Contesting tax consultations in court. Why is it so complicated to make the use of the right which is clearly stipulated by legislation?
Para. 53.3 of Article 53 of the Tax Code of Ukraine foresees the right of a taxpayer to contest tax consultation of the controlling authority if according to a taxpayer’s opinion, such consultation contradicts the provision of legislation or substance of the respective tax or fee. Also the Tax Code of Ukraine in para. 53.3 defines that tax consultation can be contested as a legal act of individual action.
Thus, both the legal status of tax consultations and possibility of their challenging are directly stipulated by the legislation; however the court practice regarding this matter is mixed.
Was the tax consultation provided, when it cites only the Tax Code of Ukraine but does not furnish any conclusion regarding the matter? Can such “consultation” be contested?
The analysis of court practice regarding challenging tax consultations allows coming to a conclusion, that in many cases taxpayers challenge respective answers of tax authorities, where the Tax Code of Ukraine is cited without any conclusion of the tax authority regarding the matter of question asked.
In this case contesting tax consultation as an act of individual action is objectively complicated. Such content of tax consultation does not contradict the legislation directly – only quotations are provided without any respective conclusion.
Herewith a question arises, can one challenge such answer exactly as a tax consultation?
In most cases courts reject cancellation of such “tax consultations”. Such situation is illustrated vividly in the Resolution of the Higher Administrative Court of Ukraine No. K/9991/58704/12 as of December 04, 2013, which states:
“… it is not foreseen, to recognize tax consultation, which, on the taxpayer’s opinion, does not contain any concrete answer to the question asked, by court to be invalid. This provision foresees the recognition of tax consultation by court to be invalid only in that case, when tax consultation contradicts the norms or matter of respective tax or fee, which was not proved by the Plaintiff”.
We tend to agree with such approach of the court, since, indeed, a non-provision of tax consultation occurs rather than contradiction of tax consultation to the norms or matter of respective tax or fee.
Thus, the definition of the term “tax consultation” is provided by subpara. 14.1.172 of the Tax Code. According to this definition:
“Tax consultation – is an assistance of the controlling authority to the specific taxpayer regarding practical use of the specific law provision or regulatory and legal act regarding the matter of accrual and settlement of tax or fees administration, control of which was laid on such controlling authority”.
Citing the provisions of the Tax Code of Ukraine, in our opinion, can hardly be taken as assistance regarding practical use of the specific provision. In this case, judicially it would be more correct to contest not tax consultation but inaction of tax authority, which has not provided tax consultation within prescribed period of time.
Can one challenge tax consultation, which contains a clear answer to the question asked, but such answer contradicts the provisions of legislation or substance of the tax?
The right to challenge tax consultations, which contain the clear answer to the question asked, which, in the taxpayer’s opinion, contradicts the provisions of legislation or substance of the tax and fee, is directly stipulated by para. 53.3 of the Tax Code. However, the court practice in this case is also mixed.
In particular, as per analysis of the resolutions of the Higher Administrative Court of Ukraine and Kyiv Administrative Court of Appeal trough the period of last 6 months it is possible to conclude that in many cases upon consideration of claims, when tax consultations are challenged, courts use approach, according to which tax consultation (regardless of its substantive content), basically is not considered to be an act of individual action and is considered to be a document, that does not cause legal consequences for a taxpayer, and respectively cannot be contested.
Thus, for example, the Higher Administrative Court of Ukraine, passing a Resolution No. 810/3384/13-f as of December 19, 2013 in favor of the tax authority, having the legal nature of tax consultation analyzed, noted that:
“tax consultations do not have a force of regulatory and legal act, thus it cannot compete with other decisions (regulative and legal acts or legal acts of individual action) of the authority, since upon legal nature it is different than the latter”.
This approach is often followed by the courts of lower instances. In particular, the typical example of its usage is a resolution of the Kyiv Administrative Court of Appeal in its Decision on the Case No. 826/8653/13-f as of November 7, 2013. Where the court noted directly:
“… the chamber considers that tax consultations by their substance are not decisions of the authority, as well as they are not regulatory and legal acts of any kind…“.
Apart from this the court mentions:
“tax consultation, which is provided by the tax authority, cannot be a subject of administrative claim, since the qualification feature of its substance is according to provisions of Article 105 of the Code of Administrative Procedure of Ukraine the legal meaning for an individual of authorities’ decision, in other words, direct dependence of creation, amendment or suspension of rights and liabilities of an individual on such decision”.
Also administrative courts note quite often, that individual tax consultations do not violate rights and legal interests of taxpayers, and herewith cannot be challenged in order, established by the Code of Administrative Procedure of Ukraine.
Three main statements, on which the reasoning of the court is based, can be extracted from the court practice, where courts took position according to which it is not possible to challenge tax consultations:
- individual tax consultations do not breach rights and legal interests of taxpayers, and herewith are not a subject of administrative claim;
- tax consultation is not an act of individual action, since it does not cause legal consequences for the subject of legal relationships;
- tax consultation is not a decision of the authority and herewith is not a subject of administrative claim according to the Code of Administrative Procedure of Ukraine.
