Reasons for refusal of VAT refund and how to challenge the refusal?

Errors in documents

This reason is the most common for refusing a VAT refund, but at the same time the easiest to appeal in court. In such cases, there are the most positive court decisions for taxpayers.

Due to the fact that one of the grounds for applying a VAT deduction is the invoice, the most errors, as a rule, are found in this document. The standard grounds for refusal to apply the right of deduction, and, accordingly, VAT refund in such cases are:

Signing of a document by unauthorized persons. Judicial practice on the possibility of deducting VAT on an invoice signed by an unauthorized person is contradictory. When the tax authority manages to convince the judges that the invoice was signed by a person who did not have the right to do so, the courts most often refuse to apply the deduction (resolutions of the FAS ZSO dated 02/05/2014 in case No. A27-279/2013, FAS MO dated 08/06. 2013 in case No. A40-143375/12-108-225 and others).

See also “Invoice with facsimile: new clarifications from the Ministry of Finance.”

The court also sided with the inspectors in a case where the customer, performing an intermediary role, incorrectly issued an invoice. These actions violated paragraph 6 of Article 169 of the Code in terms of the signing of the invoice by officials or authorized persons of the supplier, and not the intermediary (decision of the Moscow City Court of May 29, 2013 No. A40-9840/13-39-33).

Find out if one person can sign an invoice here.

At the same time, there are also decisions in which judges accept as justification for VAT deductions invoices signed by unauthorized (unidentified) persons (resolution of the Supreme Arbitration Court dated April 20, 2010 No. 18162/09, FAS North-West District dated February 1, 2011 No. A66 -3490/2010, FAS CO dated November 16, 2010 No. KA-A40/2493-09).

Indication of the actual address of the buyer instead of the legal address given in the Charter. In most cases, this is considered an error, since the law does not separate the addresses of legal entities - there is one, which is indicated in the constituent documents. Therefore, judicial practice on challenging denials of deductions due to this error is ambiguous. There are many negative decisions for taxpayers, but there is also positive practice, which is based on the judges’ opinion that Article 169 of the Tax Code, in particular paragraphs 5 and 6, does not clearly state which address should be indicated. Therefore, this reason for the tax authorities’ refusal to deduct is not sufficient for judges to justify the decision (Resolution of the Federal Antimonopoly Service of the Moscow Region dated 04/08/2009 No. KA-A40/2493-09).
Discrepancy between the amount of the cost of goods and that calculated by the inspectors or indicated in the contract (without taking into account changes made later). In this case, we are talking about situations where inspectors compare the cost of goods in the invoice with that stated in the contract, but do not take into account changes made later to the contract. Or when the tax inspector himself calculated, for example, the work performed from the documentary information available to him, and this amount did not coincide with the one that was displayed in the invoice. Traditionally, deductions are denied using the justification contained in paragraphs. 8 clause 5 art. 169 of the Tax Code of the Russian Federation. However, if it is possible to prove in court that the inspectors’ opinion is wrong and document this, then there is a possibility of obtaining a positive decision.
Errors in the counterparty's checkpoint number, lack of numbering of sheets if the document is multi-page. However, for these and other similar reasons, tax inspectors cannot refuse a deduction, since this contradicts paragraph 2 of Article 169 of the Tax Code.
Cases when the invoice reflects little information, in particular, some information is missing (for example, about quantity, units of measurement, tariff, amount excluding VAT or conditions for advance payment), but the rest of the documents were in perfect order and all other conditions for accepting VAT for deduction were met. Typically, such errors in registration lead to denial of the right to deduction, and judicial practice confirms the conclusions of inspectors.

But there is a case when the FAS ZSO, in its resolution dated February 14, 2013 No. A03-1222/2012, came to the conclusion that such shortcomings in the preparation of the invoice did not lead to the receipt of an unjustified tax benefit. The court proceeded from the presumption of good faith of the taxpayer, and it was also found that the information specified in the tax returns was reliable. The court referred to the decision of the Constitutional Court of October 16, 2003 No. 329-O.

See also our material “What errors in filling out an invoice are not critical for VAT deduction?”

