On recognition as illegal and cancellation of the notification of the results of the tax audit
No. 6001-23-00-6ap/1335 dated 12/12/2023
Plaintiff: TJ LLP (hereinafter referred to as the Partnership)
Respondent: Russian State Institution "Department of State Revenue"
The subject of the dispute: on the recognition of the illegal and cancellation of the notification of the results of the tax audit No. 38 dated December 30, 2020
Review of the plaintiff's cassation complaint: Based on Order No. 3 dated February 27, 2020, the Department conducted a comprehensive tax audit of the Partnership's activities for the period 2017-2019.
Based on the results of the audit, a documentary tax audit report was drawn up and notification No. 3 dated December 30, 2020 was issued, which accrued to the plaintiff: - CIT in the amount of 353,415,324 tenge and penalties of 6,497,481 tenge; - VAT in the amount of 82 581 063 tenge and penalties of 16 518 525 tenge. A total of 517,489,729 tenge was accrued. The Partnership filed a complaint against this notification with the Ministry of Finance of the Republic of Kazakhstan, whose decision denied its satisfaction. When filing a claim with the court, the plaintiff points out procedural violations committed during the audit: the type of audit was not specified in the act on the appointment of the audit, the tax audit report was not served, the requirements for suspending the audit and the timing of its conduct were violated. In essence, the additional amounts are considered unjustified by the exclusion of mutual settlements with 10 counterparties from the CIT deductions and VAT offset due to the availability of primary documents that comply with legal requirements confirming the actual implementation of financial and business transactions by the parties.
Judicial acts:
1st instance: the claim was denied.
Appeal: After the referral of the case by the Supreme Court for a new hearing to the court of appeal, the judicial board for administrative cases of the regional court issued a decision on March 6, 2023, which upheld the decision of the court of first instance.
Cassation: the decision of the judicial board was overturned with the referral of the case for a new hearing to the court of appeal in a different composition of the court.
Conclusions: resolving the dispute and rejecting the claim, the appellate instance, having requested the originals of the acts on the appointment and conduct of the audit, the act on the results of the audit (l.d. 48-210, vol. 7), concluded that the tax authority had prevented procedural violations during the appointment and conduct of the audit and the legality of calculating the amounts of VAT and VAT on the disputed notification. The Board agrees with the conclusions of the appellate instance regarding the absence of procedural violations during the tax audit, leading to its cancellation.
Thus, Order No. 38 dated June 3, 2020 and additional instructions to it were registered with the legal statistics authorities; the act on the results of the tax audit was signed by the inspectors D.M. and K.A. and is considered to have been handed over from the moment the survey report was drawn up in accordance with Article 158 of the Tax Code; taking into account the extension periods, the audit period was 26 working days and it was not violated.
The court also found that the plaintiff does not have documents confirming the costs of purchasing goods, works and services for the period under review in the total amount of 1,012,885,038 tenge, which is confirmed by the explanation of the chief accountant of the Partnership U.M., as a result of which the conclusions of the audit report on the underestimation of the amount of CPN in the amount of 202,577,007.6 tenge and the notification in the specified the parts are correct. Regarding the exclusion of settlements with 10 counterparties. According to the inspection report, the grounds for excluding mutual settlements are indicated:
1) according to the CPN and VAT for 2017: LLP "T", LLP "A–TI", LLP "AP-1" - lack of documentary evidence of expenses: the counterparties do not have sufficient staff and property to carry out the works and services reflected in the invoices. LLP "T" is an affiliated company of the plaintiff and does not fully reflect the income from the KPN for 2017, 2018.
2) KPN and VAT for 2018: LLP "T", LLP "A–TI" (VAT due to de-registration due to absence at the location), LLP "GABZ", LLP "ST", LLP "GC" - lack of documentary evidence of expenses: counterparties lack sufficient the staff of employees and property for carrying out works and services reflected in invoices. 3) CPN and VAT for 2019: LLP "C-C 18", LLP "10P", LLP "HC PO", LLP "KST E", LLP "A–TI" - lack of documentary evidence of expenses: counterparties do not have sufficient staff and property to carry out work, services, reflected in the invoices. LLP "KST E" does not reflect income in the declaration of the CPN.
Canceling the decision of the appellate instance, the cassation board, in its decision dated November 17, 2022, with reference to paragraph 3 of Article 242 of the Tax Code, indicated the need for the courts to examine the primary accounting documents confirming the execution of transactions, to evaluate the submitted documents on the availability of T LLP registered vehicles for the provision of services for the agreement dated January 5, 2017.
Resolving the dispute and repeatedly rejecting the claim, the appellate instance, citing the plaintiff's lack of subcontracting agreements with counterparties, travel documents in accordance with the Law "On Road Transport", and the filing of zero tax returns by counterparties, concluded that the counterparties did not have sufficient staff and property to provide services and perform work.
At the same time, the board's conclusions on the legality of excluding mutual settlements with counterparties from CIT deductions and VAT offsets due to the lack of primary documents are premature for the following reasons.
Thus, the filing of tax returns on personal income tax and social tax by counterparties with zero indicators does not reliably confirm that they do not have sufficient staff and property to provide services, since no counter-tax audit of the counterparties' activities has been conducted.
The conclusions of the courts on the absence of travel documents in accordance with the Law "On Road Transport" are refuted by their partial availability, for example, for the counterparty of GABZ LLP. The defendant's arguments about the removal of individual counterparties from VAT registration after the period under review cannot be used as the basis for additional charges, since in accordance with paragraph 1 of Article 256 of the Tax Code, in order for the recipient of goods, works and services to have the right to offset VAT amounts, it is necessary that the supplier be a VAT payer at the time of such offset.
Paragraph 16 of the regulatory resolution of the Supreme Court "On certain issues of the application of Tax legislation by Courts" dated December 22, 2022 stipulates that paragraph 1 of Article 400 of the Tax Code implies that in order for the recipient of goods, works, and services to have the right to set off VAT amounts, the supplier must be a VAT payer. At the same time, the appellate instance did not verify the plaintiff's arguments about the availability of additional reporting forms for the period under review, submitted by counterparties in 2021 due to the pandemic in 2020, and their payment of CPN and VAT amounts.
Thus, the cassation instance requested information from the tax authority on the amounts of CPN and VAT paid by counterparties for the period 2017-2019, with an attached declaration, pyramid, ESF and a sample of SRS. However, during the court session, the representatives of the tax authority could not explain whether the taxes paid relate to mutual settlements with the plaintiff and in what amount.
This circumstance is essential for the case, since the fact that suppliers reflect settlements with the plaintiff in tax reports and the latter pay taxes confirms the plaintiff's right to include such amounts in the VAT offset and deductions from the CPN.
Based on the above, due to the lack of completeness and objectivity in the consideration of the case, and the failure to apply the principle of the active role of the court, the decision of the appellate instance in this case is subject to cancellation with the referral of the case for a new hearing to the same court in a different composition of the court, and the plaintiff's cassation appeal is partially satisfied.
Upon a new hearing, the court should verify the plaintiff's arguments, and, if necessary, appoint an independent auditor as a specialist in accordance with Article 77 of the CPC to give an opinion on the case.
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