Challenging the notification and the act of documentary tax audit
No. 6001-23-00-6ap/1264 dated 11/9/2023
Plaintiff: K LLP (hereinafter referred to as the Partnership)
Respondent: RSU (hereinafter referred to as the Department) "Department of State Revenue"
The subject of the dispute: on challenging the notification and the act of documentary tax audit
Review of the plaintiff's cassation complaint: The Department, based on Order No. 394 dated October 9, 2019, conducted a comprehensive tax audit of K LLP on the fulfillment of tax obligations for the period from January 1, 2014 to December 31, 2018.
Based on the results of the audit, the tax authority drew up a documentary tax audit act No. 3 dated September 30, 2020, issued a notification of the audit results No. 3 dated September 30, 2020, in connection with which the plaintiff was charged corporate income tax (hereinafter - CIT) in the amount of 61,135,018 tenge and a fine of 12,573,093.72 tenge, as well as tax value added tax (hereinafter referred to as VAT) in the amount of 35,636,691 tenge and a penalty of 7,203,978.72 tenge.
Disagreeing with the above additional charge, the plaintiff appealed the notification to the Appeals Commission of the Ministry of Finance of the Republic of 31 Kazakhstan. According to the results of the appeal commission meeting on July 11, 2022, the plaintiff's complaint was partially satisfied.
As a result, the tax authority issued a new notification No. 3/1 dated July 18, 2022 on the accrual of CIT amounts in the amount of 40,489,630 tenge and penalties in the amount of 8,789,306.72 tenge, as well as VAT in the amount of 23,394,159 tenge and penalties in the amount of 4,774,551.92 tenge for mutual settlements with T LLP and T LLPD" for 2017 and 2018.
Judicial acts:
1st instance: the claim was denied.
A private ruling has been issued against the city prosecutor.
Appeal: the decision and the private ruling of the court of first instance are left unchanged.
Cassation: the decision, the private ruling of the first instance, the ruling and the ruling of the appellate instance are annulled. In terms of challenging the notification of the results of the tax audit dated July 18, 2022, a new decision was made to satisfy the claim.
The notification No. 3/1 dated July 18, 2022 was declared illegal and cancelled. The claim regarding the challenge of the act of documentary tax audit dated September 30, 2020 has been returned.
Conclusions: Local courts have recognized the defendant's actions regarding the assessment of the plaintiff's settlements with his counterparties as legitimate. These conclusions of the local courts are due to the unconfirmed turnover of LLP "D", LLP "T" tax and accounting reports.
By virtue of paragraphs 1 and 3 of Article 242 of the Tax Code, a taxpayer's expenses in connection with carrying out activities aimed at generating income are subject to deduction when determining taxable income, taking into account the provisions established by this Article and Articles 243-263 of the Tax Code, with the exception of expenses that are not deductible in accordance with the Tax Code.
Deductions under the CPN are made by the taxpayer for the expenses actually incurred, provided that there are documents confirming such expenses related to his activities aimed at generating income.
In accordance with Article 372 of the Tax Code, turnover in the sale of works and services means any performance of work or provision of services. According to paragraph 1 of Article 400 of the Tax Code, VAT offset is carried out for goods, works and services received if they are used or will be used for the purposes of taxable sales turnover.
Paragraph 5 of Article 163 of the Tax Code establishes that when determining objects of taxation and (or) objects related to taxation, in accordance with this article, expenses of a taxpayer (tax agent) that are not confirmed by primary documents are not deductible for calculating VAT and offset for calculating VAT. Tax accounting is based on accounting data, which, in accordance with paragraph 1 of Article 7 of the Law of the Republic of Kazakhstan "On Accounting and Financial Reporting" (hereinafter referred to as the Law), includes primary documents, accounting registers, financial statements and accounting policies.
The above rules provide for the conditions for obtaining the right to deduct amounts for CPN and VAT amounts in accordance with supporting documents: the establishment of the actual provision of services, the reflection of transaction data in accounting based on primary documents, compliance with the requirements for the preparation of invoices, as well as the use of goods, works and services for the purposes of taxable turnover.
