SURVEY LETTER OF THE SUPREME ADMINISTRATIVE COURT OF UKRAINE

of July 6, 2009 No. 982/13/13-09

About some questions of practice of the solution of cases with the assistance of bodies of the State Tax Service (on the materials considered by the Supreme administrative court of Ukraine in cassation procedure)

According to the procedure of information and for accounting during hearing of cases with the assistance of bodies of the State Tax Service the overview of the corresponding court practice of the Supreme administrative court of Ukraine is sent.

1. Correctness of forming by the taxpayer of gross expenses and the tax credit requires availability of communication of expenses of the taxpayer on acquisition of services with its economic activity which consists in intention of the taxpayer to benefit from the acquired services.

The limited liability company "G" took a legal action with the claim to state tax inspection about recognition invalid tax messages decisions.

The resolution of local court of July 26, 2006 left without changes determination of Appeal Court of October 10, 2006 in the claim for recognition invalid tax messages decisions which to limited liability company "G" determine the tax liability by the value added tax and the income tax, are refused for those reasons that is confirmed by available written proofs in case papers that the claimant to the conclusion with limited liability company "T" of the agreement on provision of consulting and marketing services of May 10, 2004 N 27/05, result of accomplishment of which became sale of products to limited liability company "B", had long economic relations with this buyer and therefore, delivery and payment of cost of products between limited liability company "G" and limited liability company "B, "according to goods issue slips and payment orders, it was performed not on agreement performance about provision of consulting and marketing services of May 10, 2004 N 27/05, and on agreement performance of purchase and sale of products, concluded between limited liability company "G" and limited liability company "B". Having estimated them. courts came to conclusion that the claimant's expenses on payment of consulting and marketing services are not connected with economic activity of the claimant and therefore are not subject to inclusion in structure of gross expenses and the tax credit in II and IV quarters 2004.

By result of review of decisions of the courts of the previous instances in cassation procedure the Supreme administrative court of Ukraine left the appealed decisions without changes, having stated the following line item.

By Trial and Appeal Courts it is determined that the claimant of the tax liabilities according to controversial tax messages decisions by the conclusion of monitoring body stated in the inspection statement about violation of Items 5 by society was formed the actual basis for determination. 1, 5.2 articles 5 of the Law of Ukraine "About the taxation of profit of the companies", subitem 7.4.4 of Item 7.4 of article 7 of the Law of Ukraine "About the value added tax" owing to reference in structure of gross expenses II and IV quarters 2004 and the tax credit for June and December, 2004 of expenses, including on the value added tax, on payment of consulting and marketing services for benefit of limited liability company "T" in the agreement of May 10, 2004 N 27/05, which are not connected with economic activity of the claimant. Such conclusion of tax authority is motivated that incurring the claimant of the specified expenses did not stipulate receipt of economic benefit by it by which any economic activity as economic activities between the claimant and limited liability company "B" are not consequence of marketing researches of limited liability company "T" is characterized, and are consequence of accomplishment by the companies of cross liabilities for purchase and sale agreements of products.

Proving argument about illegal determination of the tax liabilities by monitoring body, the claimant referred in confirmation of gross expenses and the tax credit for the above-stated period source documents, namely: acts of acceptance transfer of the performed works (the provided services), reports on the performed work and tax delivery notes which, according to the claimant, are good cause for reconstruction of economic activity on acquisition of consulting and marketing services at limited liability company "T" in tax accounting for the income tax and the value added tax in understanding of the special tax laws.

Apparently from the conclusion of Trial and Appeal Courts about absence in actions of the claimant of causal relationship between acquisition of marketing services and receipt of economic benefit from this acquisition, the specified requirement of the procedural law by courts was observed as courts based on purchase and sale agreements of products, goods issue slips, payment orders between limited liability company "G" and limited liability company "B" were determined that at the time of the conclusion with limited liability company "T" of the agreement on provision of consulting and marketing services of May 10, 2004 N 27/05, result of which owed become identification new, other than the existing buyers of products of limited liability company "G", and actually there was finding of such buyer as limited liability company "B", the claimant already had long relations with the specified buyer.

Legal relationship which arise in connection with forming by the taxpayer on profit and the value added tax of gross expenses and the tax credit are regulated by article 5 of the Law of Ukraine "About the taxation of profit of the companies" and article 7 of the Law of Ukraine "About the value added tax".

So, subitems 7.4.1 and 7.4.5 of Item 7.4 of article 7 of the Law of Ukraine "About the value added tax" in editions of the Law which affected the moment of emergence of disputable legal relationship, provide that the tax credit of the accounting period consists of the amounts of the taxes paid (added) by the taxpayer in the accounting period in connection with purchase of goods (works, services) which cost belongs in structure of gross costs of production (address) and fixed assets or intangible assets which are subject to depreciation.

According to Item 5.1 of article 5 of the Law of Ukraine "About the taxation of profit of the companies" the determining sign of gross expenses is their communication with economic activity of the taxpayer. At the same time indispensable characteristic feature of economic activity in tax legal relationship is its orientation on income acquisition in cash, material or non-material forms (Item 1.32 of article 1 of this Law).

By subitem 5.2.1 of Item 5.2 of article 5 of the same Law it is determined that gross expenses the amounts of any expenses paid (added) during the accounting period in connection with preparation, the organization and conducting production, sale of products (works, services) and labor protection taking into account the restrictions set by subitems 5.3-5.8 of this Article are included.

From here follows that correctness of forming by the taxpayer of gross expenses and the tax credit requires availability of communication of expenses of the taxpayer on acquisition of services with its economic activity which consists in intention of the taxpayer to benefit from the acquired services. In the absence of the last there are no bases for reduction of taxation basis by profit and the value added tax at the expense of gross expenses and the tax credit.

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