© 2009 capital legal services, l.l.c. main trends of court practice in tax disputes oxana kovaleva...

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Main trends of court practice in tax disputes

Oxana KovalevaSenior Attorney

American Chamber of Commerce,Annual Tax Seminar St. Petersburg, RussiaDecember 17, 2009

American Chamber of CommerceAmerican Chamber of CommerceAnnual Tax SeminarAnnual Tax Seminar

St. Petersburg, Russia, December 17, 2009St. Petersburg, Russia, December 17, 2009



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May a senior tax authority, following a repeat field tax inspection, “adjust” a decision of an inferior authority invalidated by court?

Decision No.5-P of the Russian Federation Constitutional Court dated

17.03.09 :

NO, if:

I. Tax administration: tax inspectionsI. Tax administration: tax inspections

The taxpayer’s rights and obligations are already established by a court document;

A court document has been issued in respect of a dispute between the same taxpayer and the tax authority responsible for the initial field tax inspection;

The document of the superior authority changes the rights and obligations of the parties;

Decision of the superior tax authority is in contradiction with the previously established actual circumstances and evidence confirmed by the issued court document.

Resolutions of the Federal Commercial Arbitration Court of the North-Western Circuit dated 12.08.09 on Case No.A05-12706/2008, dated 11.08.09 on Case No.A05-12796/2008, and dated 20.05.09 on Case No.A05-10778/2008.


St. Petersburg, Russia, December 17, 2009 St. Petersburg, Russia, December 17, 2009

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MUST THE TAXPAYER BE INVITED to review results of additional tax control measures and to give explanations and objections concerning such

results?

Resolution No.319/09 of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 16.06.09:

YES. A FAILURE TO INVITE constitutes a significant violation of the procedure for reviewing tax inspection materials, i.e.

unconditional and independent grounds for invalidating the issued decision

(Clause 14 Article 101 of the Russian Federation Tax Code)

I. Tax administration: tax inspectionsI. Tax administration: tax inspections

Resolutions of the Federal Commercial Arbitration Court of the North-Western Circuit dated 29.06.09 on Case No.A56-52592/2008 and dated

03.11.09 on Case No.A13-2430/2008.

Subclause 3 Clause 1 Article 111 of the Russian Federation Tax Code: taxpayer’s fulfilling of written clarifications of authorized bodies regarding the application of the legislation on tax and duties rules out the guilt for the tax offence.

Decision No.VAS-7202/09 of the Supreme Commercial Arbitration Court of the Russian Federation dated 15.06.09:

Clarifications of the Russian Ministry of Finance release from tax liability if such are:

Given by heads or other authorized officers of the Russian Ministry of Finance;

Executed in form of a response to a question of a specific taxpayer, but given in respect of a situation relevant for an unlimited group of people.



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I. Tax administrationI. Tax administration: : guilt for committing a tax offence is ruled outguilt for committing a tax offence is ruled out




I. Tax administrationI. Tax administration: : Appealing the decisionAppealing the decision

Problem Solution

A superior tax authority does not invite the taxpayer to the appeal proceedings

Decision No.VAS-6140/09 of the Russian Federation Supreme Commercial Arbitration Court dated 24.06.2009: in the event an application for hearing the appeal in the presence of the taxpayer is filed, a tax authority is required to invite the taxpayer by giving a notice of the date and venue of hearing.

A failure to invite constitutes grounds for invalidating the issued decision by court (Clause 14 Article 101 of the Russian Federation Tax Code).

A superior tax authority aggravates the taxpayer’s situation by a decision adopted upon the appeal

Resolution No.5172/09 of the Presidium of the Russian Federation Supreme Commercial Arbitration Court dated 28.07.2009: “since a superior tax authority decides on the appeal, such authority is not entitled to adopt a decision aggravating the taxpayer’s position based on results of hearing such appeal”.A superior tax authority is required to verify the decision of an inferior authority within the framework of the filed appeal only and may not exceed such framework.

Such individual is its legitimate or authorized representative (i.e. General Director or by virtue of a power of attorney);

Tax is paid on behalf of and at the expense of the taxpaying legal entity's own funds; It is possible to establish precisely that the relevant amount of tax is paid exactly by this particular taxpayer

and at the expense of such taxpayer’s own funds.

Payment of tax by an individual on behalf and at the expense of a taxpaying legal entity is proved by:

The individual having the powers to pay tax; Receipt indicating the details of the taxpaying legal entity, details of the tax authority (INN, number of the

account of the payment recipient, BIC), and description of payment.

