Specially for Latifundist.com
As you know, from the beginning of the full-scale invasion of Ukraine by the Russian Federation and to the present day, a moratorium has been imposed on almost all tax audits, except for some specific tax regimes, the administration of which requires closer attention. One of such taxation regimes is the calculation and payment of value added tax (hereinafter referred to as VAT), which is still subject to audits.
Numerous pre-war court cases show that the most common reason for tax authorities to reduce the amount of negative VAT was the impossibility of establishing the source of origin of the goods for which the negative VAT was generated.
At the same time, the tax authorities conclusions were based solely on information from the information and analytical databases of the State Tax Services, which, according to the established practice of the Supreme Court (for example, resolutions of 27.03.2018 in case No. 816/809/17, of 18.12.2019 in case No. 825/3891/14, of 22.11.2019 in case No. 817/2887/14, of 04.06.2020 in case No. 340/422/19 and of 26.05.2021 in case No. 380/2404/20), cannot be the only evidence of the unreality of the business transactions, since such conclusions are not based on a direct analysis of the taxpayer primary documents.
Moreover, the grain supply chain usually includes storage of goods at elevators, which issue warehouse documents to the consignors and enter them into the register of warehouse documents. This has always been an additional strong evidence of the real existence of the exported goods.
We would also like to point out that in one of our cases, the tax authorities substantiated their position on the non-commodity nature of the transactions by the fact that the taxpayer did not provide the documents required by the contract for the transshipment of goods in the port, in particular, warehouse receipts. In practice, some ports include a clause in their transshipment agreements on the issuance of warehouse documents, although they do not actually issue them. Therefore, the courts will logically ask whether the goods were available if they were stored according to the documents, but the warehouse documents were not issued contrary to the provisions of the contract.
There are also difficulties with proving the transfer of goods directly to the port. At best, this fact is confirmed only by the registers of imported vehicles, which do not contain detailed data on the goods, such as class and quality, which also makes it difficult to prove the relevant fact of import of goods.
Today, in addition to investigating the circumstances of the origin (production) of goods purchased by taxpayers, tax authorities are increasingly scrutinizing the transportation of such goods as part of supply transactions.
Thus, numerous tax audit reports of our clients show that the tax authorities are primarily focused on consignment notes, namely their execution as required by law.
In one of our cases, for example, the grounds for recognizing the non-commodity nature of business transactions was the fact that the examined consignment notes did not contain information on the time of loading and unloading of goods and a list of shipping documents.
In its turn, the court, which sided with the taxpayer, noted that the consignment notes used by the taxpayer contained all the necessary information that complied with the law. At the same time, the court found that the above Rules do not consider information on the time of loading and unloading of goods and on shipping documents to be mandatory.
In another of our cases, the tax authorities, using only information from the tax service databases, were unable to establish the provision of services (performance of works) by the owners of vehicles to suppliers of counterparties in the supply chain, which again cannot be evidence of the non-commodity nature of business transactions, as the Supreme Court has repeatedly noted, for example, in its decision of 24.03.2020 in case No. 814/1781/15.
Moreover, the resolutions of the Supreme Court of 13.07.2021 in case No. 808/78/15 and of 06.08.2021 in case No. 640/18984/18 state that the consignment note and waybill are not primary accounting documents at all, confirming the circumstances of the purchase and sale of goods and materials.
And finally, the position of the tax authorities remains unchanged on the taxpayer’s failure to comply with the KYC principle when choosing a counterparty, which has been troubling the tax authorities for several years (the legal opinion is set out in the decision of the Supreme Court of 20.05.2021 in case No. 826/16627/18).
Thus, in order to prove that the taxpayer is aware of the violation of tax discipline by its counterparties and their suppliers, during the tax audit the tax authorities send inquiries to the taxpayer as to whether it has conducted compliance due diligence of its counterparties before entering into the contract. We would like to draw your attention to the fact that the tax authorities’ verification of such information in no way corresponds to the functions assigned to the tax service and is an actual interference with the taxpayer business processes.
Thus, we continue to recommend that taxpayers carefully collect documents to confirm the marketability of business transactions, namely, collect as many documents as possible relating to both the business transaction and related transactions (e.g., transportation, storage, transshipment, etc.), check the documents for compliance with the law, have documents on the origin (production) of goods and documents on their further export, and it may also make sense to change the procedure for exchanging documents with ports and making certain changes to transshipment agreements, i.e. the more properly executed documents provided to the tax authorities during the audit, the greater the chance of obtaining a positive decision in court.