However, there are also negative court decisions taken not in favor of taxpayers. However, this was due to such severe cases that such decisions are not surprising. In particular, the tax service justifiably refused to refund the tax in a situation where a deduction was accepted from a company that had not been registered as a legal entity (Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 01.02.2011 No. 10230/10 and decisions of the courts of first instance).

Defective "primary"

Another most common reason for refusals is incorrect execution of primary documentation. The question concerns the procedure for filling out invoices when providing services. As is known, the details of invoices include such items as the name and address of the consignor and consignee, but in this case these lines were not filled in by the supplier. Therefore, in lines 3 “Consignor and his address” and 4 “Consignee and his address” of the invoice issued in connection with the provision of services, you need to put dashes. Such an omission cannot serve as a basis for refusing to deduct the claimed VAT amounts.

Another clarification is relevant for taxpayers who have entered into contracts for the performance of work. As a general rule, column 1 “Name of goods (description of work performed, services provided), property rights” provides a description of the work performed. If in this column of the invoice an entry is made “Work was completed under the contract dated... (date is indicated) No.... (number is indicated)", such a document is not considered a basis for deducting VAT amounts, since such an entry is incorrect - it does not correspond to the description actually completed work.

As for invoices that contain additional details for persons authorized to sign them on the basis of an administrative document or power of attorney (meaning, for example, the position of the signatory), according to the Ministry of Finance, such documents cannot be considered as drawn up in violation of the requirements of the Tax Code of the Russian Federation. This position is reflected in letters from the Ministry of Finance, in which the department clarified some controversial issues that arise when drawing up invoices (letters dated February 25, 2009 No. 03-07-14/26, dated February 6, 2009 No. 03-07-09 /04, dated January 22, 2009, No. 03-07-09/02 and 03-07-09/03).

Some minor violations in the preparation of the “primary tax return” may indicate a violation of accounting rules, but are not grounds for refusal to apply VAT deductions. This is what the Federal Arbitration Court of the Moscow District decided in its ruling dated November 22, 2010 No. KA-A40/14471-10. In the case under consideration, the inspectorate refused to reimburse Mashtransservice-M LLC for VAT due to several shortcomings in the preparation of invoices and delivery notes. In particular, the company did not provide copies of sales books in full; moreover, they were not numbered, laced or sealed. In addition, the OKPO code, the date of issue of the goods and some other details were not filled in the delivery note. However, the court found that the invoice, together with invoices, make it possible to reliably establish the fact of delivery of goods, its price and quantity, and violation of accounting rules, in particular, shortcomings in primary documents, cannot be a reason for refusing VAT deductions.

This means that errors in filling out invoices will not always be fatal. But, nevertheless, since the invoice is the primary document for deducting VAT, you should be careful when working with this document.

Lack of documents

Another common reason for refusal of VAT refund is the lack of documents, in particular invoices (Form 1-T). In this case, there is contradictory judicial practice, but there are also decisions that are positive for taxpayers - for example, Resolution of the Federal Antimonopoly Service of the Moscow Region dated December 17, 2010 No. KA-A40/15868-10. The court referred to the fact that the basis for registering goods is the TORG-12 form, and not 1-T.

We also recommend that you read our material “Primary document: requirements for the form and the consequences of its violation”

This subgroup of common reasons for refusing a tax refund also includes situations when inspectors do not receive documents from counterparties confirming the fact of a transaction.

In their decision, the fiscal authorities refer to the fact that the taxpayer consciously seeks to obtain a tax benefit on transactions that cannot be verified (for example, if the counterparty has managed to be liquidated by this point).

The court's decision in this case will please taxpayers. In particular, the resolution of the Federal Antimonopoly Service of the North-Western District dated May 21, 2012 No. A56-54176/2011 states that failure by the counterparty to provide documents is not grounds for denial of the right to deduction. It should be taken into account that in this court decision the court established the reality of business transactions, the absence of unjustified tax benefits, and the presence of properly executed documents confirming the right of the company to apply deductions for value added tax.

