Tax authorities often blame individual entrepreneurs and organizations for unreasonable tax benefits. Since the result of such allegations is the serious consequences of the financial plan for tax payers, they almost always defend their own innocence in the judiciary. Sometimes this approach entails success, but often happens differently. From what it primarily depends on, which decisions were made by the courts on these disputes and other equally important issues we will consider in judicial practice of unjustified tax benefit.
Real Estate Sales
So, you need to know that the sale of real estate at prices that are lower than standard, market, unauthorized individuals or legal entities does not lead to unreasonable tax benefits. If the Federal Service for Taxes and Dues failed to prove that the structure sold real estate substantially lower than market prices to related parties, the difference between the actual transaction amount and the real value of real estate cannot be recognized as a tax benefit that is not justified and is associated with an underestimation of tax payments in accordance with the simplified system of taxation, VAT and income tax. This conclusion was made by the Supreme Court of the Russian Federation.
The meaning of the dispute
So, we will consider the relevant judicial practice of unjustified tax benefit. Anap registered in Anapa filed a lawsuit with the court of arbitration regarding the invalidation of the result of the case of the IFTS, which involves holding him accountable for a tax offense. This offense was expressed in the fact that from 2010 to 2012. the taxpayer has implemented several operations related to the sale of real estate in favor of citizens. Moreover, the prices of these objects in accordance with the purchase and sale agreements were slightly reduced by the organization, judging by the standard level in the real estate market.
This fact was revealed during the tax audit. So, employees of the Federal Tax Service, relying on Article 95 of the Tax Code in force in Russia, recognized the need for expertise, and appraisers noted information regarding the deviation of transaction prices for the sale of LLC disputed objects from the price level on the market. As a result, the Federal Tax Service took advantage of the provisions of Article 40 of the Tax Code of the Russian Federation, identifying the amount of income from these operations subject to taxation, based on the market price of the alienated property. Thus, the FTS demanded that the taxpayer pay arrears and fines in accordance with article 122. In addition, the inspectors concluded that the LLC’s income, calculated by the total value of real estate on the market, exceeded the maximum value provided for in the fourth paragraph of article 346.13. That is why the IFTS made a conclusion about the loss by the taxpayer of the right associated with the application of the simplified tax system and the emergence of the need for this reason to pay taxes in accordance with the general taxation system.
Judicial Decision
We will examine whether the case considered is related to unjustified tax benefit. By a decision of the arbitration tribunals of the first instance, which was left unchanged by a decision of the appellate arbitration court, the claim of the taxpayer was partially satisfied.The judges invalidated the decision of the tax structure, which was disputed, regarding the determination of unjustified tax benefit. Nevertheless, the arbitration courts of the cassation instance canceled these judicial acts and sent the case for reconsideration to the judicial authorities of the first instance. It is worth noting that the arbitrators emphasized the presence of significant violations in the process of considering the case in terms of procedural and substantive law, which had a significant impact on the outcome of the case. So, during the review by the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation in the manner of supervision, it issued a decision of 01.12.2016. The cassation decision was canceled by him. As a result, the judicial acts of the lower instances were restored.
It must be clarified that the arbitrators in the decision-making process regarding the insolvency of the opinion of the Federal Tax Service did not reveal any grounds for concluding that there is an interdependence between citizens buying real estate and a taxpayer. This happened despite the fact that the Federal Tax Service claimed: relations between the parties had a significant impact on the terms of transactions and, accordingly, the economic results of their implementation. For this reason, the judges concluded that it was not possible to use market price data for real estate submitted by the inspection. In addition, the judiciary refused the Federal Tax Service to grant a request for a forensic examination of the case in order to determine the market value of the property that had been alienated. The arbitrators explained this by the fact that the examination was not able to fill in the gaps and eliminate the shortcomings that were made by the tax structure during the audit.
Supreme Court Response
The Supreme Court fully agreed with the conclusions of colleagues and added that, in accordance with the general rule, the consequences of tax transactions carried out by the organization are determined precisely from the terms of transactions concluded by it, and the calculation of taxes, which is realized from market prices instead of those agreed by the parties to the transactions, may have place only in situations established by law in force in the country. In the period under consideration, the powers of the Federal Tax Service related to verifying the correct use of prices in the framework of the control functions regarding the completeness of tax calculation were dictated by article 40 of the Tax Code. According to its norms, the price that was determined by the parties to the transaction could be challenged for taxation only in the cases specified in the second paragraph of this article, in particular:
- on transactions made by interdependent persons;
- on barter (exchange) operations;
- with a significant fluctuation in the price level relative to those prices that are applied by the taxpayer for homogeneous (identical) commercial products within a fairly short time period.
In accordance with the position presented in paragraph 13 of the joint type resolution of the Plenum of the Supreme Arbitration Court and the Plenum of the Supreme Court dated 06/11/1999, in other cases, the tax structure does not have the right to dispute the price of goods, services, work, which is indicated directly in the transaction by the parties . In addition to the lack of evidence of the interdependence of buyers and sellers, the inspection failed to prove the significance of price level fluctuations in relation to those prices that were applied by the taxpayer for homogeneous (in other words, identical) real estate objects within a short period of time. Thus, the body of the Federal Tax Service did not have the grounds provided for by the Tax Code to dispute the prices that were applied by the taxpayer in the sale of real estate,Based on which the company determined the tax base (income) and fulfilled the tax obligation.
The Armed Forces of the Russian Federation noted that the only difference between the price that was applied by the taxpayer and the general level in the market does not make it possible to verify that his actions are aimed at tax evasion. It is for this reason that the findings of the judicial authorities of the appeal and first instance can be considered correct.
