According to statistics and data published by the Federal Tax Service of Russia, the number of tax disputes going to court is decreasing from year to year. This is also noticeable in practice: there is an established trend of complicating cases and increasing amounts of additional charges. "Such tendency complicates the work and it becomes difficult to predict how the dispute will be resolved and what are the chances to win, that is why each case becomes a landmark regardless of the outcome", says Mikhail Begunov, managing partner of Tax Compliance.

Within the analysis of tax cases for the year 2021 we have seen many new trends for the existing court practice. At the same time, some of the issues have been reflected in earlier approaches. In this article, we will share with you the main positions to focus on in 2022. 

Who will be held liable for "problematic counterparties" and how severe will be the consequences? 

In March 2021 the Federal Tax Service of Russia has published a letter in which it identified the basic criteria in which taxpayers will be liable for technical companies. The Federal Tax Service also disclosed its approaches to tax reconstruction, distribution of the burden of proof, determination of intent, etc.

Similar positions are reflected in court practice. Thus, in the case "Uralbroiler" the Supreme Court of the RF considered the case in favor of the tax authority, having established two key circumstances: damage to the budget (presence of "technical companies" in the chain of operations, which did not pay taxes) and participation in an illegal tax scheme (part of the funds was returned to the taxpayer in the form of interest-free loans).

Other court cases have consolidated positions on tax reconstruction. In particular, in the "Mary Firm" case, the Supreme Court of the Russian Federation has indicated that expense accounting in full (without determining the real tax liabilities) may be denied if the taxpayer himself created the tax scheme or knew of its existence. Exception: the taxpayer assists in eliminating losses to the treasury. For example, it discloses information about the real performers and the parameters of real transactions that formed the taxable income. 

In the Spetskhimprom case {{"template": "source_anchor", "text": "{{"template": "source_anchor", "text": "Determination of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 15.12.2021 in case No. A40-131167/2020", "position": "4"}}, the Supreme Court took the side of the taxpayer and said that if the tax authority knows the real executor and the parameters of transactions with him, it is necessary to conduct a tax reconstruction. In such a case, to refuse to account for expenses on NGOs and VAT deductions should be made only in that part of the markup added by technical companies. 

At first glance, it might seem that the situation with the disputes with fly-by-night companies is most negative for taxpayers. However, our experience shows that with the right facts and qualitative development of the legal position one can obtain the cancellation of the decision of the tax authorities. In particular, in practice there are examples of court cases in which the court succeeded in defending the position of the taxpayer and recognized significant additional tax charges as unlawful. For example, the notorious dispute of Gradient Distribution, which recently came to the attention of Interfax, as well as some other cases . Hopefully, such cases will be upheld by higher courts and taken up by the courts when considering similar cases. 

Expansion of opportunities for taxpayers to compensate "tax losses" at the expense of guilty parties.

In its letters, the Federal Tax Service of Russia guides taxpayers to independently recover additional charges from third parties responsible for tax claims. The practice of 2021 has shown that such claims are increasingly receiving legal protection in court.

In the case "Kuchuksulfat" vs "Kapok Investments Limited" the plaintiff (tax agent) recovered from a foreign organization the amount of tax not withheld at source. In this case the tax was not withheld initially because the foreign organization submitted false information to the tax agent confirming the possibility of applying the reduced tax rate.

A positive result for the plaintiff was also achieved in the case "Taimyr Fuel Company" vs "Taimyrstroy" .  In its ruling, the Supreme Court indicated that additional tax assessments may be collected by a taxpayer from a unreliable counterparty who has provided false information, such as the availability of its own resources or the performance of the contract personally.  However, this does not apply to situations where the actions of the counterparty and the taxpayer are of a coordinated nature and are aimed at obtaining an economic benefit from the non-payment of taxes. In such circumstances, reimbursement of losses may be denied.

Development of court practice on recovery of "tax losses" points to the need to use various civil law instruments to prevent negative tax consequences. In particular, we suggest assessing the possibility to include tax clauses into agreements and in case of losses to analyze the prospects of appealing to court. 

