Ekaterina Kopylova, Tax Compliance tax consultant, in an article of the publication «Company Lawyer» analyzed dangerous trends for companies, which will have to be taken into account in order not to receive additional charges and penalties.

Today we can talk about the formation of a well-established practice of application of Article 54.1 of the Tax Code, which is mostly negative for taxpayers. 

In many respects, such stabilization was facilitated by the efforts of the Federal Tax Service of Russia, which issued explanations and generalizations of law enforcement practice, starting from 2017, when the current version of the anti-abuse provision had just been enacted.

In particular, we are talking about letters published over the last 3 years. 

The first and most extensive of them - from 10.03.2021 № BV-4-7/3060@ "On the practice of application of Article 54.1 of the Tax Code of the Russian Federation", the second was a letter dated 10.10.2022 № BV-4-7/13450@ "On sending a review of judicial practice on the issues of establishing the valid tax liabilities of the taxpayer following the tax audit", by which the service brought to the lower tax authorities the most important positions of arbitration courts and the Supreme Court of the Russian Federation on the application of Article 54.1 of the Tax Code of the Russian Federation. 

And even part of the published in autumn 2023 Review of legal positions formed by the Federal Tax Service of Russia on the results of consideration of complaints (appeals) of taxpayers aimed at minimizing the negative perception of taxpayers about the Federal Tax Service of Russia and ensuring uniform application by lower tax authorities of the legislation of the Russian Federation, contained in the letter of the Federal Tax Service from 03.10.2023 № BV-4-9/12603@, was also devoted to the rules of reconstruction and proving offenses.

It would seem that controversial issues should be removed, and the application of the Code article in question is absolutely transparent.

However, the vast majority of tax disputes in arbitration courts still continue to be disputes of this category.

At the same time, despite the continued relevance and acuteness of the problem, the SCEC of the Supreme Court of the Russian Federation does not accept or consider the relevant complaints, which could help to reduce their number.

Recently, judges of the Supreme Arbitration Court of the Russian Federation, similarly to the Central Office of the Federal Tax Service, have given preference to fixing approaches and the most important legal positions in the field of tax disputes under Article 54.1 in reviews of arbitration court practice.

In particular, in December 2023 the Presidium approved a review of the practice of arbitration courts in applying the provisions of the legislation on taxes and levies related to the assessment of the validity of a tax benefit, which included the most significant cases for the last three years in the opinion of the Supreme Court.

This could be regarded by taxpayers as a conditional signal to the highest court that the practice is formed, all the answers can be found in the conclusions of the courts on the key cases of this category, there is no need to consider new complaints.

That is why, when in April 2024 the SCEC of the Supreme Court of the Russian Federation considered a case in which a decision of a tax authority made on the basis of Article 54.1 of the Tax Code of the Russian Federation was challenged, it undoubtedly aroused a lively interest of the business and legal community. Is the position of the Supreme Arbitration Court in the case of OOO OVK-Stroy (A12-19911/2022) new and will it help to resolve the contradictions arising in practice?

The factual circumstances are classic, if not banal.

Following the results of the inspection, the inspectorate recognized the inclusion by OOO OVK-Stroy in VAT deductions and in income tax expenses of the cost of goods and materials, as well as work and services rendered by the disputed counterparties, as unlawful.

The courts of the first and appellate instances supported the tax authority and recognized the contractual relations as fictitious, justifying them with typical arguments such as the counterparties′ lack of qualified personnel, materials, machinery and equipment necessary for the performance of construction and installation work.

But the cassation court reviewed the case in favor of the Company, pointing out that there was a civil dispute between the taxpayer and the disputed counterparty (OOO Stroytorg-Plus). In this connection, the reality of work performance has already been established and, accordingly, the decision rendered by the court in a civil dispute with the counterparty has prejudicial value in challenging the decision of the tax authority, which unreasonably recognized such a counterparty as a "technical" organization.

The Supreme Court disagreed with the approach of the cassation, upheld the ruling of the appeal and stated that:

without investigation and evaluation of evidence in a tax dispute, a decision on a civil law dispute has no prejudicial value, since the parties in court cases do not coincide; 

the decision on the civil-law dispute has a different subject, the basis of the claim, and does not take into account the tax consequences of financial and economic transactions in relation to the requirements of the tax legislation;

the cassation substantially violated the rules of procedural law by reevaluating the evidence in the case.

Tax dispute No. A12-19911/2022 at the request of OVK-Stroy LLC

Ground of claim

Factual basis: the facts of work performance by the real contractor under the transaction (coincidence of the contractor specified in the agreement with the one who actually performed the work), additionally due diligence, the existence of damage to the budget and the fact of conclusion of the transaction for the purpose of tax savings.

Legal basis: general provisions of the legislation on taxes and levies

Subject of the dispute

Claim for annulment of the decision of the tax authority to impose liability for a tax offense in terms of additional VAT and corporate income tax, as well as the corresponding amounts of fines and penalties.

Civil law dispute No. A12-35558/2021 on the application of LLC Stroytorg-Plus to LLC OVK-Stroy.

Cause of action

Factual basis: facts of performance of works under a civil law contract, facts of violation of the terms of a civil law transaction, facts of infliction of damage.

Legal basis: both general provisions of civil legislation and norms of certain types of obligations of the chapter of the Civil Code of the Russian Federation "Contract"

Subject of the dispute

Claim for recovery of debt under a civil law contract (contract of work) for the performance of work.

The position of the Supreme Court of the Russian Federation in the case of OVK-Stroy is correct, but, alas, not new in judicial practice at all. This approach is an established one and has been repeatedly reflected in the acts of the highest judicial instances (in particular, the Decision of the Constitutional Court of the Russian Federation of 21.12.2018 № 47-P, paragraph 77 of the Decision of the Plenum of the Supreme Court of the Russian Federation of 23.06.2015 № 25 "On the application by the courts of some provisions of Section I of Part I of Part I of the Civil Code of the Russian Federation", paragraph 9 of the Information Letter of the Presidium of the HAC RF of 17.11.2011 № 148 and the Decision of the Presidium of the HAC RF of 23.03.2010 № 16377/09).

The Supreme Arbitration Court of the Russian Federation once again reminds taxpayers that the debt with the disputed counterparty is not a proper confirmation of the reality of performance under the contract for the purposes of proving the validity of the tax benefit received under this transaction in a tax dispute.

What can still help to reduce the risks associated with claims by the tax authorities based on Article 54.1 of the Tax Code of the Russian Federation is described below.