First moves of new Supreme Court – new old tax law decisions
The matter of amendments
Tax disputes regarding scheduled tax audits and transactions with sham businesses as decided by the new members of the Supreme Court
The discussed court rulings have been delivered by the new members of the Supreme Court. The Supreme Court started functioning on December 15, 2017 when its predecessor, the Supreme Court of Ukraine, and, notably, the High Administrative Court of Ukraine ceased to function in the wake of the reform of the judiciary.
Whom it will affect
The Supreme Court has taken the lead in the development of the tax jurisprudence as the new highest court in Ukraine, but it continues to follow and has yet to change the legal conclusions (legal positions) set by its predecessor, the Supreme Court of Ukraine (the SCU).
In the ruling dated January 23, 2018, case No. 813/1946/17 (К/9901/1709/17), the Supreme Court agreed that the lower courts correctly cancelled the order to conduct a scheduled tax audit of a taxpayer. The Supreme Court pointed out that the tax authorities had missed the deadline for issuing and approving the tax audit schedule for the respective calendar quarter and failed to give reasons for including the taxpayer in their schedule. The tax authorities provided no information on which periods of the taxpayer’s activities they analyzed or how they determined the risk level of the taxpayer. Thus, the tax authorities’ petition was dismissed.
In another case, the taxpayer was the party whose petition was dismissed. In the ruling dated January 16, 2018, case No. 2а-7075/12/2670 (К/9901/1478/18), the Supreme Court sided with the tax authorities and confirmed the assessed corporate income tax and value-added (VAT) tax because the taxpayer recorded expenses and input VAT based on transactions with the counterparty, the director of which was later charged with the sham business and convicted. In this case, the Supreme Court did not change the legal position set by its predecessor (the SCU) but instead strictly followed a past SCU’s ruling that denies tax expenses and input VAT, irrespective of the taxpayer having proper transactions documentation, if the relevant taxpayer’s counterparty is found to be sham business by court within a criminal case.
How to prepare / mechanism of the amendments introduction
Taxpayers, that hoped the new Supreme Court would show by example a more weighted and thorough approach to developing legal conclusions (legal positions), should expect that the existing fiscal legal positions will still be followed by the new highest court in Ukraine, and this notion should be taken into account by taxpayers when building their defense against tax assessments.