Court settlement of tax disputes

The tax authority revealed violations of tax laws on relations with suppliers and charged the company with the appropriate mandatory payments

• Purpose

  Appealing the decision of the tax authority on the field tax audit of the relationship on the supply of raw materials with certain counterparties

• Employee involved

  Mikhail Begunov

• Process description

  According to the results of the second field tax audit in connection with the violation of the rules of Art. 54.1 of the Tax Code, the company was charged a significant amount of additional taxes and penalties in terms of transactions for the supply of raw materials concluded with several counterparties. During the trial, the court was presented with evidence of the uniqueness of the raw materials purchased from the disputed counterparties and their actual use in production, the circumstances of the conclusion and execution of transactions by the disputed counterparties, as well as the availability of material and labor resources in sufficient volume.

• Result

  The legal position developed by our specialists made it possible to appeal against additional tax charges of 117 million rubles on several counterparties. The court decision to invalidate the results of the field tax audit in this part was upheld in courts of appellate and cassation instances. The client was able to use the position developed to challenge the actions of the tax authority in the framework of field audits for other tax periods in respect of the same counterparties.

A bankruptcy petition has been filed against the Client based on outstanding tax debts

• Purpose

  Representing the company in arbitration court in bankruptcy proceedings at the request of the tax authority

• Employee involved

  Andrey Solomyany

• Process description

  The tax authority filed an application for declaring the Company bankrupt in order to satisfy the claim for tax arrears collection through bankruptcy proceedings. Tax Compliance specialists have developed a defense position justifying the absence of grounds to recognize the application of the tax authority as justified and the need to terminate proceedings in the case

• Result

  The court accepted the arguments of the Company, acknowledged the application of the authorized body unfounded and dismissed the bankruptcy proceedings

• Process description

  The client's counterparty refused to issue an invoice for the work performed on a major construction project. This position of the defendant was due to the fact that the parties had different approaches to determining the final cost of the work. The dispute was also complicated by the existence of conflicting practices regarding the possibility of such claims. (Project implemented by employee prior to joining Tax Compliance)

• Result

  Through an elaborate strategy, the court agreed that the company's invoicing requirements of the counterparty should be satisfied.

• Employees involved

  Mikhail Begunov, Nikita Zharov, Andrey Solomyany

• Process description

  In the course of an on-site tax audit, the tax authority questioned the reality of the Company's relationships with a number of disputed counterparties. As a consequence, the tax authority reconstructed the Company's tax liabilities, which were based on information about real business transactions. At the same time, the tax authority denied the Company the right to a VAT deduction for relations with real counterparties. In the opinion of the tax authority, the Company was not entitled to a separate VAT deduction (as part of the reconstruction) due to the expiration of the three-year period established by Art. 172 of the Tax Code, as a prerequisite for applying deductions.

• Result

  Tax Compliance team helped the client to prepare a legal position and represented the company in court proceedings. The court of the first instance fully satisfied the claims of the Company, admitting unlawful additional charges of VAT (including the appropriate amount of penalties). The decision of the court may have a significant impact on the development of practice of application of Article 54.1 of the Tax Code, in particular on the issue of the procedure of determining the actual size of the tax liabilities and the inapplicability of the condition of the deadline for claiming deductions in case of tax reconstruction.

This is the first example of a tax dispute in favor of the taxpayer to confirm the reality of transactions with counterparties in the framework of traffic services.

• Process description

  The client appealed to the arbitration court with a claim to the tax authority to invalidate the decision made on the basis of the field tax audit. The basis for the accrual of additional taxes, penalties and fines served as the basis for the conclusions of the tax authority that the Client received an unjustified tax benefit in the relationship with several counterparties, which, as telecommunications operators, could not provide services for traffic transit in connection with the fact that they had signs of organizations that do not perform real financial and economic activities. The main difficulty in proving the case is that the "traffic service" has no clear material expression and is not subject to visualization, therefore it was very difficult to collect the evidence base confirming the reality of transmitting traffic. During the court hearing Tax Compliance lawyers managed to have technical expertise assigned to the case and attach the expert's conclusion to it. As the result of legal efforts and well-designed defense strategy the court of the first instance partially ruled in favor of the Client. In this case the court saw an opportunity to interpret the concept of "due diligence" in favor of telecom companies. It pointed out that, given the specifics of the traffic services provided, as well as the peculiarities of the communications equipment through which the services are provided, the process of checking the availability of the counterparties' communications equipment, as well as the setting up of the connection was carried out remotely. This approach (if supported by higher courts) may be used by other recipients of similar services (in particular, telecommunications companies), both at the stage of selecting counterparties and when defending against claims of tax authorities.

• Result

  Tax Compliance team managed to defend about 50% of the additional tax charge (in the part of corporate income tax the Client's claims were recognized as legitimate). This dispute is unique and forms positive arbitration practice for the entire telecommunications industry.