The court is against VAT deduction if the counterparty has not paid the tax to the budget

An ordinary desk audit of the VAT declaration submitted at the end of the next quarter may turn into an unpleasant “surprise” for a company or individual entrepreneur. The fact is that tax authorities not only verify information about taxes and deductions within the enterprise, but also compare it with the declarations of counterparties, and the verification program used finds discrepancies due to any errors made by both parties. The result may be receiving a request from the Federal Tax Service to clarify the declaration data, submit a package of primary documents, and even refuse a tax refund. Let's try to figure out how an enterprise should act if the VAT reconciliation with the counterparty reveals inconsistencies due to the fact that the counterparty did not pay VAT.

VAT: discrepancies with the counterparty

The Federal Tax Service has always had and will continue to have questions if the VAT claimed for deduction does not correspond with the calculated tax amount in the partner’s declaration, i.e. the counterparty did not reflect VAT. These issues are regulated in Art. Tax Code of the Russian Federation, according to which the inspector is obliged to send the payer a request to provide explanations or make corrections to the declaration if a desk audit reveals inconsistencies or contradictions between the information available in the documents of both parties.

In a situation where VAT counterparties have not reported on the declaration and have not paid the tax, accepting a deduction on their invoices is considered by tax authorities as an unjustified tax benefit of the purchasing enterprise, and interaction with such partners is considered an imprudent action.

Often the consequence of this is the additional assessment of tax to be paid, the accrual of penalties and the imposition of a fine, but at the same time the Federal Tax Service must prove that the implementation of the deduction will entail the receipt of an unjustified tax benefit, and the company, intentionally or through negligence, entered into an agreement with an unscrupulous partner (clause p. . , , Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated October 12, 2006 No. 53). Tax authorities believe that VAT refunds should be made from the source that arose when the counterparty-supplier paid the corresponding amount of VAT. Its absence (if the counterparty has not paid VAT) does not give the buyer the right to deduct tax.

The essence of the problem

A receipt from the Federal Tax Service stating that the tax office does not accept reports, namely VAT returns, threatens the organization with penalties in the amount of 5% of the amount of the tax liability to be paid, but not less than 1000 rubles.
A fine is imposed for each full and partial month from the last date for submitting the report. The amount of sanctions cannot be more than 30% of the tax payable and less than 1000 rubles. But in addition to the fine, the Federal Tax Service has the right to suspend the activities of the organization and seize accounts. Representatives of the Federal Service can make such a decision 10 days after the deadline for submission.

Lack of information to fill out is not a reason not to submit a report. If the institution is exempt from VAT or there were no tax obligations during the billing period, a zero report should be sent to the Federal Tax Service. A fine will also be issued for failure to provide a zero.

If the counterparty did not pay VAT, and the Federal Tax Service requires an explanation

When receiving a request from the Federal Tax Service, the taxpayer must provide evidence (documents and explanations) of the reality of the transactions carried out, and not rush to generate an updated declaration. For example, he should prove his prudence in choosing a partner. It is good if, before executing the contract, the viability and capabilities of the counterparty were carefully checked - i.e. were:

its constituent documents were requested, information about its registration in the Unified State Register of Legal Entities or Unified State Register of Individual Entrepreneurs was received;
information was received about the actual location of the partner, the availability of production or retail space;
published reporting documents were analyzed and the possibilities of fulfilling his obligations were assessed, etc.

We talked in more detail about how to check the counterparty of the VAT payer, including using the services of the Federal Tax Service, in one of our articles.

The reliability of a partner must be assessed based on a set of criteria, making maximum use of the information received from all available sources. This was also stated in the letter of the Federal Tax Service No. AS-4-2/17710 dated October 17, 2012. That is, a pre-check of the counterparty and information provided by the Federal Tax Service on this matter will make it possible to ward off accusations of imprudence in the actions of the declarant when choosing a counterparty. In addition, the enterprise must submit to the inspection a package of primary documents confirming the reality of the transaction, the recording of received assets, their payment in full, invoices, etc.

Failure to provide explanations is a guarantee that the Federal Tax Service will accuse the company of receiving unjustified benefits and deprive it of the right to deduction. If the higher body of the Federal Tax Service does not take into account the submitted documents, it makes sense to resolve this issue in court, since Art. The Constitution of the Russian Federation does not allow us to conclude that the payer is responsible for the actions of all enterprises participating in the multi-stage process of paying VAT, and non-payment of tax by the counterparty cannot clearly deprive the buyer of the right to deduction (Definitions of the Constitutional Court of the Russian Federation of January 10, 2002 No. 4-O, dated 16.10 .2003 No. 329-O, dated November 10, 2016 No. 2561-O).

