On the recognition of illegal and cancellation of the notification of the results of the audit regarding the calculation of taxes and penalties

No.6001-23-00-6ap/1319 dated 11/06/2023

Plaintiff: LLP "A" (hereinafter referred to as the Partnership)

Respondent: Russian State Institution "Department of State Revenue" (hereinafter referred to as the Department)

The subject of the dispute: on the recognition of the illegal and cancellation of the notification of the results of the audit No. 123 dated October 10, 2022 regarding the calculation of taxes and penalties, a review of the plaintiff's cassation appeal

PLOT: The Department, on the basis of regulation No. 172 dated May 26, 2022, conducted a thematic tax audit in relation to the Partnership on the correctness of the calculation and timeliness of taxes and other mandatory payments to the budget, handed over to the taxpayer on May 30, 2022.

The period under review is from January 1, 2019 to December 31, 2021. Based on the results of the tax audit, the act of documentary tax audit No. 1 dated October 22, 2022 was drawn up, a notification was issued on the results of the audit on the accrual of corporate income tax from legal entities, with the exception of income from large businesses and organizations in the oil sector in the amount of 130,695,874 tenge and penalties of 36,830,690 tenge, VAT on manufactured goods, works performed and services rendered in the territory of the Republic of Kazakhstan in the amount of 53,871,088 tenge and penalties of 17,138,820 tenge, in total in the amount of 238,536,472 tenge.

On November 22, 2022, the Partnership filed a complaint with the State Institution "Ministry of Finance of the Republic of Kazakhstan" about the recognition of illegal and cancellation of the Department's notification of the audit results dated October 22, 2022 No.1. On December 15, 2022, based on the results of the meeting of the Appeals Commission, it was decided to leave the appealed notification of the audit results dated October 22, 2022 No. 1 of the Department unchanged and the complaint dismissed.

Judicial acts:

1st instance: the claim was denied.

Appeal: the court's decision remains unchanged. Cassation: judicial acts have been annulled, with the referral of the case for a new hearing to the judicial board for administrative cases in a different composition.

Conclusions: in rejecting the claim, the courts of the first and appellate instances concluded that the deadline for the audit had not been violated, the tax audit had been completed in 28 days, and all claims, notices of suspension and resumption of the tax audit had been written and handed over to the Partnership.

The basis for the additional taxes was the IESEC's decision of June 10, 2022, which entered into force to invalidate transactions with counterparties of SR LLP and AP LLP. These conclusions of the courts of first instance and appeal are premature, they are based on the incorrect application of substantive and procedural law.

According to subparagraph 1) of paragraph 1 of Article 48 of the Tax Code, the limitation period for a tax obligation and claim is the period of time during which the tax authority has the right to calculate, calculate or revise the calculated, accrued amount of taxes and payments to the budget. In accordance with paragraphs 2 and 4 of Article 48 of the Tax Code, unless otherwise provided by this article, the limitation period is three years.

The period of the relevant limitation period for the tax period begins, except after the end of the cases provided for in paragraphs 5, 6, 7, 8 and 12 of this Article.

Based on Article 423 of the Tax Code, the tax period for value added tax is a calendar quarter. According to paragraph 3 of Article 158 of the Tax Code, the end of the tax audit period is considered to be the day when the tax audit report is handed over to the taxpayer (tax agent). In the courts of the first and appellate instances, the plaintiff challenged the notification only on the grounds of missing the statute of limitations and the deadline for conducting the audit. The courts have given a proper assessment to the plaintiff's arguments.

It should be noted that in the cassation complaint, the plaintiff stated that the judicial acts on the invalidation of contracts between LLP "SR" and LLP "A" were canceled and sent for reconsideration by the decision of the Judicial Board for Civil Cases of the Supreme Court dated April 18, 2023. The court of cassation found that the decision of the judicial board for civil cases dated August 1, 2023 denied the claim for invalidation of contracts between LLP "SR" and LLP "A".

The Judicial Board believes that clarifying these circumstances will affect the proper resolution of the dispute. In view of the above, the arguments of the parties deserve attention and require additional verification. For completeness, comprehensive and objective consideration of the case, it is necessary to send the administrative case for a new hearing to the court of appeal, which must consider the case according to the rules of the court of first instance.

In the case of a new trial, the court must, in order to fully clarify the circumstances relevant to the case, eliminate contradictions, carefully examine the arguments of the parties, evaluate the evidence presented and make a legitimate and reasoned decision on the case. 

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