On June 20 the Fifth Administrative Court of Appeal refused to satisfy the appeal of the Large Taxpayers’ Office and left unchanged the decision of the Odessa District Administrative Court as of November 28, 2018 (case No. 1540/3781/18), which, upon request of Tedis Ukraine LLC, cancelled the tax assessment-decision No. 000676744907 as of September 15, 2017 on the increase of monetary obligation for income tax in the amount of UAH 37.9 mln and for penalties in the amount of UAH 12 mln.
Large Taxpayer’s Office of the SFS validated own appeal by the fact that the court of first instance did not take into account the arguments of the controlling authority on the available tax information "about not confirming of the further sale by the counterparties of the goods purchased from the plaintiff, about the activities of some counterparties outside the legal boundaries, absence of enterprises at the tax address, and also lack of necessary resources to carry out business activities in these enterprises." As reported by the tax authorities, “during the inspection the actual sale of goods to own counterparties was not confirmed by the plaintiff by the properly executed delivery notes, powers of attorney, CMR note, which could be used to establish the sale of goods to the respective enterprises” (quotes).
The Fifth Administrative Court of Appeal in its Resolution as of June 20, 2019, amongst others noted the following:
"The findings of the controlling authority regarding the insufficiency of primary documents to confirm business transactions are estimative, not aimed at identifying the actual assumption by the plaintiff of violations in the field of taxation on business enterprise income tax.
The panel of judges considers that the court of first instance reasonably disregarded the tax information on the economic activities of counterparties, since tax legislation does not make the accounting (status) of a particular taxpayer conditional on other persons, on the actual payment of tax by the counterparty to the budget, compliance of tax accounting, account maintenance, from its economic and production capacities.
The availability of tax information regarding the plaintiff’s counterparties does not prove the circumstances with which the defendant associates the findings of the certificate of inspection and made controversial tax assessment-decision based on it. The affirmation of the tax authority that the plaintiff’s counterparties lack the number of employees, technical, transport and other production resources necessary for the conduct of business activity, does not evidence of fictitious supply agreements with the plaintiff. Within the scope of the audit the defendant did not investigate the possibility of engaging by the counterparties-customers of material, technical, property, labor and manufacturing resources by entering into civil contracts or in any other form not prohibited by law during the period of carrying out controversial business transactions.
The obtained tax information, referred to by the defendant, noting that some of the counterparties of the plaintiff are not located at the legal address, was compiled after the plaintiff carried out relevant business transactions with these counterparties and issued the relevant delivery notes.
Therewith the defendant’s unreasonable reference to the fact that there was no further sale by the counterparties of the goods received from the plaintiff as ground for absence of actual business transactions is unjustified, since these operations are not related to the formation of tax accounting with the plaintiff’s participation.
So the defendant’s references to the absence of consignment notes are groundless in support of the unreality of business transactions for the supply of goods, since the consignment notes are intended for record of the inventory movement and payments for their transportation by road. Thus, the consignment note is the primary document confirming the fact of providing/receiving transport services and the basis for forming expenses for such services that is, confirming the primary document in business operations other than those that took place between the plaintiff and his counterparties.
Concerning the defendant’s references to the absence of seals in the delivery notes of the persons receiving the goods, the court of first instance correctly took into account the consistency between the enterprises supplying the goods by materially responsible persons by means of certifying the accompanying documents with their signatures of receipt of the goods without the company’s seal and stamps."