Judicial practice is extremely diverse, with many examples both confirming this approach and refuting it. But there are also cases when going to court is useless.

Blog about taxes by Vladimir Turov

Good afternoon, dear colleagues!

I deal with this almost every day. Unfortunately. I’m used to it and no longer count on common sense, logic or the law (Tax Code of the Russian Federation). Businessmen have long needed to understand the following: life, according to the law, in our country is... not in the first place. In the first place is “life according to concepts.” Therefore, the conceptual apparatus needs to be mastered first.

To my deep regret, I am “sick” of this... At each seminar, I am forced to give not only the regulatory framework for each method of tax optimization, but also possible “conceptual solutions” with the help of which tax specialists will act and how from this point of view a businessman should do.

Believe me, the inspector doesn’t give a damn what is written in “your Tax Code” (the exact quote the inspector told me personally). He does what he is told and what he himself has imagined. Tax Code of the Russian Federation? Has he read the Tax Code? How can I put it mildly? When I tested several heads of arrears departments of different tax inspectorates, my hair stood out from their illiteracy.

So what is the solution?

At the micro level, work according to the rules developed in my company;
At the macro level: change the system itself.

Now read the article by my employee Natalya Nagornova “VAT and honor are incompatible concepts” : the material is precisely about illiteracy, arrogance and “concepts”.

Sometimes you read court decisions in which the truth was on the side of the taxpayer, but you doubt the honesty of the businessman. Suspicions creep in and you think: “Damn, lucky, so lucky...”. But, when everything is extremely clean: a truckload of impeccable documents, on top of a dozen witnesses with a phenomenal memory, and also a cartload of evidence of diligence... Dear inspector, don’t you have anything better to do? Catch real budget thieves! Why bother decent taxpayers?

Oh, yes... Fiscal function - and that says it all... Any taxpayer can be brought down by formal paperwork and the lack of reality. Absolutely anyone. Everyone without exception. Both honest and dishonest. Because honest people cannot be honest. They create an appearance. This is the tax logic...

So, Resolution of the AS of the Ural District No. F09-2958/18 dated June 15, 2018 in case No. A60-50422/2017: “A formal document flow has been created between the taxpayer and his counterparty in the absence of real business transactions to perform work, aimed at evading taxes and unjustified reimbursement of VAT from the budget...” The inspection came to this conclusion after an on-site inspection.

We think so. And period. Your evidence is not enough for us. We feel in our gut that relationships are a complete fiction. Neither documents, nor words, nor people are important to us. This is a pretense, a disguise for reality...

The inspector didn't give a damn about all the possible facts. These are the facts that the taxpayer provided:

A complete set of documents (contracts, invoices, local estimates, certificates of work performed, certificates of the cost of work performed). Moreover, the inspection did not find fault with the execution of documents;
Dating details. The chief engineer explained that it was he who was looking for contractors and placing advertisements on Internet resources. And he shared that there were proposals from other organizations, but the cost of performing the work of the controversial contractor was 5-10% lower than the cost of other contractors;
Due diligence. When choosing a controversial counterparty, the taxpayer took into account the following circumstances: deadlines, form of payment (payment was made only for work actually completed, without prepayment). In addition, the counterparty provided a complete set of constituent documents and a letter of guarantee from the owner of the premises. Well, the employees know the director and founder of the counterparty personally. Meetings, negotiations - everything as it should be. The counterparty was full of information in the search databases, but without any reputation-damaging facts, such as rating, etc.;
Testimony of the director of the counterparty. The director of the counterparty did not leave the taxpayer in difficult moments and spoke about the details of the relationship. Negotiations, monitoring the execution of work, signing documents - everything fell on her shoulders, and, thank God, she remembered;
Good faith of the counterparty. An analysis of cash flows showed that the contractor regularly paid taxes and wages, and paid for subcontracted work;
Actual performance of work by the controversial counterparty. This is confirmed by both the testimony of the taxpayer’s chief engineer and the testimony of the counterparty’s director, who was personally present at the site. As well as a log of work performed at the facilities, in which the counterparty is indicated and there is the signature of the director;
Testimony of subcontractors. The employees of the subcontractors, whom the counterparty hired to perform the work, confirmed that the disputed counterparty entered into contract agreements with them, they performed the work and received money for which they signed the statement.

