LLC “C” appealed to the court with an administrative lawsuit to the Main Department of the State Tax Service in Kyiv, in which it asked to declare illegal and cancel the tax notice-decision (hereinafter – TND), issued as a result of the inspection conducted on the basis of paragraph 78.1.4 of the Tax Code of Ukraine (hereinafter – the Tax Code) (detection of data inaccuracy). The act drawn up as a result of the inspection recorded an overstatement of the amount of negative value, which is included in the tax credit. The court of first instance sustained the claims, the appellate court dismissed the claim in full. The plaintiff filed a cassation appeal. How did things develop further?
Considering the case, the court took into account the following:
- the appellate court concluded that the contractors of LLC “C” did not actually provide services to the company, and the primary financial and economic documents provided by LLC “C” to the tax authority and the court were drawn up formally to create a false impression of business transactions and do not prove the fact of provision of services (performance of works) by contractors;
- the main primary feature of a business transaction is its reality, and the presence of primary documents is a secondary, derivative feature. Proper documentation of the business transaction with the relevant primary documents does not indicate their unconditional compliance with the content of the transaction. The legal consequences are created by the business transaction, not primary documents;
- the courts found that LLC “C” (customer) and Counterparty-1 (contractor) concluded a contract for the provision of services, the subject of which is: regression testing service; service for program development and testing methods; acceptance test service, etc. At the same time, the services are high-value. Also LLC “C” (customer) and Counterparty-2 (contractor) concluded agreements on the provision of services, the subject of which is: the service of deployment and configuration of cloud infrastructure; migration of infrastructure from physical servers to a virtual environment; testing the security system on the Internet; testing of virtual infrastructure after migration for fault tolerance; system testing, enterprise infrastructure security management based on web panel, etc.;
- in compliance with the terms of these agreements, the parties have drawn up and signed acts of delivery and acceptance of works and tax invoices. However, having examined these documents, the court found that such acts do not contain all the mandatory details, in particular, they do not decipher the content and scope of services received (where, when, in what period, at what facilities, in what volumes services received, their economic justification and expediency, which determines the total cost of such services). In addition, such documents do not contain comprehensive, detailed information on the content of business transactions, the types of services provided are not specified, as a result of which it is impossible to reliably determine their scope, cost and connection with the business activities of LLC “C”. That is, the acts of delivery-acceptance of works (provision of services) available in the case file are generalizing documents that do not disclose the content and scope of services provided, do not allow to identify which services were provided, and do not allow to check the accuracy of the plaintiff's tax benefits under such transactions. At the same time, the case materials do not contain reports, recommendations, systematic selections, reference materials, etc., which would be compiled based on the results of work (provision of services) under the concluded contracts and allow to establish who performed the work (services), the number of people involved, how many man-hours were used, etc.;
- LLC “C” also did not provide the court with documentary evidence of the justification of economic and business feasibility of purchasing such services, because, as established by the courts of previous instances, LLC “C” ordered services that are its main activity from contractors who do not provide such services. The types of services provided to the plaintiff not only do not correspond to the type of activity of the specified counterparties of the plaintiff, but also require relevant knowledge in the field of IT and trained employees who could provide such services.
Resolution of the Supreme Court of January 27,2020 in case No. 640/19386/18: dismiss the cassation appeal of LLC “C”.