Errors in reporting

Quite often, tax inspectors do not bother to request additional information from the taxpayer and, if an error is discovered in the tax return, they simply refuse a refund. When challenging their actions, the tax service refers to the fact that, in accordance with Article 88 of the Tax Code of the Russian Federation, they are only vested with the right to demand an explanation from the taxpayer, but are in no way obliged to do so.

In counterbalance to such arguments, one can refer to the decision of the Constitutional Court of July 12, 2006 No. 267-O.

There are also situations when the fiscal authorities force the taxpayer to submit an updated declaration to reflect previously omitted information on invoices that were submitted for deduction at a later period. If you refuse to clarify a return that has already been submitted, the tax service also refuses a refund.

In this case, as an argument, you can use the Resolution of the Federal Antimonopoly Service of the Moscow District dated February 15, 2013 No. A40-36661/12-20-180, in which the court came to the conclusion that failure to submit a “clarification” is not a reason for deprivation of the right to deduction and, accordingly , compensation provided that the taxpayer complies with all other conditions, in accordance with Articles 169, 171 and 172 of the Tax Code of the Russian Federation.

In 2014, the Plenum of the Supreme Arbitration Court of the Russian Federation came to a similar conclusion. Paragraph 27 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated May 30, 2014 No. 33 states that tax deductions can be reflected by the taxpayer in the tax return for any of the tax periods included in the corresponding three-year period. In 2015, the taxpayer’s right to transfer deductions to any tax period within a three-year period was enshrined in law. And if the three-year period is missed, the refusal to deduct will be legal and the courts will support the tax authorities (Decision of the Supreme Court dated September 4, 2018 No. 308-KG18-12631)

See also “Three years to deduct VAT: a trap in the Tax Code of the Russian Federation.”

Errors in registration

When justifying the refusal to provide a VAT refund, tax inspectors often do not recognize the fact of registration due to incorrectly executed documents.

Thus, inspectors may consider acts of acceptance and transfer of inventory items unacceptable if they do not contain a seal. However, the imprint is not a mandatory requisite when preparing primary documents - this is precisely the indication contained in the album of unified documents, approved by Decree of the State Statistics Committee of the Russian Federation dated December 25, 1998 No. 132. In addition, taxpayers themselves can develop their own forms of documents, which may lack any optional details.

Tax authorities also refuse to allow developers to recognize VAT deductions during the phased capitalization of work on a construction site based on forms KS-3 and KS-2. In the opinion of the Ministry of Finance, which is expressed in its letters dated 10/14/2010 No. 03-07-10/13 and 03/05/2009 No. 03-07-11/52, these documents are not the basis for recording the completed volume of work during construction in progress, and serve only as a basis for calculations.

At the same time, there is also positive judicial practice. For taxpayers who want to exercise their right and are ready to defend their case in court, the conclusions drawn by the decisions of the Federal Antimonopoly Service of the Moscow District dated 04/19/2012 in case No. A40-77285/11-107-332 and 04/07/2011 No. KA-A40 may be useful. /2227-11 in case No. A40-60156/10-35-331.

Accounting for property through account 08, and not directly at 01, is also, according to the tax authorities, a basis for refusing to apply a VAT deduction. This position is set out by the Russian Ministry of Finance in letter dated January 29, 2013 No. 03-07-14/06. When challenging a tax authority’s decision to refuse to apply a deduction, one should turn to positive judicial practice in resolving similar issues. It is worth familiarizing yourself with the following court decisions: FAS Volga-Vyatka District dated 05/13/2014 in case No. A11-3359/2013, FAS Moscow District dated 08/21/2013 in case No. A40-134549/12-108-179, FAS North-Western District dated January 27, 2012 in case No. A56-10457/2011, FAS of the Ural District dated August 24, 2011 in case No. A07-18288/2010.

Liquidation and return

In general, the company independently fulfills the obligation to pay taxes and fees, unless otherwise established by law and agreement (Clause 1, Article 45 of the Tax Code of the Russian Federation). Excessively paid or excessively collected taxes, fees (penalties, fines) are subject to return directly to the payer in the absence of debt (Article 78). The Ministry of Finance of Russia, in letter dated April 12, 2021 No. 03-02-07/1/24222, explained that upon liquidation of an organization, only the liquidated company itself can return the overpayment of any tax. The owner will be denied a return, since this is not provided for by law. This was indicated by the Constitutional Court of the Russian Federation back in 2015 in the Determination of the Constitutional Court of the Russian Federation of June 23, 2015 No. 1233-O. Therefore, you need to write an application for a tax refund in advance, before the organization is excluded from the Unified State Register of Legal Entities.