The analysis of the courts’ statements which are often used for denial in challenging tax consultations, which contain direct answer to the question asked
Can a statement that tax consultation does not breach rights and legal interests of a taxpayer be a ground for denial in challenging tax consultation?
In particular cases courts deny in challenging tax consultations, since such challenging is not a subject of administrative claim in accordance with Article 105 of the Code of Administrative Procedure of Ukraine, mentioning, that from the content of this article it turns out that the qualification feature of the matter of an administrative claim is “legal meaning for an individual of the authorities’ decision, in other words, direct dependence of creation, amendment or suspension of rights and liabilities of an individual on such decision.”
Such statement, in our opinion, is incorrect, since Article 105 of the Code of Administrative Procedure of Ukraine concerns form and content of an administrative claim. Denial of the right to challenge tax consultation with reference to the mentioned article is illegal, since in fact it deprives a taxpayer on formal grounds of the right for judicial challenge, which is directly envisaged by the legislation.
Such position of the courts directly contradicts Article 6 of the Code of Administrative Procedure of Ukraine, part 1 of which states that:
“Every individual has the right in order, established by this Code, to apply to an administrative court, if he or she thinks that the decision, action or inaction of the authority breach his or her rights, liberties or interests.”
The crucial is the fact that in the provision mentioned the right to appeal to an administrative court is connected with the subjective perception by the individual of specific decision, action or inaction of the authority. If the person thinks that his or her rights and legal interests were breached, he or she is given the right to apply to the court.
Part 4 of Article 6 of the Code of Administrative Procedure of Ukraine is also worth mentioning, according to which
“no one can be deprived of the right for judicial consideration of his or her case in an administrative court, to jurisdiction of which he or she was attributed by this Code.”
Is a tax consultation an act of individual action?
At the legislation level there is no definition for an act of individual action, and herewith it is worth referring to definition of this concept in the law theory.
In particular, in the general course “Theory of State and Law” (textbook edited by V.M. Korelskyi) the definition of act of individual action is provided:
“Act of individual action (Individual and legal act, Act of the law application) – is a legal act of the relevant authority or official, issued based on legal facts and law provisions, which defines rights, liabilities or measure of legal liability of concrete individuals” [Theory of State and Law. Textbook for Law Universities and Faculties. Edited by V.M. Korelskyi and V.D. Perevalov. – M.: Editorial group NORMA M, 1999. – 570 p.].
S.L. Lysenkov also notes that one should distinguish acts of law provisions’ application (acts of legal action), since the last contain not rules of general nature, but individual prescriptions, addressed to certain subjects and aimed for solution of specific legal cases, authentication of certain facts [Theory of State and Law: Textbook/ S.L. Lysenkov, O.M. Kolodii, O.D. Tyhomyrov, V.S. Kovalskii; Edited by S.L. Lysenkov. – K: Yurinkom Inter, 2005. – 448 p.].
From these definitions it turns out that tax consultation is an act of individual action, since it is:
- issued by a relevant authority;
- issued based on legal acts and law provisions (in particular, para. 52.1 of the Tax Code of Ukraine);
- is of an individual nature;
- defines a measure of legal responsibility of concrete individuals, in particular in para. 53.1 of the Tax Code of Ukraine the consequences of application of tax consultations are indicated, which are:
“53.1. A taxpayer, which acted in accordance with tax consultation provided to him in written or electronic form, as well as in accordance with generalized tax consultation, cannot be brought to responsibility, in particular, based on the fact, that in future such tax consultation or generalized tax consultation was changed or cancelled.”
In our opinion, the abovementioned para. 53.1 of the Tax Code of Ukraine dismisses the statement of the Higher Administrative Court of Ukraine, that tax consultation does not create legal consequences for subjects of legal relationships, since it turns out from it directly that as a result of provision of tax consultation a taxpayer cannot be brought to responsibility under condition of taking action in accordance with prescriptions of such consultation.
Is a tax consultation a decision of the authority?
Article 2 of the Code of Administrative Procedure of Ukraine “the authority” is defined as:
“… state jurisdiction, local government administration, their officer or official, other subject in the exercise of administrative functions on the basis of legislation, including delegated powers”.
In accordance with para. 52.4 of the Tax Code of Ukraine, tax consultations are provided by controlling authorities, which are respective authorities of revenues and duties (a list of such authorities is stipulated by para. 41.1 of the Tax Code of Ukraine). So it is obvious that according to the Code of Administrative Procedure of Ukraine and the Tax Code of Ukraine, the authorities of revenues and duties are considered to be authorities.
Legislation does not contain any general definition of the term “decision of the authority” as well as any definition of “decision”.
If to refer to the Grand Explanatory Dictionary of modern Ukrainian language, edited by V.T. Busel, one of the meanings of the word “to decide” is: “to search for some answer to the question, try to explain something” [Grand Explanatory Dictionary of Ukrainian language/ Compiled and edited by V.T. Busel. – K.; Irpin: WTF “Perun”, 2001. – 1440 p.].