Payment transaction
Next, we consider the identification of circumstances of unjustified tax benefits when paying for a transaction through bills between individuals. It is worth adding that these persons must be dependent on each other. In any case, this alignment leads to unreasonable tax benefits for VAT.
An organization that, through the settlement of bills of exchange with affiliated (interdependent) persons, creates a case in accordance with which the source of the tax reimbursement for ext. the cost from the state budget is not generated, the validity of the transaction costs is not expected and absent, and the transferred bills, one way or another, are returned to it according to loan agreements, it meets the criteria of unjustified tax benefit, artificially lowering VAT. That is why this structure should be punished. Such a decision was made by the Arbitration Court of the Ural District.
The essence of the dispute
Let us analyze the meaning of the dispute, which served as an example of an unjustified tax benefit under the Tax Code of the Russian Federation. The organization appealed to the arbitration tribunals with a statement to the IFTS regarding the invalidation of its conclusion on bringing to responsibility in terms of tax payments, which is provided for in paragraph 1 of Art. 122 of the Tax Code of the Russian Federation in the form of a fine for non-payment of tax, as a result of another illiterate calculation of VAT and, accordingly, accrual of interest, as well as proposals to reduce the amount of VAT that is excessively declared for reimbursement from the budget.
According to experts of the tax service, this offense is expressed in the fact that the taxpayer implemented a number of financial and business transactions that resulted in an artificial situation in accordance with which the applicant had a formal right to use tax deductions, which serves as evidence of receipt taxpayer unreasonable tax benefit. These transactions were made in connection with the acquisition of real estate and payment of their bills. During the tax audit, specialists from the Federal Tax Service revealed that there were facts related to the transfer of the same bills by intermediaries. In addition, materials were found that indicate the absence of valid, in other words, based on real economic transactions settlements between those involved in the transfer of bills.
Judgment
We will analyze the process of proving an unjustified tax benefit. The decision of the judicial authorities of the first instance to satisfy the requirements of the taxpayer was denied. The ruling of the arbitration court of appeal did not amend this decision. The arbitration court in its decision of 02.21.2017 agreed with the conclusions of colleagues. So, the cassation appeal was rejected.
Arbitrators noticed signs of unjustified tax benefit. The tax service has proved the interdependence of persons who participated in a business operation. The taxpayer applied a deduction for an economic transaction related to the acquisition of an immovable property, since the requirements of certain articles of the Tax Code of the Russian Federation (169, 171 and 172) were formally complied with. The tax authorities managed to prove to the judicial authorities that the complex of operations related to the sale of construction in progress, primarily indicates the consistency of the actions of the original seller and other participants in the chain.The main goal, which served as one of the criteria for the taxpayer’s unjustified tax benefit, is the non-payment of VAT to the state budget from the business transaction related to the transaction and the refund of VAT from the budget.
Indiscretion as a cause of unjustified gain
In what other cases can a FTS letter be sent about unjustified tax benefits? It is worth noting that the lack of due diligence can also serve as a reason. The nominal nature of the business activities of the counterparties of the structure means that the taxpayer did not show due diligence in the process of concluding agreements with formally registered firms that do not carry out real economic activity. Such transactions may occur upon receipt of an unjustified tax benefit. Such a decision was made by the Arbitration Court of the Moscow District.
What is the meaning of the argument?
The organization appealed to the arbitration tribunals with a claim to the IFTS regarding the invalidation of the decision related to prosecution for the implementation of a tax offense. It is important to note that the taxpayer’s misconduct consisted in concluding a deal with ten counterparties, whose work as a result turned out to be fictitious. So, according to the results of a tax audit of an exit type, in accordance with all types of tax payments and fees regarding a taxpayer, it was decided to hold him accountable in accordance with article 122 of the Tax Code of the Russian Federation. It is worth adding that the company itself indicated that absolutely all expenses related to relationships with these suppliers were expensed in the process of calculating income tax and the corresponding deductions for ext. value, because the transactions were invalid.
What decision was made by the court?
By a decision of the arbitration tribunals of the first instance, as well as a decision of the arbitration court of appeal, which remained unchanged, the claim was denied. The court of cassation adopted a decision of the Arbitration Court, which upheld these judicial acts.
Having familiarized themselves with the case materials, carefully checking the conformity of the conclusions, when refusing to satisfy the claims, the arbitrators primarily relied on the evidence presented by the tax service confirming that the plaintiff received tax benefits that are not based. It is worth noting that the courts assessed the evidence provided by the parties on the relationship between the structure and its counterparties, in particular:
- the contract;
- invoices;
- information about employees;
- account statements in banking institutions regarding the receipt and subsequent movement of money;
- information about the location of the structure;
- interrogations of witnesses.
As a result, it was concluded regarding the nominal nature of the work of the plaintiff’s counterparties. This indicates the lack of due diligence in the process of concluding contracts with organizations registered formally and not carrying out actual financial and economic activities. The main goal here is to obtain tax benefits that are not justified. At the same time, the arbitrators used the legal approach presented in the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of 12.10.2006. As a result, the contested decision of the tax authorities was recognized as justified and legal.
Final part
In conclusion, it should be noted that the concept of unjustified tax benefit implies such a benefit when inspectors prove that the taxpayer did not show due diligence in his actions. At the same time, he was notified of unlawful operations that the counterparty committed due to affiliation and interdependence (Letter of the Federal Tax Service of February 11, 2010 under No. 3-7-07 / 84).
It is worth noting that the judicial practice considered in the article is far from all situations that may be relevant today. So, for example, there is an unreasonable tax benefit by splitting up a business. In this scheme, the visibility of the acts of several persons peculiarly covers the misconduct of one tax payer in fact. And the receipt of unreasonable benefits is achieved as a result of the use of tools that are used in civil law relations that formally comply with current legislation.