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Other errors

Also, the reasons for refusal of VAT refund may be:

Purchase of goods through subsidies from the federal budget. In this case, VAT, according to paragraphs. 6, paragraph 3, Article 170 of the Tax Code of the Russian Federation, must be restored and attributed to the source of financing, regardless of whether the purchased goods will be used in activities subject to VAT.
Lack of sales in a given tax period. In case of refusal to refund VAT for this reason, when defending, you can refer to the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated May 3, 2006 No. 14996/05 and the letter of the Ministry of Finance of the Russian Federation dated November 19, 2012 No. 03-07-15/148, which was communicated to the tax authorities by a letter from the Federal Tax Service Russia No. ED-4-3/ [email protected] This letter is posted on the Federal Tax Service website in the section “Explanations of the Federal Tax Service, mandatory for use by tax authorities.”
Capitalization of work that has improved the condition of the leased property, if these improvements cannot be separated. The refusal to deduct for goods purchased for these purposes can easily be challenged by referring to paragraph 26 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated May 30, 2014 No. 33 .

Also, enterprises that are required to keep separate records of transactions that are and are not subject to VAT often encounter such refusals.

Advice for taxpayers would be the need to develop and approve a clear accounting policy, which would clearly state what deductions and in what volume should be attributed to a particular type of activity.

Separate accounting

If a taxpayer has transactions both taxable and not subject to “added” tax or taxed at different rates, the taxpayer is obliged to organize separate accounting. Its entire methodology must be prescribed in the accounting policies of the organization. The absence of separate accounting for “input” VAT will result in losses for the taxpayer. The company will have to restore the amounts of “input” tax accepted for deduction (clause 4 of Article 170 of the Tax Code of the Russian Federation). “Input” tax can be deducted only if the acquired property is used in transactions subject to VAT. Otherwise, the tax should be taken into account in the cost of acquisitions.

The absence of separate accounting for “input” VAT will result in undoubted losses for the taxpayer. The company will have to restore the amounts of “input” tax accepted for deduction (clause 4 of Article 170 of the Tax Code of the Russian Federation).

“Input” tax can be deducted only if the acquired property is used in transactions subject to VAT. If this is not the case, the tax should be taken into account in the cost of acquisitions.

There are two ways to divide the amounts of “input” VAT. First, if it is obvious which transaction is using the purchase and the direct account method. Otherwise (and this is second) the “input” tax must be distributed in proportion to the revenue from taxable transactions in the company’s total revenue. Thus, if an enterprise with a small share of transactions exempt from VAT draws up accounting statements justifying the application of the “5 percent rule,” then refusal to deduct tax due to the lack of separate accounting can be avoided.

Tax gap

Tax officials compare the data of counterparties and if there is a gap with the supplier’s data, the deduction may be denied. A tax gap may occur if the counterparty:

will not submit the declaration;
will indicate different information from the incoming invoice in the sales ledger;
will submit a zero declaration.

The tax authorities will ask for clarification and if the error is not corrected, you will have to submit an amendment.

Refusal to refund VAT occurs if suppliers fail to pay VAT. And there is even judicial practice that is not entirely pleasant for taxpayers. Thus, the Presidium of the Supreme Arbitration Court of the Russian Federation, in its resolution dated January 27, 2009 No. 9833/08, indicated that there is a connection between the receipt of tax into the budget from the supplier and the right to deduct this tax by the buyer. That is, such a connection is considered as fulfillment of the norms specified in Articles 171 and 172 of the Tax Code regarding the reality of a business transaction.

Nevertheless, there are also court decisions that are positive for taxpayers. The courts justified their position by the fact that taxpayers cannot be held responsible for the actions of third parties. In addition, the Tax Code does not directly link the taxpayer’s right to a tax refund with the fact of payment of this tax by the counterparty.