That is, for the purposes of deducting their expenses, according to Article 242 of the Tax Code, the plaintiff must have primary documentation from which it would be possible to identify the supplier, the services received and the validity of deductions for the purposes of the CPI and offset for VAT. During the tax audit and court review of the present case, the plaintiff provided primary documents confirming the actual performance of financial and business operations for the claimed expenses.
Thus, subcontracting agreements, bank statements, payment orders, invoices, declarations, acts of reconciliation, acceptance of completed works, commissioning of the facility and other accounting and financial documents confirm the mutual settlements of LLP "K" with LLP "D", LLP "T", as well as the viability and fulfillment of the terms of transactions. Payments for contract and subcontracting work at the facilities of the joint-stock company (hereinafter - JSC) "AK" and JSC "A-T" are made by transfer, while taxes on these transactions of LLP "K", LLP "D" and LLP "T" are paid.
Thus, the fact of electrical installation and commissioning is confirmed. Meanwhile, it was established that the defendant had no grounds for not accepting the primary documents. Based on the above facts, the judicial board considers that these expenses are deductible for the purposes of the CPN and offset for VAT. By virtue of the fourth part of Article 84 of the CPC, an illegal burdensome administrative act is subject to mandatory cancellation. Therefore, the conclusions of the courts on the denial of the claim are erroneous. At the same time, the concept and features of an administrative act and judicial jurisdiction of disputes are determined by the provisions of the CPC.
The second part of Article 102 of the APPC states that the courts, in administrative proceedings, have jurisdiction over disputes arising from public law relations provided for by the APPC. The provisions of the first part of Article 4 of the APPC determine that:
1) an administrative act is a decision taken by an administrative body, an official in public relations, implementing the rights and obligations of a certain person or an individually defined circle of persons established by the laws of the Republic of Kazakhstan.;
2) an administrative claim is a claim filed in court for the purpose of protecting and restoring violated or disputed rights, freedoms or legitimate interests arising from public law relations.
An administrative act is adopted, which is the main external form of management activity of administrative bodies and officials. It is an administrative body in public law relations, has an authoritative character and represents a unilateral decision of an administrative body endowed with authority, which is mandatory and secured by state coercion, and is aimed primarily at the realization of subjective public rights and obligations, addressed to a specific person or an individually defined circle of people.
The subject of a claim may be an act that denies implementation, restricts, terminates the right of a participant in an administrative procedure or imposes certain duties on him, as well as otherwise worsens his situation.
However, the documentary tax audit act of September 30, 2020, challenged by the plaintiff, is not an administrative act adopted in public law relations and does not impose any obligations on the plaintiff.
In the context of the appealed notification of the defendant, the act of documentary tax audit is the actual administrative evidence in this case. According to subparagraph 11) of the second part of Article 138 of the CPC, the court (judge) issues a ruling on the return of the claim if the case is not subject to consideration in administrative proceedings.
Accordingly, the courts of the first and appellate instances violated the norms of procedural law in this part of the claim, and therefore the Partnership's claim to challenge the act of documentary tax audit dated September 30, 2020, should have been returned to the plaintiff due to the fact that it is not subject to consideration in administrative proceedings.
Given that the case does not require the collection and additional verification of evidence, the circumstances of the dispute have been fully established, however, the courts of first and appellate instances made mistakes in evaluating evidence, interpreting and applying substantive and procedural law, the judicial board considers that the judicial acts issued in the case are subject to cancellation, and the claim is satisfied.
Attention!
Law and Law Law Law draws your attention to the fact that this document is basic and does not always meet the requirements of a particular situation. Our lawyers are ready to assist you in legal advice, drawing up any legal document suitable for your situation.
For more information, please contact a Lawyer / Attorney by phone: +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085.
Attorney at Law Almaty Lawyer Legal Services Legal Advice Civil Criminal Administrative Cases Disputes Protection Arbitration Law Firm Kazakhstan Law Office Court Cases
