On the recognition of illegal notifications on the results of a tax audit

Ts LLP (hereinafter referred to as the Partnership) appealed to the court with an application to the republican state institution "Department of State Revenue for the City of Almaty" (hereinafter referred to as the Department) for declaring illegal notifications on the results of the tax audit dated April 2, 2018 No. 1040 and April 2, 2018 No. 262. By decision of the specialized interdistrict economic court The application of the Partnership was approved by the city of Almaty on October 15, 2018. The Department's notifications on the results of the tax audit No. 262 and No. 1040 dated April 2, 2018 were found to be illegal. By the decision of the Judicial Board for Civil Cases of the Almaty City Court dated December 19, 2018, the decision of the court of first instance remained unchanged. The Judicial Board for Civil Cases of the Supreme Court has left the judicial acts of local courts unchanged on the following grounds. It follows from the case file that the Department, based on the resolution of the investigator of the State Revenue Committee of the Russian Federation dated December 27, 2016, conducted a tax audit of the Partnership on the fulfillment of tax obligations on VAT and VAT for the period from January 1 to December 31, 2012. According to the results of the audit on September 27, 2017, Act No. 262 was drawn up, according to which the estimated amount of additional payments to the CPN in the amount of 93,361,760 tenge, penalties - 63,176,641 tenge, VAT - 50,024,560 tenge, penalties - 35,271,878 tenge, totaling 241,834,839 tenge. On April 2, 2018, the Department issued a notification on the additional payment of the above-mentioned amounts. Subsequently, based on the results of a comprehensive documentary tax audit in respect of the Partnership, act No. 1040 dated December 20, 2017 was drawn up, on the basis of which the applicant was charged additional VAT in the amount of 50 526 286 tenge and penalties in the amount of 6 383 119 tenge, VAT in the amount of 42 327 858 tenge and penalties in the amount of 25 065 534 tenge, in total - 124,302,797 tenge. 6,383,119 tenge, VAT in the amount of 42,327,858 tenge and penalties in the amount of 25,065,534 tenge, total – 124,302,797 tenge. On April 2, 2018, the Department issued notification No. 1040 on the accrual of these amounts. The additional charges were based on the exclusion from VAT deductions for settlements with DDB LLP, C-2012 LLP, M LLP, R LLP, and C LLP, which were created without the purpose of entrepreneurship. In deciding to satisfy the applicant's claims, the courts of first and appellate instances concluded that the defendant had failed to provide evidence that the contested notices were based on the conclusions of the tax authority based on regulatory legal acts made within its jurisdiction and corresponded to the factual circumstances.

On the recognition of illegal notifications on the results of a tax audit

In accordance with Part 2 of Article 72 of the CPC, the burden of proof in cases specified in Chapter 29 of this Code is placed on state authorities, local governments, public associations, organizations, officials and civil servants, whose acts, actions (inaction) may be appealed. DDB LLP was de-registered for VAT on April 2, 2014 due to absence at the location of C-2012 LLP was de–registered for VAT on June 10, 2013 due to absence at the location, M LLP was de-registered for VAT on March 4, 2013 for the same reason - absence by location. The tax authority did not take into account that the above-mentioned counterparties were de-registered for VAT after settlements with the Partnership, and therefore the fact that they were de-registered for VAT in the subsequent tax period could not be a reason for excluding VAT amounts from offsetting by the Partnership. Moreover, the tax authority has not submitted to the court judicial acts recognizing these counterparties as false enterprises or tax payers whose state registration was declared invalid by the court, it follows from Act No. 262 that there are no such decisions. The tax authority stated in Act No. 262 that invoices on behalf of LLP "C" in the 2nd, 3rd and 4th quarters of 2012 were issued by the first heads of LLP "C" B., T., H., who held the positions of the executive body of the specified counterparty of the Partnership in various periods. According to the inspection act No. 262, according to X. A handwriting examination has been appointed, but the results of the examination are not contained in the act. The tax authority in the inspection report refers to the testimony of witness J. without specifying what relation he has to LLP "S", with reference to the protocol of his interrogation dated December 23, 2015, according to which LLP "S" was registered (re-registered) in the name of K. (Kh.) to engage in false entrepreneurial activities, that is, to cash out counterparties. This act also states that the tax authority sent a request to the tax authority for obtaining an evidence base for LLP "C", and received a response dated January 13, 2017, according to which in the period from July 24, 2016 to April 30, 2014, the head of LLP "C" was H., and from April 30 In 2014, the head was K., who, according to the forensic handwriting examination dated April 19, 2016, did not sign the accounting and other financial documents of LLP "S". At the same time, the settlements between the Partnership and LLP "C" in the 2nd, 3rd and 4th quarters of 2012 are confirmed by invoices issued by LLP "C" in 2012, when K. He was not the first head of LLP "S". The tax authority indicates in the audit report that in the 3rd quarter of 2013, the Partnership made settlements with LLP "M" for a total amount of 111,102,500 tenge, the head of which, according to INIS data, has been L. since April 6, 2011, according to the protocol of interrogation dated July 1, 2017, this partnership was established to engage in false entrepreneurial activities, the contract with the Partnership and the invoices were not signed by him.

