Unjustified tax benefit and VAT
Currently there is an extensive jurisprudence on the subject of tax benefits, the dishonesty of contractors and the taxpayers and the lack of due diligence when the choice of suppliers. This situation is due to the fact that the legislation of the Russian Federation, including the Tax code, up to the present time, there are no definitions of such concepts as "unjustified tax benefit" and "bad faith". Therefore, the study of the question of bad faith in the dispute often is subjective, and predict in advance what will be the decision of the court, is not possible.
The concept of unjustified tax benefit
The concept of unjustified tax benefit was introduced by the Resolution of Plenum YOU Russian Federation N 53 <1>.
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<1> Resolution of Plenum of the RF from 12.10.2006 N 53 "About an assessment arbitration courts of validity of reception by the tax bearer of tax benefit".
It should be noted that in this document there is no clear definition of unjustified tax benefits, but provides criteria for the recognition of its groundless. In particular, the tax benefit may be deemed unjustified if, for tax purposes, accounted for transactions not in compliance with their actual economic meaning or operation, not caused by reasonable economic or other reasons (the purposes of business character). In addition, a tax benefit cannot be recognized as valid if received by the taxpayer outside the context of performing actual entrepreneurial or other economic activities.
The definition of bad faith of the taxpayer in the regulations was also missing. Judicial practice the concept of bad faith interprets as:
— concerted actions of the taxpayer and its contractors, aimed at compensation of the VAT (the Resolution of FAS from 29.08.2006 N A12-4281/2006);
— the collection of factors that indicate the absence of purpose in the activities of the taxpayer. It uses criteria such as economic rationality, and appropriateness of activities (judgement of FAS Central district from 11.09.2007 N A-62-3152/2005);
— creating "scheme", aimed at the evasion of taxes among the parties to the transaction and receipt of the VAT from the budget other (the Resolution of FAS MO from 11.12.2006 N KA-A40/11945-06 <2>);
— agreement between the taxpayer and its suppliers in the "formal acquisition" of goods and the creation of schemes of illegal compensation of the tax from the budget (decree of the Presidium of the SAC dated 23.01.2007 N 8300/06).
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<2> Determination of the SAC dated 05.03.2007 N 2359/07 refused to transfer the case to the Presidium of the Russian Federation for revision as supervision.
In a Decision dated 22.08.2007 N F09-6645/07-S2, for example, the Federal UO stated: bad faith taxpayers may indicate the situation when the using of instruments used in civil-legal relations are created schemes of illegal enrichment at the expense of budget funds, which can lead to the violation of public interests in the field of taxation and the violation of constitutional rights and freedoms of other taxpayers.
The position of the courts in disputes between tax authorities and taxpayers on matters about obtaining by the taxpayer of the right to a tax deduction and a reduction of revenues in the amount of expenditure is such that:
— for the application of VAT deductions (articles 171 — 173, 176 of the tax code) the taxpayer is obliged to prove the validity of their claims. In this document, the taxpayer must meet the requirements and contain reliable information about the circumstances with which the law connects legal consequences, including the reality produced by the taxpayer costs;
— provision of complete package of documents in accordance with article 165 of the tax code does not entail the automatic application of the tax rate is 0% and VAT compensation. When deciding on the application of specified tax rates and tax deductions are taken into account the results of counter checks tax on the accuracy, completeness and consistency of the submitted documents, verification of supplier to establish the fact that the unconditional obligations of the suppliers to pay VAT to the budget in the monetary form;
— the provisions of article 176 of the tax code are in the relationship with articles 171 and 172 NK of the Russian Federation and suggest the possibility of tax refunds from the budget in the presence of real business transactions and in transactions with real goods, which in turn implies the payment of value added tax in the Federal budget. The right of tax authorities to demand from the taxpayer additional information, get explanations and documents confirming the correctness of calculation of taxes, conduct counter verification, including for the purposes described above, provided to the tax authorities of articles 88, 93 of the tax code.
