Lawyers of FBK Legal defended the interests of Gazprom Transgas Krasnodar at the RF SCA

On 25 June the lawyers of FBK Legal defended the interests of Gazprom Transgas Krasnodar, a Gazprom subsidiary, at the RF Supreme Court of Arbitration (SCA) in the dispute with the inter-regional inspectorate of the Federal Tax Service on the largest taxpayers № 2. The side of the Gazprom subsidiary was represented by FBK Partners: Galina Akchurina, head of FBK Legal tax litigation practice, and Tatiana Grigorieva, senior manager of FBK Legal tax litigation practice.

The case under dispute concerned the range of application of one of the tax law fundamental principles in relation to the tax audit procedure. This principle reads that the purpose, the subject of a tax audit as well as the main task of tax authorities is to control the correctness of calculation and timeliness of payment of taxes and duties. That is, the objective of tax authorities is not to charge extra taxes but to determine how to pay taxes correctly with taking into account the legal qualification and economic content of the taxpayer’s operations, deals and activities.

The core of the case was related to whether the tax body when requalifying disputable operations has a right not to determine the actual tax liabilities of a taxpayer, but to determine a taxpayer’s accrued obligations only. And here the tax body referred to the fact that the rights of a taxpayer are realized in a declarative manner in tax legal relations, i.e. by means of filing the tax declaration. In particular, a question arose in the case whether the tax body has a right, on the basis of the field audit, not to take into account the right of a taxpayer to apply the “VAT inclusive” deductions in such cases when the right to deduction is accrued in connection with the requalification of non-taxable VAT operations into VAT taxable operations. 

If a taxpayer believed he was carrying out non-taxable VAT operations he did not have the right to accept for deductions the VAT paid by the supplier of goods.  

Accordingly, if the tax body recognized the operations as having been taxable VAT operations, that originated the taxpayer’s right to deduction, though that right was not declared in the tax return. It is important to note that such tax dispute, like the tax audit itself, may last long and by the time the tax body decision is issued or the correctness of taxpayer’s requalification is legally confirmed the three years for demanding VAT deductions usually expire. In such case the taxpayer had to pay the tax from his/her gain but not from the value added. Courts in such cases would support the tax authorities noting that in accordance with the ruling of RF SCA Presidium №23/11 the tax body shall not accept the “VAT inclusive” for deduction if it has not been stated by the taxpayer in the tax return. VAT deduction is the right of a taxpayer which is subject to realization by the taxpayer him/herself. 

However, the lawyers of FBK Legal proved in that case that if the tax body came to the conclusion that the taxpayer for the purposes of taxation had qualified the disputable relationship incorrectly then it would determine the scope of taxpayer’s rights and obligations on the basis of the actual economic substance and legal qualification of the operation. “Accordingly, if a tax authority carries out requalification of a disputable operation it has to apply the relevant taxation rules as a whole and not in some part of it”, explains Galina Akchurina. “That is – independently, without any extra petition of a taxpayer the tax inspector has to take into account the latter’s rights including the right to the deduction of “VAT inclusive”. 

Presidium of RF Supreme Court of Arbitration ruled the position of FBK Legal lawyers to be well-founded and took the side of the taxpayer. It revoked the rulings of three Moscow courts and granted the petition of Gazprom Transgas Krasnodar.