The tax authority did not take into account that its conclusions were based only on the testimony of witness L. and expert opinion No. 3654, which served as evidence in criminal case No. 17008011000031, initiated under part 4 of Article 176 of the Criminal Code of the Republic of Kazakhstan (hereinafter referred to as the Criminal Code), which was subsequently terminated because during the investigation it was established that the Partnership supplied video products manufactured under contracts to JSC NNTH P and the Ministry of Education of the Republic of Kazakhstan. (hereinafter referred to as the Ministry of Education and Science) according to the acts of services rendered, and only after the examination and acceptance of the work, the services were paid for by the customer. In addition, the tax authority did not take into account that the expert opinion in this case does not confirm that the specified organization did not actually provide the service, since the transaction itself was not invalidated, and the fact of the absence of delivery was not proven during the investigation of the above-mentioned criminal case. As follows from the protocol of L.'s interrogation, the fact that he was the founder and the first head of the partnership was not disputed by the latter, as well as the receipt of funds. There is no judicial act on the recognition of the registration / re-registration of the partnership as invalid on the grounds of L.'s lack of intention to engage in financial and economic activities or on the recognition of the contract dated July 2, 2012 as invalid according to the testimony given during the investigation, and therefore the courts reasonably criticized the testimony of witness L. For similar reasons, the courts did not accept as reliable evidence of the absence of actual performance of work, delivery of goods and services, testimony of witness K. and the expert's conclusion No. 3712 that the signature in the contract dated August 6, 2012 and invoices and invoices is not the signature of K. Thus, the inspection report states that the counterparty of the Partnership, S-2012 LLP, made mutual settlements in the amount of 98,240,000 tenge in the 3rd quarter of 2012. According to INIS K. He has been the first head of the partnership since July 13, 2012. According to the protocol of K.'s interrogation, the partnership was registered for the purpose of engaging in pseudo-entrepreneurial activities and it has nothing to do with financial and economic activities, it did not sign a contract or invoices. However, these circumstances are not supported by objective evidence, as the transaction itself has not been declared invalid. The courts were critical of the protocol of K.'s interrogation due to the fact that the testimony of the witness reflected in it was not supported by the totality of other evidence.