II. Calculation and payment of taxII. Calculation and payment of tax: : Payment of a legal entity’s tax by an Payment of a legal entity’s tax by an individualindividual




Decision No.VAS-1438/09 of the Supreme Commercial Arbitration Court of the Russian Federation

dated 12.02.09:

An individual may pay tax for a legal entity in cash, if:

II. Calculation and payment of taxesII. Calculation and payment of taxes: : timeframe for filing an application for timeframe for filing an application for tax refundtax refund

Resolution No.12882/08 of the Presidium of the Supreme Commercial Arbitration Court of the Russian Federation dated 25.02.09:

The issue of determining the time of commencement of the 3-year period for filing a claim for refund of overpaid (or overcharged) tax must be resolved by courts with due account for the assessment of all of the circumstances relevant to the case. Such moment of time may not be the time when the taxpayer performs actions to adjust its tax obligation or files adjusted tax return.

The occurrence of the following events may be recognized as the time of commencement of the term:

When the statement of reconciliation of calculations with tax authority is received (or signed) (see Resolution of the Supreme Commercial Arbitration Court of the Russian Federation No.VAS-13453/09 dated 16.10.09); When clarifications of the Ministry of Finance of the Russian Federation are received (see Resolution of the Federal Commercial Arbitration Court of the North-Western Circuit dated 04.09.09 on Case No.A13-154/2009); When the auditor’s opinion is received (See Resolution of the Federal Commercial Arbitration Court of the North-Western Circuit dated 23.10.2009 on Case No.A56-59451/2008 ).




A claim for refund of overpaid (or overcharged) tax may be filed with court within 3 years following the day when the person or entity became or should have become aware of the fact that the tax was overpaid (or overcharged) (Articles 78 and 79 of the Tax Code of the Russian Federation and subject to Decision No.173-O of the Constitutional Court of the Russian Federation dated 21.06.2001).




Problem Solution

Tax authorities declare reduction of the VAT base illegal when negative sum differences arise.

Resolution No.9181/08 of the Presidium of the Supreme Commercial Arbitration Court of the Russian Federation dated 17.02.09: negative sum differences reduce the VAT base.

Tax base must be determined at the time payment is received for goods (or works or services). Determining the tax base at the time of shipment is provisional and inconclusive.

Resolution No.VAS-5817/09 dated 27.05.09 and Resolution No.VAS-9206/08 dated 24.04.09 of the Supreme Commercial Arbitration Court of the Russian Federation.

Tax authorities deny refund of VAT paid by a tenant as a portion of expenditures on utility services reimbursed to the landlord within the rent, as expenditures on utility services are not related to rent payments.

Resolution No.1266 4/08 of the Presidium of the Supreme Commercial Arbitration Court of the Russian Federation dated 25.02.09: conditions for refund of VAT are met, as the services are consumed by the tenant directly and paid against tax invoices (‘schet-faktura’), where amounts of VAT are specified in a separate line.

Provision of utility services is inseparable from lease, and the procedure used by the landlord and the tenant for payment of such services is irrelevant.

Resolution No.VAS-17467/08 of the Supreme Commercial Arbitration Court of the Russian Federation dated 31.03.09.

II. Calculation and payment of taxesII. Calculation and payment of taxes: : VATVAT

II. Calculation and payment of taxesII. Calculation and payment of taxes: : VAT and income tax – verifying the VAT and income tax – verifying the contracting partiescontracting parties




Recognition of VAT refund and expenditures may be denied, if:

1) The contracting party is not registered in the

Unified State Register of Legal Entities

Resolution No.7588/08 of the Russian Federation Supreme Commercial Arbitration Court

dated 18.11.08; Resolutions of the Federal Commercial

Arbitration Court of the North-Western Circuit dated 09.12.08 on Case No.A05-3796/2008, dated 20.04.2009 on Case

No.A05-8763/2008, and dated 29.09.2009 on Case No.A66-

8910/2008

2) The contracting party exists as a legal entity, but meets the criteria of a ‘one

day’ company, and the director denies any

association with such company

Resolution No.9299/08 of the Presidium of the Russian Federation Supreme Commercial Arbitration Court dated

11.11.2008 on Case No.A40-16436/07-107-121 (Kestroy 1 Case); Resolution No.KA-A41/10934-09 of the Federal Commercial Arbitration Court of the

Moscow Circuit dated 22.10.09; Resolution No.A56-1263.2009 of the

Federal Commercial Arbitration Court of the North-Western Circuit dated 12.08.09

3) The contracting party exists as a legal entity, but

the documents were ‘signed’ by a deceased director

Resolution No.VAS-4604/09 of the Supreme Commercial Arbitration Court of the Russian Federation

dated 21.05.09; Resolutions of the Federal Commercial Arbitration Court

of the North-Western Circuit dated 26.10.09 on Case No.A42-93/2009

and dated 18.09.09 on Case No.A56-40001/2008

II. Calculation and payment of taxes: VAT and income tax – verifying the II. Calculation and payment of taxes: VAT and income tax – verifying the contracting partiescontracting parties




