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Have you formed a VAT tax credit in relation to the purchase of marketing services? Be ready to answer the questions of the tax authorities about using such services in economic activity.

authors: Alexander Minin, Mariia Kozlenko, Alexander Hrytsyk

29 September, 2021 Exclusive

Since the tax accounting for income tax depends on accounting, in which costs do not depend on whether they are related to business activity, the tax authorities have turned their attention to VAT on marketing or other services in terms of use of such services in taxpayer’s business activity.


In the aspect of relation of services to business activity, the fiscal reason for the attention of tax authorities is given by the provisions of para. 198.5 Article 198 of the Tax Code of Ukraine (the TCU):

“198.5. The taxpayer shall accrue tax liabilities … and draw up… and register… consolidated tax invoice for goods / services, non-current assets acquired / manufactured with value added tax (for goods / services, non-current assets purchased or manufactured before July 1, 2015, - if during such acquisition or production the amount of tax was included in the tax credit), if such goods / services, non-current assets are intended for their use or begin to be used:


г) in transactions falling out of the scope of taxpayer’s business activities (except for the cases provided for in para. 189.9 of Article 189 of this Code).


We expect that the interest in this aspect on the part of the tax authorities may increase. There may be even some manipulation in the current disputes given the one of this year's rather controversial decisions of the Supreme Court.


On June 3, 2021, the Administrative Court of Cassation within the Supreme Court adopted the Resolution on case No. 826/23215/151 (the Resolution), which formed a negative conclusion for the taxpayer on the illegality of the tax credit for VAT paid in the price of received marketing services.

Thus, the Resolution states the following conclusion:

"In view of the above, in order to include in the tax credit the amount of VAT paid in the price of marketing services, such services should be actually provided, confirmed by primary documents drawn up as a result of their provision, be directly related to business activity and indicate economic purpose (economic effect).

... .

Therefore, based on the established circumstances of the case, there is no economic purpose in the conclusion by the plaintiff of agreements on the provision of marketing services with TOV "Pharmatsia Kyiv", TOV "Apteka Gaievskogo", TOV "Systema Aptek Gastro", TOV "Aptekar", PP "Apteka Aroniia", TOV "Salve-Lviv", TOV "Med-Servis Invest".


22. Thus, taking into account the established circumstances, the panel of judges agrees with the conclusion of the appellate court that the plaintiff unreasonably formed a tax credit for transactions with counterparties TOV "Pharmatsia Kyiv", TOV "Apteka Gaievskogo", TOV "Systema Aptek Gastro", TOV "Aptekar", PP "Apteka Aroniia", TOV "Salve-Lviv", TOV "Med-Servis Invest".

We assume that the tax authorities may try to manipulate the existence of such a position in the current disputes regarding the necessity to accrue "compensatory" VAT liabilities on the basis specified in subpara. г) para. 198.5 Article 198 of the TCU.

So, are there any reasons/grounds to reconsider the approaches to accounting of VAT on received marketing services?



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