This position is fixed by the Resolution of FAS MO from 04.02.2008 N KA-A40/8852-07. Similar findings are presented in the Decisions of FAS Central 19.09.2008 N A68-8692/06-14/13 <3>, FAS ZSO from 27.05.2008 N F04-3070/2008(5191-A03-25), FAS MO from 23.07.2007 N KA-A40/246-07 <4>.
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<3> Determination of the SAC dated 26.12.2008 N 16080/08 refused to transfer the case to the Presidium of the Russian Federation for revision as supervision.
<4> Determination of the SAC dated 30.11.2007 N 15183/07 refused to transfer the case to the Presidium of the Russian Federation for revision as supervision.
We emphasize that a tax benefit is recognized only unjustified on the totality of the circumstances. By themselves, the interdependence of participants in transactions, and the ad hoc nature of the operation, and spasmodic nature of the business operations, and violation of tax legislation in the past, and the creation of the organisation shortly before committing the economic operation and payables, and the absence of costs from the contractors may not serve as grounds for recognizing tax benefit as unjustified (paragraph 6 of the Resolution of Plenum YOU Russian Federation N 53).
By part 3 of article 65 of the APC of the Russian Federation each person participating in business, should prove those circumstances on which it refers as grounds for its claims and objections. In particular, if the tax authority presented evidence that in fact business transactions with producers (suppliers) of goods were not carried out and taxes have not been paid, the system of deliveries and settlement involved legal entity registered by false or lost documents or non-existent addresses, or the interactions between the manufacturer, the supplier and the buyer indicates the dishonesty of parties to business transactions, the court should not be limited to checking formal compliance with the taxpayer documents with the requirements of the Tax code, but must evaluate all the evidence in the case collectively and in conjunction with the aim of eliminating internal contradictions and differences between them.
The signs must explicitly confirm the basic criterion of reception of unreasonable tax benefit (dishonesty) have an orientation of actions of participants of the transaction solely on the VAT refund.
As a rule, decisions in favour of the tax authorities the courts in cases where the identified one or more characteristics of bad faith and improper there is a completed source documents or the absence of a reasonable business purpose, which together indicate the direction of the actions of the parties to the transaction solely on the VAT refund.
Intermediaries
Judicial practice proceeds from the fact that the use of intermediaries in business transactions is not evidence of receipt of an unjustified tax benefit (dishonesty).
However, there is a court decision, according to which bad faith is evidenced by the use of intermediaries to increase the amount of VAT to be reimbursed.
Here is one of them. The tax authorities found that the chain involved in the commercial relationship for the supply of vanadium slag of organizations, starting from manufacturer and ending with the taxpayer, included a number of intermediary organizations, including foreign ones. FAS TSO, analyzing the actual movement of vanadium slag, made a substantiated conclusion about impossibility of real business transactions with organizations that are Resellers of the product taking into account the time, location of respective counterparties, including the manufacturer and that the goods were shipped directly from the supplier, bypassing the chain of intermediaries (the order dated 15.09.2008 N A68-up 622/13-05). Payment vanadium slag between the mediators were not carried out, and the payment was made Agency fees, and accordingly, VAT related to sales of vanadium slag in the budget are not paid.
Assessing the factual circumstances, given the Resolution of the Plenum of the Russian Federation N 53, indicating that the taxpayer, having a real opportunity to purchase goods directly from the manufacturer, however I purchased it at a higher price through a series of intermediaries, the court came to a legitimate conclusion about the unfairness of society, namely, to use the schema created for the artificial rise in prices of vanadium slag with the aim of further unauthorised withdrawal of VAT.
On the basis of the legal position of the constitutional Court, set out in the Definitions from 08.04.2004 N 169-About, and from 04.11.2004 N 324-About, the refusal to refund VAT from the budget may take place, if the bad faith of the taxpayer.