On the recognition of illegal notifications on the results of a tax audit

K.'s testimony is based only on the fact that the witness has nothing to do with the activities of C-2012 LLP, and the fact that this partnership was established on behalf of K. is linked by the latter to the loss of an earlier certificate, which is not confirmed by other evidence. According to the inspection act No. 262, the supplier of DDB LLP made settlements with the Partnership in 2012 in the amount of 295,720,000 tenge based on contractual obligations for the development and production of educational and educational films (video tutorials). The act states that witness S., questioned during the criminal investigation, who was the first head of DDB LLP since July 4, 2012, testified that DDB LLP was registered in the name of S. to engage in false entrepreneurial activities, to cash out counterparties, and he has nothing to do with the financial and economic activities of the partnership.. This circumstance is refuted by the agreement dated March 28, 2012, concluded by DDB LLP with the Partnership for the creation of video tutorials, and agreements on the contractual price for the provision of services to this agreement. Moreover, the testimony given by witness S. does not relate to the period of the partnership's activity before its first head took office. Thus, according to the audit report, S. became the first head of the partnership after the signing of the agreement between the Partnership and DDB LLP on March 28, 2012, and therefore he could not sign either the agreement or the invoices in the first and second quarters of 2012. As follows from the protocol of S.'s interrogation, the founding documents of DDB LLP were signed by him, the participant's decision and the order were signed on June 28, 2013, which contradicts his testimony that he has no relation to the activities of DDB LLP, and the opposite is not established by relevant judicial acts. By the investigator's decision dated July 5, 2018, which terminated criminal case No. 17008011000031, it was established that the Partnership provided video products under the contract dated March 20, 2012 No. 479 concluded with JSC NNTH P and under the contract dated May 3, 2013 No. 249 with the Ministry of Education and Science according to the acts of services rendered, and the budget funds were transferred to the Partnership after the customer accepted the video tutorials. As confirmation by the tax authority that DDB LLP did not provide video tutorial creation services, witness statements were taken, including S., according to which all video tutorials were filmed by a film crew consisting of D., T., G.; U., R., none of the employees of DDB LLP were on the set., DDB LLP is listed in the credits at the request of the Partnership. However, during the audit, the tax authority did not find out whether the direct shooting and installation of video tutorials by this group was the only and sufficient stage /element of the process related to the performance of the Partnership's scope of work on creating video tutorials. At the same time, the courts reasonably took into account the applicant's arguments that these persons were not employees of the Partnership and DDB LLP, they were only a hired film crew that was engaged in the technological process (directing and filming), which is consistent with their testimony, and therefore they did not know and could not know about the volume of Partnership agreements concluded, its legal relations with DDB LLP, the provision of the filming process, rental of television equipment, software. The defendant has not refuted the applicant's arguments that the process of creating video tutorials includes post-production, bringing the television material to a final version, the period following the shooting. A thematic audit was appointed on the issues of mutual settlements between the Partnership and LLP "S". Thus, in accordance with paragraph 1 of Article 632 of the Tax Code, which was in force on January 1, 2018, the basis for conducting a tax audit is an order. According to subparagraph 12) of paragraph 3 of Article 632 of the Tax Code, when assigning documentary inspections, the prescription specifies the issues to be checked, depending on the type of inspection, in particular, confirmation of mutual settlements between the taxpayer (tax agent) and its suppliers and buyers. At the same time, the issue to be reviewed in the order dated January 25, 2017 No. 262 is defined as "fulfillment of tax obligations on VAT and VAT" without indicating that the resolution dated December 27, 2016 appointed a thematic tax audit on mutual settlements with LLP "S", against which a criminal case was initiated. on the fact of false entrepreneurship. The tax authority, going beyond the issues of the audit appointed by the resolution of December 27, 2016, came to conclusions about the mutual settlements of the Partnership with other counterparties not specified in the resolution on the appointment of a thematic audit, given that this audit on the basis of regulation No. 262 was not comprehensive. When issuing the contested notification No. 262, the tax authority did not take into account that the resolution on the termination of the criminal case No. 170088011000031, initiated under part 4 of Article 176 of the Criminal Code, indicated the fact that the Partnership had fulfilled contracts for the creation of video tutorials, including by involving LLP "S".