How to avoid denial of recognition of VAT and expenditures deductions:Obtain information on the presence of the contracting party in the ‘mass’ registration address database, on the presence of the

contracting party’s officers in the database of disqualified officers, and on the presence of the contracting party in the Unified State Register of Legal Entities through the website of the Ministry of Taxes and Duties of Russia (www.nalog.ru);

Request the contracting party to provide copies of minutes on election of the director, statutory documents with all amendments and supplements, copies of the most recent accounting and tax statements, extracts from the Unified State Register of Legal Entities, and statistical data of accounting statements of the supplier on specialized web sites;

Perform inspection of the issued passports on the website of the Federal Migration Service of Russia (www.fms.gov.ru) and of the facts of receipt of a license by the contracting party on websites of government authorities which issued such license;

Control the signing of agreements by the contracting party in the presence of witnesses, a notary, by means of camera and video shooting, with full and clear clarification of signature, specifying the full name of signatories by their own hand with indication of authorizing documents;

Print out pages of the contracting party’s website, make copies of business cards of its representatives, price lists, business proposals, and save correspondence with the contracting party;

Compare specimens of signatures of the director on the available source documents, texts of the official correspondence and submitted tax invoices (‘schet-faktura’).

http://www.nalog.ru/

http://www.fms.gov.ru/

II. Calculation and payment of taxesII. Calculation and payment of taxes: : corporate income taxcorporate income tax

Resolution No.VAS-11200/09 of the Supreme Commercial Arbitration Court of the Russian Federation dated 23.09.09;

Resolutions of the Federal Commercial Arbitration Court of the North-Western Circuit dated 27.10.08 on Case No.A05-

1451/2008 and dated 08.09.08 on Case No.A56-47527/2005:

Recognition of expense in form of interest when using the accrual method may not be made subject to the time of actual payment of interest.

A different position:

Recognition of interest under a loan agreement as expenses depends on the actual existence of expenditures on repayment of such interest.

(Resolution No.KA-A40/5982-09 of the Federal Commercial Arbitration Court of the Moscow Circuit dated 22.07.2009 on Case No.A40-79561/08-35-348, upheld by the Presidium of the Supreme Commercial Arbitration Court of the Russian Federation on 24.11.2009).




II. Calculation and payment of taxesII. Calculation and payment of taxes: : Unified Social Tax, mandatory pension insurance Unified Social Tax, mandatory pension insurance contributionscontributions

Resolution No.12418/08 of the Presidium of the Supreme Commercial Arbitration Court of the Russian Federation dated 25.02.09:1.Concluding outsourcing agreements must be recognized as a tax avoidance scheme in the existence of the following grounds:

Parties to the agreement are related;Executive positions are held by the same persons;Entities providing personnel are established shortly before the staff is transferred to such entities;Purely formal relations of employees and entities providing personnel;Employees actually perform their job duties for the previous employer;Entities are registered at the same legal address;The average number of positions on payroll is limited for the purpose of applying the simplified taxation system; No core activities or other business activities of entities providing personnel.

Resolutions No.17643/08 dated 28.04.09, and No.1229/09 dated 30.06.09 of the Presidium of the RF Supreme Commercial Arbitration Court, Resolutions No.A05-10581/2008 dated 06.07.09 and No.A26-4825/2008 dated 14.07.09 and dated 15.05.09 on Case No.A44-109/2008 of the Federal Commercial Arbitration Court of the North-Western Circuit (tax consequences of secondment).

2. Assessing repeat additional charges of mandatory pension insurance contributions previously transferred by the entity providing the agency labor force is not allowed.

Resolution No.A44-3292/2008 of the Federal Commercial Arbitration Court of the North-Western Circuit dated 15.06.09, and Decision No.A72-8549/07-12/231 of the Commercial Arbitration Court of the Ulyanovskaya Oblast dated 16.07.09




Thank you for your attention!

Oxana KovalevaSenior Attorney

St. Petersburg OfficeSt. Petersburg Office

Bolloev Center4 Grivtsova LaneSt. Petersburg, 190000, Russia

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Telephone: + 7 (495) 970-1090Fax: + 7 (495) 970-1091




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tax liability

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superior tax authority

tax authority responsible

russian federation tax

tax inspections resolutions