Similar conclusions contain the decision of FAS from 07.02.2008 N A65-9699/07, from 04.05.2006 N A65-13063/05-CA1-32, FAS Central from 16.06.2008 N A68-1873/07-52/18, 19.09.2008 N A68-8692/06-14/13, FAS ZSO from 06.10.2008 N F04-6008/2008(12810-A46-41).
Forms of payments to contractors
There are court decisions which state that the mere fact that the settlement of the transaction in a single day is not proof of bad faith of the payer, as no evidence of the unreality of the transaction and is not a sign of obtaining an unjustified tax benefit (dishonesty) and the transit nature of the calculations.
Nevertheless, there were diametrically opposite decisions of the courts. We give some examples.
Settlements with counterparties are carried out in one day
The company made payments to suppliers for purchase of material for the manufacture of children's goods and buyers of these goods in one day. Bank account of the company was opened shortly before the transactions, and it reflects only the economic operations of purchase of materials and implementation of children's goods in the disputed transactions.
During the inspection an effect on tax deductions of VAT on the disputed transactions, the tax authority established the violation of articles 171, 172 NK of the Russian Federation, expressed in an unjustified attribution to deduction of VAT. On this basis, the tax authority concluded that the society used schemes of tax evasion for receiving VAT refunds from the budget in the implementation of children's goods.
The conclusions of the tax authority on receipt of the society unjustified tax benefit is confirmed by the following actual circumstances of the case established in court (the Resolution of FAS from 07.11.2008 N A57-9752/06 <5>): goods shipped on consignment to the society informed of its actual acquisition by the vendor, the goods are manufactured by a third party earlier than him society purchased the material.
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<5> the Definition of the SAC dated 21.01.2009 No. 179/09 refused to transfer the case to the Presidium of the Russian Federation for revision as supervision.
The court, relying on the explanation given in the Decree of the Plenum of the Russian Federation N 53, supported the position of the tax authority and established that the main purpose pursued by the taxpayer was income primarily due to tax benefits in the absence of an intention to carry out real economic activities in the formal deals.
Similar findings are presented in the Decisions of FAS SZO from 07.03.2006 N 66-3681/2004, the Federal UO from 24.09.2008 N F09-6322/08-C3.
Transit traffic means
In the order dated 01.07.2009 N A19-631/09 FAS VSO indicated that the transit nature of cash flows by accounts of suppliers and contractors evidence of receipt by the taxpayer of an unjustified tax benefit (paragraph 5 of the Resolution of Plenum YOU Russian Federation N 53).
Similar findings were reflected in the Decisions of FAS ZSO from 18.02.2009 No. F04-1004/2009(896-A45-15), FAS WZO from 17.02.2009 N A19-10468/08-52-F02-277/09, the FAS from 26.01.2009 N A55-13050/2008.
The lack of contractors costs
to conduct business activities
Grounds for denial of society, the contested amount was the taxpayer received an unjustified tax benefit in the application of the deduction of VAT on invoices charged by the supplier for the supply of timber.
If the tax authority came from the fact that the specified provider could not carry out business transactions on supplies of timber in the absence of its own human and material resources, lack of cost of doing business to achieve the results of corresponding economic activities. Evidence was presented documents — latest financial and tax reporting, delivered by the organization-supplier of balance which indicated that non-current and current assets leased assets the organization lacked; the Declaration on advance payments for mandatory pension insurance during the same period two people.
In addition, the tax authority established that the flow of funds on current accounts provider is of a transitory nature, received the money is not spent on business activities, including the remuneration of employees, payment of leased vehicles, warehouses for storage of goods, forwarding services.
The court pointed out that the lack of counterparties costs of doing business indicate the direction of the transactions between them and the society on the implementation of financial and economic activities and profit from it, but only for a VAT refund from the budget without actually doing relevant business transactions.
The court upheld the position of the tax authority on the impossibility of performance by the supplier of contractual obligations to supply timber to the society and society rejected the reimbursement of VAT (resolution of the Federal WZO from 10.06.2009 N A33-15018/08-F02-2647/09).