Thus, in the resolution of the Federal Antimonopoly Service of the Moscow District dated December 17, 2010 No. KA-A40/15868-10, the court sided with the taxpayer who challenged the refusal to refund VAT due to non-payment of taxes by subsuppliers.

The FAS Moscow District, in its resolution dated January 26, 2010 No. KA-A40/14474-09, supported the taxpayer in a dispute over the right to a tax deduction, concluding that the tax authority could not prove that the taxpayer received a tax benefit from a transaction with a suspicious counterparty and knew about the violations committed by the counterparty.

In another resolution - dated October 25, 2010 No. KA-A40/13657-10 - the FAS Moscow District relied on the fact that the current tax legislation does not stipulate the connection between the acquisition of the right to deduction by the buyer and the fulfillment of the obligation to pay tax by the seller.

Illegal actions of counterparties

A taxpayer may lose a VAT deduction not only due to his own violations, but also as a result of unlawful actions of his transaction partner. for the fact that its supplier, for example, did not provide reports or did not pay taxes. The judicial authorities sometimes take the side of the tax service on this issue.

In this situation, the Federal Tax Service and the arbitration court proceed from the logic that a bona fide applicant, in respect of whom a tax deduction may be applied, is obliged to be responsible, among other things, for the actions of his counterparties. The law guarantees a VAT deduction for those business entities that accurately and timely fulfill their tax obligations. Those organizations that commit tax violations cannot enjoy the rights established for bona fide taxpayers. In particular, this conclusion follows from the Resolution of the Arbitration Court of the North Caucasus District No. A32-33585/2013 dated January 29, 2015.

However, many experts do not agree with such reasoning of the courts: they appeal to the presumption of good faith of taxpayers, on the recognition of which judicial practice in tax disputes is based. According to current legislation, the taxpayer is not responsible for any violations committed by third parties in the process of calculating and paying taxes. Consequently, the refusal to deduct VAT on the basis of a violation of tax obligations by the counterparty is contrary to the Tax Code of the Russian Federation.

It should be noted that most courts recognize the unlawful actions of the counterparty as a reason for refusing a deduction only in cases where there were concerted actions between the parties to the transaction. In other words, when the supplier’s tax violations led to an unjustified benefit for the buyer. In particular, this follows from the Resolution of the Arbitration Court of the North Caucasus District No. A32-33585/2013 dated 01/29/2015, the Resolution of the Arbitration Court of the Moscow District No. A40-24244/14 dated 01/23/2015 and others.

Work of interdependent companies

In practice, the tax inspectorate often expands the signs of interdependence of enterprises, which are listed in Articles 20 and 105.1 of the Tax Code of the Russian Federation. Thus, inspectors suspect taxpayers are dependent on each other if the following can be traced in transactions:

the use of borrowed funds from the lender to pay for goods supplied by him as a supplier;
carrying out payment transactions in one bank;
registration at one legal address;
the fact that the founders of the counterparty companies previously worked in the same company.

But fiscal officials are not always able to prove interdependence, and therefore coordination of actions to obtain illegal tax benefits. Often, inspectors use only formal characteristics. This means that in court the taxpayer has every chance to prove his case. This was the case when the FAS Moscow District issued a resolution dated 02/06/2013 No. A41-11892/12, when the judges considered the VAT deduction to be justified even if there were some signs of interdependence.

Results

The main reasons why the tax service denies taxpayers a VAT refund include:

errors in the preparation of accounting documents;
special interpretations of those checking the validity of registering goods;
application of deductions in relation to non-VAT-taxable transactions.

But today, in most cases, the reasons for refusing a refund for this tax are formal and far-fetched.
To substantiate his legal position and protect the right to apply a VAT deduction, the taxpayer should go to court. You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.

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The grounds for refusing a tax refund can be divided into 3 groups:

incorrect execution of documents;
incorrect posting of products, goods, works, services, etc.;
attempts to refund taxes in the absence of revenue.

Judicial practice: typical reasons for refusal to obtain a VAT deduction