From definition of tax consultation it turns out that it should contain explanation regarding practical usage of specific provision of the law or of the regulatory and legislative act. It is logical that for provision of such explanation the tax authority has to analyze practical situation and take a decision, in which way in particular practical situation certain provisions of tax legislation should be applied. Such decision is communicated to the taxpayer in the form of a tax consultation.
Thus, in our opinion, tax consultation can be considered to be a decision of the authority in context of possibility of challenging it judicially.
Position of the Higher Administrative Court of Ukraine regarding definition of concept “decision”, is stated in the Letter of Information as of 20.07.2010 No. 1112/11/13-10, which is: “in administrative courts can be challenged such decisions, actions or inaction of the authority, which create, amend or suspend rights and liabilities in the field of public relations”.
Indeed, a taxpayer is not obliged to act in compliance with tax consultation, with which he does not agree. And this fact is often used by courts for denial in cancellation of tax consultations.
However, this does not mean that the tax consultation does not create, amend or suspend liabilities in the field of public relations.
Thus, if a taxpayer decides to act in compliance with tax consultation, the tax authority would be limited in its power to bring a taxpayer to responsibility, even if the official approach to the definition of certain provisions would be revised. In other words, in such case it would be fair to come to a conclusion that tax consultation yet influences the rights and liabilities in the field of public relations, since it limits the right of tax authority to bring to responsibility the taxpayer, which acted in compliance with a tax consultation.
We would also note that in certain court decisions the Higher Administrative Court of Ukraine confirms such conclusion. Thus, for example, in the Resolution of the Higher Administrative Court of Ukraine on the case K/800/7263/13 as of December 4, 2013, which was adopted in favor of the Plaintiff, the court directly noted:
“The case of the claim of cessation regarding the matter, that a tax consultation is not of the Legal nature, since it does not create any rights and liabilities for a taxpayer, does not contain any prescription obligatory for him, and herewith is not a legal act of individual action and cannot be challenged in administrative court is groundless”.
The position of the Constitutional Court of Ukraine, which confirms groundlessness of denial in challenging tax consultation
For the sake of completeness we consider it reasonable to provide a position of the Constitutional Court of Ukraine, expressed in its Decision as of December 14, 2011 in the case No. 19-rp/2011, which in general confirms groundlessness of denial by courts in challenging tax consultations with reference to the Code of Administrative Procedure of Ukraine:
“The task of administrative legal proceedings is remedy of rights, freedoms and interests of legal entities in the field of public relations from breaches from the side of state authorities, local government administration, their officer or official, other subject in the exercise of administrative functions on the basis of legislation, including delegated powers (part one of Article 2 of the Code of Administrative Procedure of Ukraine) (2747-15). In administrative courts can be challenged any decisions, actions or inaction of the authority, with the exception of cases, when there is another order of judicial proceedings established regarding such decisions, actions or inaction by the Constitution (254к/96-ВР) or by the laws of Ukraine (part two of Article 2 of the Code of Administrative Procedure of Ukraine) (2747-15). The comprehensive list of public cases, which are not covered by the jurisdiction of administrative courts, is defined in part three of Article 17 of the Code of Administrative Procedure of Ukraine (2747-15), namely cases: which are under jurisdiction of the Constitutional Court of Ukraine; which are to be considered in criminal proceedings order; on imposing of administrative fees; regarding relations, which according to the law, charter (provision) of citizens’ associations are under its internal activity or exclusive competence (paragraphs 1, 2, 3, 4).
Thus, the Code of Administrative Procedure of Ukraine (2747-15) regulates the order of considering of not all public disputes, but only those, which arise as a result of fulfillment by the authority of administrative functions and which consideration is not directly attributed to jurisdiction of other courts”.
Subparagraph 191.1.28 of Article 191 of the Tax Code of Ukraine directly attributes provision of consultations according to the Tax Code of Ukraine to the functions of controlling authorities. In other words, tax consultation is issued as a result of fulfilling by the authority of administrative functions. Also consideration of cases regarding challenging tax consultations is not attributed to the jurisdiction of other courts. Jurisdiction of tax consultation is strictly stipulated by the provisions of the Tax Code of Ukraine and by the Code of Administrative Procedure of Ukraine, in particular, in para. 53.3 of the Tax Code of Ukraine, which determines that “The taxpayer can challenge in court a tax consultation as an act of individual action”, and in the second part of Article 19 of the Code of Administrative Procedure of Ukraine, which defines jurisdiction of acts of individual action.
Thus denial of administrative courts in cancellation of tax consultations with reference to the Code of Administrative Procedure of Ukraine does not have any regulatory and legal ground.
On the ground of abovementioned analysis we can come to a general conclusion, that denial by administrative courts in cancellation of tax consultations, which contain direct conclusion of the tax authorities, contradicting the effective legislation, is groundless. According to the effective legislation such cases should be considered on the merits taking into account positions of both parties regarding interpretation of disputable legal relationships and provisions of tax legislation.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
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