Similar conclusions contain the decision of FAS UO from 16.09.2009 N F09-6940/09-S2, FAS from 07.07.2009 N A12-20391/2008, FAS TSBS from 22.06.2009 N A11-10982/2008-K2-25/586, FAS SZO from 13.10.2008 N A56-44107/2004, FAS ZSO from 24.09.2008 N F04-5092/2008(10144-A46-42) <6>.
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<6> the Definition of the RF dated 16.01.2009 No. YOU 17445/08 refused to transfer the case to the Presidium of the Russian Federation for revision as supervision.
Related parties
By itself, the interdependence of legal entities cannot be the basis for denial of the application of VAT deductions. Tax benefit may be deemed unjustified if the tax authority be proved that the taxpayer acted without due diligence and caution, and he should have known about the violations committed by the counterparty, in particular, in virtue of relations of interdependence or affiliation of the taxpayer with the counterparty (paragraph 10 of the Resolution of Plenum YOU Russian Federation N 53).
Court (the Resolution of FAS SZO from 02.04.2008 N A05-6659/2007) recognized the denial of the deduction is lawful, in particular, on the grounds that the heads of the taxpayer and its contractor, are close relatives and legal entities in view of such circumstances as related.
In support of the denial of tax deductions on points to violations in the original documents, namely, invoices, acceptance acts, and the lack of evidence proving the delivery of the scrap society (bills of lading, waybills).
Also, the tax Inspectorate pointed out that the founders and principals of the supplier and society is the married couple, as evidenced by copies of extracts from the Unified state register of legal entities.
The court, supporting the position of the tax inspection, has correctly pointed out that the relationship of the company and its supplier evidence of receipt by the society of unreasonable tax benefit.
The court also noted the fact that the provider, carrying out the mediation function had the objective of obtaining income from real economic activities, and due to the tax benefit, since all its activity was reduced to the design of a set of documents for further appearance by the exporter the right to a VAT refund.
Similar conclusions contain the decision of FAS from 21.07.2009 N A65-9902/07, FAS WZO from 17.06.2009 A19-14385/08, FAS SKO from 18.11.2008 N Ф08-6909/2008, FAS ZSO from 22.08.2008 N F04-4918/2008(9658-A75-42) <7>.
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<7> the Definition of the SAC from 11.01.2009 N 15641/08 refused to transfer the case to the Presidium.
The absence of a reasonable business purpose of the transaction
There is jurisprudence that indicates: the absence of real economic purpose of the transaction testifies to creation of grounds for VAT reimbursement, which is a sign of obtaining unjustified tax benefits.
Resolution of the Federal WZO from 16.04.2009
N A19-11057/08-50-F02-1494/09
In the course of the trial to justify the validity of the application of VAT deductions (clause 1 of article 172 NK the Russian Federation) society was submitted contracts, invoices and acts of performed works (KS-2), taken from the counterparty a payment order for payment and invoices on the contractor delivered materials.
In the case of the IRS papers were presented (acts of the executed works of form KS-2), which showed that the society at the same time fulfilled, and the customer — a third party will accept the same types of work on the same object. Of the acts of acceptance of performed works (KS-2), it follows that the cost of the work carried out by the counterparty, equal to the cost of the works commissioned by the society to its customer, therefore, the court rightly came to the conclusion that the established circumstances indicate a lack of benefit and a reasonable economic goals of the society at the conclusion of transactions with the counterparty.
Represented by the disputed invoices on behalf of the Director and chief accountant of the contractor, and all other documents (contracts, acts of acceptance of work performed, invoice), signed by a person without authorization to do so.
In addition, according to the documents obtained in the course of tax control measures and submitted to the court by the tax authorities, the contractor company is not able to perform the assigned job, because he lacked the appropriate resources, personnel and solutions.