Will there be an end to protracted tax audits?

Many companies are currently facing numerous violations of procedural deadlines by the tax authorities, i.e. deadlines for tax audits, service of decisions and acts, consideration of appeals, etc.

Taxpayers refer to such violations within the framework of appealing the results of tax audits, as well as when contesting forced tax enforcement procedures, but not many of them succeed in obtaining a positive result. One such case has come to the attention of the Supreme Court of the Russian Federation. In the "Neringa" case , the Supreme Court concluded that the mere fact of violation of the terms of the audit (other procedural deadlines preceding the issuance of the tax authority's claim) does not affect the possibility to collect taxes. Arguments of a taxpayer in this part can be assessed only when violations are so significant that lead to the expiry of the maximum two-year period for recovery. 

This position, in our opinion, significantly limits the ability of taxpayers to fight against "excessive application of tax control measures". Only the most neglected cases will be considered in a positive way, in which it will be necessary to prove that there was no objective need to delay the relevant procedures. 

Legal certainty and protection of legitimate expectations of taxpayers.

In 2021 business felt more strongly the lack of legal certainty of tax regulation. There are more and more cases where the consequences of inaccuracies and mistakes in rulemaking affect business. 

In the Tatneft case , the change of the excise tax calculation mechanism retroactively was found to be legitimate, despite the worsening of the taxpayer's situation and references to the rules on the validity of the law over time. The court stated that for the taxpayer the fallacy of the procedure introduced at the beginning of the year should have been obvious. However, the errors in the regulation were promptly corrected (after several months had passed), so the updated regulation applied with retroactive effect. 

Such an approach became more unfavorable in the issue of recognition of blending of petroleum products when one or more initial components are not excisable goods - production of excisable products. Previously, the Ministry of Finance of Russia took the opposite approach, which many taxpayers relied on .  However, at the end of 2020 the position was changed , the tax authorities forced businesses to clarify the "old" periods, and the Supreme Court of the Russian Federation in 2021 recognized the validity of the new clarifications .  

Such events force businesses to be more attentive to the interpretation of tax rules and involve experienced tax experts to assess potential risks. 

Corporate property tax: the distinction between movable and immovable property is put in a good word, but when will it be heard on the ground? 

More than two years have passed since the position of the Supreme Court of the Russian Federation (Lesozavod 25 case). ) on the distinction between movable and immovable property for the purposes of applying the preference in the form of exemption from taxation of movable property. However, enforcement on this issue is still inconsistent. In order to correct the current situation, in 2021 the Supreme Court examined several cases related to this issue. 

In the "Yug-Novy Vek" case The Supreme Court of the Russian Federation has recognized a distribution and transformer substation (power plant) as movable property and once again drew attention to the incorrect delimitation criteria (inseparable connection with the land, the impossibility of dividing the thing in kind without destruction, the existence of an entry in the Unified State Register of Natural Resources, etc.) and the correct approach (application of OKOF, acceptance for accounting as a separate inventory object, different terms of useful use, etc.).

Similar legal conclusions regarding the installation for the production of CO2, a line for the production and bottling of soft drinks, reverse osmosis system came to the Supreme Court of Russia in the case "Mineral water Achaluki" (we are watching for the case to pass the second round).

The "Gazpromneft-Khantos" case also deserves special attention .  Sending this case for a new consideration, the Supreme Court pointed out that the lower courts have not assessed the relevant arguments of the taxpayer, in particular the possibility to qualify the pad as an improvement of the land plot, which excludes it from the object of taxation. 

We see isolated positive examples that inspire cautious optimism 

, and hope for normalization of practice on the said issue. But as long as no serious changes have taken place, we recommend a scrupulous approach to the formation of legal arguments and to follow the development of judicial practice more closely. 

Investors under the wing of the Supreme Court of the Russian Federation!

One of the positive trends for business in 2021 could be the protection of The Supreme Court of the Russian Federation protects the rights of investors.

