Violation of the notification procedure based on the results of the desk inspection was the basis for the cancellation of the court decision.
By the decision of the Council of Economic and Social Council of the Karaganda region dated December 15, 2020, the application of BM Tech LLP to the RSU "UGD in the Kazybek bi district" was denied to recognize as illegal the notification of the elimination of violations identified by the state revenue authorities based on the results of desk control.
In doing so, the court proceeded from the following circumstances of the case.
The notification, according to which it is necessary to exclude the amount of VAT from the offset, was issued according to mutual settlements with the taxpayer by Snabservice Company LLP for the 1st quarter of 2018, the amount of violations is 2,925,000 tenge.
The contested notification was formed and issued by the tax authority on the basis of the IESEC decision dated September 13, 2018, which invalidated the state re-registration of Snabservice Company LLP dated February 7, 2018.
Snabservice Company LLP has been removed from VAT registration since the date of its establishment.
In accordance with subparagraph 4) paragraph 4 of Article 85 of the Tax Code is removed from VAT registration on the basis of a decision of the tax authority in the form established by the authorized body, without notifying the taxpayer in cases of invalidation of the registration of an individual entrepreneur or a legal entity on the basis of a court decision that has entered into force.
The arguments of the LLP were not taken into account by the court, since during the consideration of the case, the procedure for issuing the appealed notice is checked, and the basis for its issuance, as indicated above, was a judicial act that entered into force.
The Court did not accept the applicant's arguments regarding the issuance of a similar notice on September 14, 2020. This notification is not subject to execution, which has been notified to the taxpayer by the state revenue authority.
In addition, the court did not accept the arguments of BM Tech LLP on the validity of business transactions with Snabservice Company LLP due to the failure to provide evidence.
By the decision of the court of appeal of March 30, 2021, the court's decision was overturned, and a new decision was made to satisfy the application.
The appellate instance proceeded from the fact that the tax authority had not provided any explanations on how and by what criteria the high risk of violation in relation to the applicant was determined, and that it provided the tax authority with a notification to the taxpayer, rather than, for example, a notification.
In the opinion of the judicial board, subparagraph 3) of paragraph 3 of Article 96 of the Tax Code is subject to application by the courts with the need for its correspondence with Article 403 of the Tax Code, which defines the cases and grounds for excluding VAT previously attributed by the taxpayer.
The content of these norms indicates the need for the court to verify the grounds for issuing a notification, depending not only on the existence of the court decision itself, but also on the grounds for the court to invalidate the re-registration of a legal entity. As mentioned above, the main element of excluding VAT from offset in relation to a legal entity whose state registration or re-registration has been invalidated is related to the assessment of the participation of the head of the enterprise or its participant.
According to the materials of the civil case examined by the appeals board at a court hearing on the claim of the RSU "UGD for the city of Temirtau" to the LLP "Snabservice Company", the State Institution "Department of Justice for the city of Temirtau", the main argument of the claim of the tax authority for invalidation of the re-registration of the LLP "Snabservice Company" indicated the absence of a legal entity at its legal address. Any data and grounds related to the head and (or) the founder (participant) LLP, as well as the establishment of the fact of their non-involvement in registration (re-registration) and (or) the implementation of financial and economic activities, is not considered in a civil case. The argument of the tax authority and the prosecutor involved in the case that the court invalidated the re-registration of a legal entity due to a change in the membership is not supported by any evidence, since the contract itself was not invalidated. Whereas a change in the location of a legal entity does not relate to the grounds for re-registration of a legal entity, but is the basis for making changes to the accounting registration data of the enterprise.
In this regard, the appeals board concluded that the judicial act that took place, on the basis of which the tax authority issued the notification, is not the judicial decision specified in Article 96 and subparagraph 4) of Article 403 of the Tax Code, granting the tax authority the right to issue a notification based on the results of desk control.
At the same time, the representative of BM Tech LLP submitted to the court of appeal documents confirming the actual provision of services and work between BM Tech LLP and Snabservice Company LLP, as well as the further acceptance of the completed works by ArcelorMittal Temirtau JSC.
