (Customer) concluded contracts for the provision of services, under which the Customer instructs the Contractor to provide consulting services for commercial activities, which are described in the annex. According to the annex to the agreements, the parties agreed on the scope and description of services, namely: consultations on commercial activities of the Customer, modern, effective methods of business management, including recommendations for planning, organizing and ensuring the efficiency of its enterprise, implementation of control systems and quality assessments; recommendations and advice to the Customer on marketing forms and methods, marketing strategies, use of marketing databases, skills and technologies of sales and promotion of rental services in the real estate market and other services related to the above, which are necessary for the Customer’s business. To confirm the fulfillment of the terms of these agreements, the plaintiff submitted to the inspection and the court primary accounting documents, the obligation to maintain and store which is provided by accounting rules, confirming the legitimacy of the inclusion of costs of such business transactions in the object of corporate income tax for the period under review.
- Circumstances of proper execution of primary documents, registration of tax invoices drawn up by the contractor-supplier in the Unified Register of Tax Invoices, payment of the cost of services are not denied by the controlling body. However, they question the connection of the consulting services purchased by the plaintiff with the business activity of SE “ P”. In addition, the defendant refers to the failure to provide reports on the provision of services with detailed results of services provided, as well as the fact that the acts can not investigate the content of services actually provided by the plaintiff’s counterparty, their implementation, establish the amount of labor and other resources involved etc.
- The panel of judges notes that according to the content of the above contracts for the provision of services, which in their content are consulting, the mandatory document for recording the results of services are only acts of delivery-acceptance of services (delivery-acceptance of works). At the same time, no normative legal act obliges the enterprise-customer of consulting services to issue an order, which should justify the need to order such services, and does not provide for the obligation of the parties to draw up contracts for consulting services such documents as reports on provided services. In its decision of February 12, 2002 in case No. 813/3577/13-a, the Supreme Court stated that the level of detail of the description of the business transaction in the original document was not established by law. Failure to fill in the primary accounting documents of certain items that do not affect the content of the transaction, the lack of maximum detail of the type of services performed, does not prevent the acceptance of these documents for accounting and is not evidence of the absence of transactions.
- The courts of previous instances, assessing the evidence in the materials, did not take into account the above, as well as the fact that for tax purposes, primarily economic consequences of business transactions are taken into account, rather than the specifics of the relevant transactions, did not apply the approach “substance over form” as accounting principle and, as a consequence, did not clarify the legal nature of the disputed legal relationship. Also, in the motivating part of the contested decisions did not receive any analysis and evaluation of the plaintiff’s arguments on the economic feasibility of ordering such services from the counterparty and the economic effect of their use within their own business activities by major economic activities.
The result of the case was the decision of the Supreme Court of September 22, 2021 in case No. 640/2411/20: cancel the part of the refusal to satisfy the claims for annulment and cancel the TND, and the case in this part to send for retrial to the court of first instance.