The above indicates that the tax authority conducted an audit in accordance with regulation No. 262 illegally on mutual settlements with counterparties not specified in the resolution on the appointment of a thematic audit, and its conclusions were not based on reliable and objective evidence, while the contradictions in the evidence obtained from the criminal case were not rechecked by the tax authority by sending requests for additional information. documents from the materials of the criminal case. The basis for additional taxes and penalties under Act No. 1040 was the conclusions of the tax authority that fictitious documents for the sale of goods (works, services) issued by DDB LLP and R LLP are not grounds for deducting expenses for purchased goods (works, services) in the amount of 352,732,142 tenge and deduction of VAT amounts for mutual settlements with the specified counterparties in the amount of 42,327,858 tenge. The case materials established that in relation to the applicant's counterparty, LLP "R", the tax authority, limiting itself to the data of the interrogation protocol of N., who was the first head of the partnership since December 4, 2014, concluded that N. was not related to the financial and economic activities of LLP "R" and, therefore, did not sign the Partnership agreement and its invoices. As indicated in the interrogation protocol, N. did not deny the fact of signing documents on behalf of the partnership, stating that he did not remember which documents were signed by him. This circumstance does not exclude the fact of signing N. the agreement with the Partnership and the invoices of the agreement with the Partnership and the invoices for it. Moreover, the court's decision on the invalidation of the re-registration of R LLP dated December 4, 2014, which entered into force, was not presented to the court by the tax authority, as well as evidence of the invalidation of the contract concluded with the Partnership, whereas the aforementioned judicial acts could establish the fact of the absence of legal relations between the parties, as well as the absence of the fact of rendering services, receiving goods , works and services. In Act No. 1040, the tax authority specifies the same grounds as in Act No. 262 regarding mutual settlements between the Partnership and DDB LLP. Thus, the courts reasonably concluded that the conclusions of Act No. 1040 were also based on unreliable and incomplete information, unreliable evidence, which led to the illegality of the audit results. In accordance with paragraph 6 of the regulatory resolution of the Supreme Court of the Republic of Kazakhstan dated June 29, 2017 No. 4 "On judicial practice of applying tax legislation", the commission by a private business entity of actions to issue an invoice without actually performing work, rendering services, or shipping goods in order to extract property benefits that caused major damage to a citizen, organization, or to the state, entails criminal liability under Article 216 of the Criminal Code. The issuance by a taxpayer of a fictitious invoice, including by a person who did not actually perform work, provide services, or ship goods, and which includes the amount of VAT, in the absence of signs of a criminal offense, entails administrative liability. In the same paragraph of the resolution, it is stated that if it is impossible to bring to justice the person who issued the fictitious invoice, the state revenue authorities have the right to apply to the court in civil proceedings with a claim for invalidation of the transaction. In this case, the counterparties will have the right to prove the validity of the transaction on their part within the framework of the already civil process.

On the recognition of illegal notifications on the results of a tax audit

However, the tax authority, having stated in the acts the conclusions about the fictitiousness of the invoices issued by the counterparties of the Partnership specified in the acts, without recognizing the transactions with them as invalid, charged taxes and penalties to the applicant, thereby depriving the applicant of the right to prove the validity of transactions made with the counterparties specified in the acts and the actual receipt of works, goods and services. Similarly, the tax authority, having stated in the audit reports the conclusions that K., S., N. and others are not related to the activities of the applicant's respective counterparties, of which they were the first heads, applied to the mutual settlements of the Partnership with the specified counterparties the consequences of recognizing the registration (re-registration) of the legal entities specified in the act as invalid, without filing a lawsuit, in the absence of any judicial acts recognizing the registration/re-registration as invalid, stating in the act of reserving the right to review the results of the inspections carried out. Meanwhile, this reservation in audit reports No. 262, No. 1040 is unacceptable, since the conclusions set out in the reports were the basis for the calculation of taxes and penalties and the issuance of a notification of the audit results, which subsequently entails the issuance of a notification of repayment of tax arrears.

Thus, by stating conclusions in the audit reports that are not based on reliable evidence, in the absence of judicial acts invalidating transactions with counterparties specified in the acts or declaring their registration (re-registration) invalid, the tax authority violated the rights and legitimate interests of the Partnership. The arguments of the protest and the petition that it was not necessary to separately challenge the above-mentioned Partnership transactions with its counterparties do not deserve attention, since the norms of paragraph 1 of Article 158 of the Civil Code of the Republic of Kazakhstan are not applicable to these transactions, these transactions are disputed. 

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