In particular, in the case of Severstal The Supreme Court of the Russian Federation considered the issue of the period of beginning of calculation of the five-year period of application of the reduced rate of tax on profit of organizations. This reduced rate is established in relation to newly created organizations-investors who have made capital investments in fixed assets. The tax authorities and lower courts insisted that the five-year period is to be calculated from the moment the costs are reflected in the 08 account "Investments in non-current assets", that is, until the completion of construction. In turn, the Supreme Court of the RF has supported the taxpayer and agreed that for the purposes of applying the reduced tax rate must be relevant to completed capital investments, which are reflected in the books at the end of construction (after the reflection of costs in the account 01 "Fixed assets"). 

In the case of "Voronezh Synthetic Rubber" considered the issue of the need to determine a preferential tax rate based on the ratio of the value of all fixed assets (movable and immovable) created during the implementation of the investment project, and the tax base. The tax authority proceeded only from the cost of fixed assets, which are immovable property, because according to the amendments made to the Tax Code of the Russian Federation from 01.01.2013 the said objects are subject to taxation, while the newly created after the mentioned date movable property objects are exempt from taxation. This approach has been supported by the lower courts. The Supreme Court sided with the taxpayer, pointing out that at the time of the contract the relevant changes were not in force, and the taxpayer could count on the possibility of exercising the right to tax exemption, taking into account the value of all fixed assets. However, it was noted that the investor is not entitled to obtain a tax benefit simultaneously through the application of the reduced tax rate provided for in the regional legislation, as well as through changes made at the level of the federal legislation (accordingly, the courts should correctly calculate the tax savings).

Of course, investors do not always manage to defend their rights. In some cases, in order to achieve the desired result it is necessary to go "thorny" way up to the Supreme Court of the Russian Federation. However, we believe that with a skillful approach and reasonable demands, success awaits the taxpayer with a high probability. 

Conclusion.

We, the specialists of Tax Compliance, will continue to stand up for taxpayers' rights together with the business and keep our hand on the pulse. We will be happy to provide you with the legal support you need!

Sources

1. ↑ Letter of the Federal Tax Service of Russia from 10.03.2021 № БВ-4-7/3060@.
2. ↑ Definition of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 25.01.2021 in case No. A76-2493/2017
3. ↑ Definition of the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation of 19.05.2021 in case № A76-46624/2019
4. ↑ https://www.interfax.ru/business/815818, decision of the Arbitration Court of the Moscow Region on 02.12.2021 in case No. A41-88016/2019
5. ↑ Ruling of the Arbitration Court of the West Siberian District of 07.12.2021 in case No. A03-10399/2020.
6. ↑ Determination of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 09.09.2021 in case No. A33-3832/2019.
7. ↑ Determination of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 05.07.2021 in case No. A21-10479/2019.
8. ↑ Определение Верховного Суда РФ от 12.10.2021 по делу № А40-68620/2020.
9. ↑ Letter of the Ministry of Finance of Russia from 04.10.2017 № 03-13-08/64636.
10. ↑ Letter of the Ministry of Finance of Russia from 11.11.2020 № 03-13-08/98241.
11. ↑ Appellate determination of the Appellate Board of the Supreme Court of the Russian Federation of 21.10.2021 № APL21-367.
12. ↑ Definition of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 12.07.2019 № A05-879/2018.
13. ↑ Definition of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 17.05.2021 in case No. A32-56709/2019.
14. ↑ Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 28.09.2021 in case No. A18-1531/2019.
15. ↑ Ruling of the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation of 13.12.2021 in case No. A40-95182/2020.
16. ↑ The case of Fortum PJSC has been sent by the Arbitration Court of the Moscow District to the court of first instance for new consideration (Decision of the Arbitration Court of the Moscow District of 03.12.2021 in case No. A40-244883/2018).
17. ↑ Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 20.09.2021 in case No. A40-248146/2019.
18. ↑ Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation of 24.11.2021 in case No. A14-65/2020.