The Appeals board did not agree with the arguments of the court of first instance about the impossibility for the court to verify the content of contractual relations between the counterparties when considering an application to challenge the notification based on the results of desk control, since paragraph 5 of Article 96 of the Tax Code grants the taxpayer the right to prove the actual receipt of goods (services) upon appeal.
The Court of first instance's reference to the provisions of the NP "On Judicial Practice of Applying Tax Legislation" was declared untenable by the Court of Appeal, since this decision clarified the application of the norms of the Tax Code dated December 10, 2008 No. 99-IV, which became invalid by the Law of the Republic of Kazakhstan dated December 25, 2017 No. 121-VI. Whereas the content of Article 587 of the previous Tax Law and the current Article 96 of the Tax Code have significant differences.
In addition, by the decision of the Council of Economic and Social Council of the Karaganda region of December 24, 2020, the application of BM Tech LLP to the RSU "UGD in the Kazybek bi district of Karaganda" on recognizing as illegal the notification of the elimination of violations identified by state revenue authorities based on the results of desk control dated September 14, 2020 No. 3020MK600142, was satisfied.. The above-mentioned notification has been declared illegal and cancelled. At the same time, in the disputed notification of the tax authority dated September 14, 2020, the list of invoices to be adjusted contains the same ones as in the disputed notification dated September 23, 2020 for the same period - the 1st quarter of 2018 in this civil case.
Article 96 of the Tax Code does not provide for the right of tax authorities to re-issue notifications on the same grounds, otherwise such a situation would contradict the basic principles of taxation specified in Articles 4-8 of the Tax Code.
In connection with the circumstances established above, the appeals board reasonably concluded that there was a violation in the actions of the tax authority of the procedure for issuing a notification based on the results of desk control in respect of the applicant, BM Tech LLP.
Regulatory and legal framework
In accordance with Article 2 of the Code of the Republic of Kazakhstan from
December 25, 2017 "On Taxes and other mandatory payments to the budget (Tax Code)" the tax legislation of the Republic of Kazakhstan is based on the Constitution of the Republic of Kazakhstan, consists of this Code, as well as regulatory legal acts, the adoption of which is provided for by this Code.
If an international treaty ratified by the Republic of Kazakhstan establishes rules other than those contained in the Tax Code, the rules of the said treaty shall apply.
The main regulatory legal acts that courts should follow when considering cases related to the application of tax legislation are:
1. The Constitution of the Republic of Kazakhstan dated August 30, 1995;
2. The Code of the Republic of Kazakhstan "On Taxes and other Mandatory Payments to the Budget (Tax Code)" (hereinafter – NC);
3. The Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code) (General Part) dated December 27, 1994, (Special Part) dated July 1, 1999;
4. The Civil Procedure Code of the Republic of Kazakhstan (hereinafter – CPC) dated October 31, 2015;
5. The Business Code of the Republic of Kazakhstan (hereinafter referred to as the Business Code) dated October 29, 2015;
6. The Law of the Republic of Kazakhstan "On Permits and Notifications" dated May 16, 2014;
7. The Law of the Republic of Kazakhstan "On Accounting and Financial Reporting" dated February 28, 2007;
8. The Law of the Republic of Kazakhstan "On State Registration of Legal Entities and Registration of branches and representative Offices" dated April 17, 1995;
9. Regulatory rulings of the Supreme Court of the Republic of Kazakhstan (hereinafter – NP):
- "On judicial practice of tax legislation application" dated June 29, 2017 No. 4;
- "On the application by courts of certain norms of civil procedure legislation" dated March 20, 2003 No. 2;
- "On some issues of the invalidity of transactions and the application by courts of the consequences of their invalidity" dated July 7, 2016 No. 6;
- "On some issues of application by courts of the norms of Chapter 29 of the CPC" from
December 24, 2010, No. 20;
Resolutions of the Government of the Republic of Kazakhstan, regulatory legal orders of the authorized body in the system of state revenue bodies.
Summary from the Supreme Court of the Republic of Kazakhstan on the judicial practice of applying tax legislation for 2020 and 3 months of 2021 dated July 9, 2021
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