Thus, the transactions performed by the company with the counterparty, was of a formal nature and had no business purpose.
The refusal of the tax Inspectorate to society in the application of tax deductions for VAT paid on invoices issued by the contractor, rightly recognized by the court as legitimate.
The judgement of FAS Central district from 04.10.2007 N A35-4873/06-C8
The court recognized the tax benefit is unjustified, since the transactions lacked a business purpose in nature: the annual rent for the equipment exceed the market value of that equipment transferred to the authorized capital of another organization.
The society in 2006 under the act of transfer and acceptance conveyed in the authorized capital of a third party private property total cost 2 402 865 rubles. the Cost of transferred assets was determined in accordance with the valuation report the market value of the objects.
In 2005 the society entered into a sublease of the property under which the lessee provides for payment in temporary possession and use by the Sublessee for the implementation of its business assets (machines and equipment) according to the list. According to the act of acceptance-transfer was a sublease of the property with a total cost of 2 402 865 RUB.
The list of property specified in the Annex to the agreement to sublease, coincides with the list of property transferred to the society in the authorized capital of a third party.
Monthly rent for all leased property set in the amount of 500 rubles. 236, which does not contradict submitted in case the information about the market value of rent for the equipment in the region in 2005.
Thus, the cost of rent of the disputed equipment in the year (236 500 $ x 12 months. = 2 838 000 rubles) exceeds the market value of the equipment.
Given these circumstances, the courts came to the conclusion that the actions of the company in the Commission of the mentioned transactions is not conditioned by the purposes of a business nature and have no economic benefits.
Similar conclusions contain the decision of FAS UO from 28.10.2008 N F09-7926/08-S2, FAS Central district from 26.06.2008 N A23-4093/04A-14-338, FAS ZSO from 16.06.2008 N F04-3593/2008(6436-A46-14), FAS DVO from 14.02.2008 N F03-A73/08-2/26.
Creating visibility of the transaction
In the Decree from 22.10.2008 N F04-6520/2008(14714-A46-40) FAS SOA on the basis of consignment notes established that the capacity of the vehicle on which the goods were delivered to the taxpayer, much less the mass of the load transported at a time, and therefore came to the conclusion about the absence of real business transactions with the taxpayer.
As a proof of validity of application of VAT deductions for the audited period, the company was presented a contract of delivery, waybills, invoices, car rental contract, certificate of registration of the vehicle.
On indicated for the following conditions: under the contract of delivery the delivery of aluminium alloys should be carried out by companies, in connection with which the latter is represented by the lease of the car GAS-5312; according to the certificate of registration of the said vehicle to its maximum carrying capacity is 4575 kg; at the same time, according to the society of commodity-transport invoices purchased from the supplier the goods have been transported in the car per trip, and weight is 25 635, 54 150, 015 27 kg.
The court concluded that the information contained in the society primary documents, does not reflect the reality of the transactions for the supply of goods to specified size.
The decree of the Presidium of the SAC dated 23.01.2007 N 8300/06
The court pointed out that a tax benefit is unjustified, as is proved by "formal acquisition" of goods, creation of schemes of illegal compensation of the tax from the budget under the following circumstances: the product was subject to five transactions of companies located in different cities; the texts of treaties for transactions is identical; contracts concluded within a few days, despite territorial remoteness of the parties to the transaction, after the implementation of the export of the goods; in supply contracts at high price contracts do not specify the exact location of the item, while under the terms of goods acceptance by quantity and quality is produced in the place of its storage, making the act of transfer and acceptance at the warehouse of the seller; transactions between participants of transactions conducted within a short time.
Similar conclusions contain the decision of FAS from 07.11.2008 N A57-9752/06 <8>, FAS WZO from 11.09.2008 N A19-4427/08-50-F02-3877/08 <9>, FAS TSO 15.09.2008 N A68-up 622/13-05, FAS UO from 02.07.2008 N F09-4700/08-C3.