What other evidence are you missing, dear inspectors? Maybe install cameras in offices? Or better yet, sculpt it on the forehead of each employee? So that, as in the famous reality show, taxpayers are in front of your eyes. And you sat with popcorn and discussed contractors... Either start checking with a lie detector, or turn to psychics?

The courts of three instances decided: “The tax authority has not refuted the reasons for the taxpayer’s choice of LLC “...” as a counterparty, the presence of a business purpose and business attractiveness, and the receipt of economic benefits from transactions; no peculiarities have been investigated or identified in concluding and executing contracts with the disputed counterparty, such that they do not correspond to the customs of business of the taxpayer; no other circumstances have been established indicating that the taxpayer’s behavior was atypical when carrying out transactions with disputed counterparties.

Conclusions of the tax authority based only on the fact that the disputed counterparties did not have the resources to supply goods or perform work; in themselves, in the presence of the above circumstances, cannot be a basis for recognizing the tax benefit received by the taxpayer as unjustified, given that the tax authority has not proven that the work performed by the disputed counterparty did not actually take place.”

Natalia Bryleva

Lawyer and tax consultant at Turov and Partners:

Therefore, I hope that in this case the inspectors did this solely for this reason. Otherwise, one should doubt the professionalism of such tax inspectors, since they began to challenge such apparently ideal relations with suppliers.

This case demonstrates once again how important it is to have evidence to demonstrate due diligence. You can add a couple more things: orders to send an employee on a business trip to a counterparty, electronic correspondence, entertainment expenses for meetings with top officials of counterparties, etc.

With the entry into force of Article 54.1 of the Tax Code of the Russian Federation , due diligence, taking into account judicial practice on inspections over the past 3 years, began to fade into the background. Now the tax inspectorate is armed with the following: who actually fulfilled the terms of the agreement (another counterparty, or you on your own).

Therefore, more efforts need to be directed towards proving the execution of the contract by the disputed contractor. If you can prove it, then it won't matter whether he has the resources to do it or not.

In my opinion, the dishonesty of our “fighters for honesty” is obvious in this case? Is not it? And no one is safe from such a game. Agree, any taxpayer can be let down by formal paperwork and the lack of reality... Therefore, we take the example of the hero of this case and arm ourselves with evidence. Any, even the most seemingly unnecessary piece of paper that is about to fly into the trash can can save you. Any email that was accidentally deleted. Any word.

Vladimir Turov will talk about what tricks inspectors use during inspections, as well as about the “conceptual apparatus” at the seminar “Legalization: How to Reduce Taxes and Safely” on August 1-2 in Moscow.

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Natalia Nagornova

Editor-in-Chief of Vladimir Turov’s Tax Blog

VAT: unscrupulous counterparty

Situations are possible when companies purchase goods or services that are exempt from taxation (Article 149 of the Tax Code of the Russian Federation), and sellers, despite the exemption, issue VAT invoices at the current rate. In this case, the acquirer, considering them to be the basis for applying a deduction, generates a declaration, calculating the amount of deduction for these transactions.

However, the Federal Tax Service Inspectorate, having checked the declaration, will refuse to refund the VAT, since the supplier, when issuing VAT, did not transfer it to the budget. Here we are already talking about the supplier’s dishonesty, since by imposing VAT on preferential transactions, he increased their cost by the amount of tax that remained with him. Regarding such cases, the Ministry of Finance of the Russian Federation provides clarifications in letter No. 03-07-03/48174 dated August 17, 2016, where it comes to the conclusion that it is impossible to deduct “input” VAT on an invoice for which there is no source. The courts are in full agreement with the Ministry of Finance on this issue - collecting VAT from the counterparty is impossible in principle.

Note that the buyer has the right to demand from such a supplier the return of the amounts of tax unreasonably transferred to him, considering them as unjust enrichment and charging interest for the use of someone else's funds. The Supreme Court agrees with this approach, setting out its position in Ruling No. 305-KG15-10553 dated October 5, 2015.

Unfortunately, it is difficult for the buyer to protect himself from the dishonesty of the counterparty supplier. You can somewhat reduce the risks by asking him to provide copies of payment documents for VAT transfers. True, not every seller will agree to this, citing the fact that the company’s financial documents constitute its trade secret. Therefore, we can only hope for the integrity of our partners, but also do not forget to check their reliability in all available ways.