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\u2019s business activity.<\/p>\n
1.<\/p>\n
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):<\/p>\n
\u201c198.5. The taxpayer shall accrue tax liabilities \u2026 and draw up\u2026 and register\u2026 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:<\/span><\/p>\n …<\/span><\/p>\n \u0433) in transactions falling out of the scope of taxpayer\u2019s business activities (except for the cases provided for in para. 189.9 of Article 189 of this Code).<\/span><\/p>\n …\u201d<\/span><\/p>\n 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.<\/p>\n 2.<\/p>\n On June 3, 2021, the Administrative Court of Cassation within the Supreme Court adopted the Resolution on case No. 826\/23215\/151<\/a><\/sup> (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.<\/p>\n Thus, the Resolution states the following conclusion:<\/p>\n “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).<\/strong><\/span><\/p>\n … .<\/p>\n 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 <\/strong>with TOV “Pharmatsia Kyiv”, TOV “Apteka Gaievskogo”, TOV “Systema Aptek Gastro”, TOV “Aptekar”, PP “Apteka Aroniia”, TOV “Salve-Lviv”, TOV “Med-Servis Invest”.<\/span><\/p>\n …<\/p>\n 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<\/strong> with counterparties TOV “Pharmatsia Kyiv”, TOV “Apteka Gaievskogo”, TOV “Systema Aptek Gastro”, TOV “Aptekar”, PP “Apteka Aroniia”, TOV “Salve-Lviv”, TOV “Med-Servis Invest”.<\/span><\/p>\n 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. \u0433) para. 198.5 Article 198 of the TCU.<\/p>\n So, are there any reasons\/grounds to reconsider the approaches to accounting of VAT on received marketing services?<\/p>\n <\/p>\n 3.<\/p>\n First of all, it should be noted that the dispute, in which the Supreme Court adopted the Resolution, is quite old. As can be seen from the text of the Resolution, available in the Unified State Register of Court Decisions, it is about the formation of a tax credit in 2014.<\/p>\n At the same time the binding nature of the conclusions of the Supreme Court in accordance with Part 6 of Article 13 of the Law of Ukraine “On the Judicial System and the Status of Judges” is considered in terms of the applicable law:<\/p>\n \u201c6. Conclusion regarding application of the law provisions specified in resolutions of the Supreme Court of Ukraine shall be taken into account by other courts of general jurisdiction in the application of such legal provisions”.<\/span><\/p>\n In particular, in such a conclusion the Supreme Court applied the provision of para. 198.6 Article 198 of the TCU (in the wording effective as of December 2014). Since then, both the provisions of the relevant paragraph and the legislative regulation of VAT accounting in general have changed significantly.<\/p>\n It is well-known that in 2015 the VAT electronic administration system (the VAT system) was introduced in order to prevent (i) an abuse of the tax credit formation and (ii) obtaining illegal budget VAT refunds. With the introduction of the VAT system, the tax legislation and the VAT administration were significantly changed, in particular in the aspect of thorough verification of tax invoices.<\/p>\n As a result, in case of registration of the tax invoice in the Unified Register of Tax Invoices (the URTI), the registered tax invoice is enough. Currently, according to the law the tax credit shall be automatic if the tax invoice is registered in the URTI and shall be not subject to any other conditions.<\/p>\n Given that the findings of the Supreme Court in this case concerned the formation of a tax credit, as to which the rules and legal regulation in general have changed, this conclusion cannot be considered as such which shall be taken into account by the courts.<\/p>\n However, the Resolution does not contain the approach to the accrual of “compensatory” VAT liabilities in connection with the alleged use of marketing services in transactions not related to business activities, as far as we know, such approach is currently absent.<\/p>\n 4.<\/p>\n Therefore, we suggest to consider which approach is possible to the VAT accounting by law in connection with the purchase of marketing services and how the claims of tax authorities regarding the accrual of “compensatory” VAT liabilities on the issue of alleged non-connection of the acquired goods\/services with the taxpayer\u2019s business activity should be assessed.<\/p>\n \u0410.<\/p>\n First of all, let us repeat that the tax credit today is inviolable, which is directly established in section 2 of para. 201.10 Article 201 of the TCU:<\/p>\n \u201cA tax invoice<\/strong> drawn up and registered in the Unified Register of Tax Invoices by a taxpayer who carries out operations on supply of goods \/ services shall be the basis for accrual of tax amounts related to the tax credit for the buyer of such goods \/ services.<\/strong><\/span><\/p>\n The tax invoice<\/strong> and \/ or calculation of adjustments to it, drawn up and registered after July 1, 2017 in the Unified Register of Tax Invoices<\/strong> by a taxpayer, who carries out transactions for the supply of goods \/ services, is the<\/strong> sufficient<\/u> basis<\/mark> for the buyer<\/strong> of such goods \/ services for accrual of tax amounts related to the tax credit<\/u><\/strong>, and does not require any other additional confirmation”.<\/span><\/p>\n At the same time, the TCU does not provide for the possibility (rights) of the taxpayer not to form a tax credit under the received registered tax invoices. Upon receipt of the tax invoice, the taxpayer forms a tax credit and has the possibility to “adjust” it only in exceptional cases by recognizing tax liabilities in accordance with para. 198.5 of the TCU.<\/p>\n Therefore, the questions of the tax authorities to the tax credit, if they appear today, are a priori illegal.<\/p>\n \u0412.<\/p>\n It is also worthwhile to dwell in more detail on the aspect of accrual of “compensatory” VAT liabilities in the case of alleged non-connection of purchased goods \/ services with the taxpayer\u2019s business activity.<\/p>\n As noted, the tax authorities deny the connection with business activity, accrue “compensatory” VAT liabilities with reference to subpara. \u0433) para. 198.5 Article 198 of the TCU, require a consolidated tax invoice and apply fines for the absence of such an invoice with reference to para. 1201<\/sup>.2 Article 1201<\/sup> of the TCU.<\/p>\n However, in fact the mere allegations that certain services are not related to the business activity are not sufficient by law. In accordance with para. 198.5 Article 198 of the TCU:<\/p>\n “198.5. The taxpayer is obliged to accrue tax liabilities\u2026 and draw up\u2026 and register\u2026 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 1 July 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:<\/span><\/p>\n …<\/p>\n \u0433) in transactions that are not business activity of the taxpayer (except for the cases provided for in para. 189.9 of Article 189 of this Code).<\/span><\/p>\n …<\/p>\n For the purposes of this paragraph, tax liabilities are determined for goods \/ services, non-current assets:<\/span><\/p>\n …<\/p>\n acquired for use in taxable transactions, which begin to be used in non-taxable transactions – on the date of their actual use, defined in the primary documents prepared in accordance with the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”.<\/span><\/p>\n Thus, for the accrual of “compensatory” VAT liabilities under subpara. \u0433) para. 198.5 Article 198 of the TCU the following conditions shall be fulfilled:<\/p>\n Thus, in case of violation of subpara. \u0433) para. 198.5 Article 198 of the TCU, the tax authority must indicate the evidence and documents confirming that the services are intended for use or have begun to be used in transactions that are not taxpayer\u2019s business activity.<\/p>\n In other words, if the tax authorities have “doubts”, the taxpayer should not prove that the purchased goods \/ services were used in business activity, but exactly the tax authorities must show with reference to proper documentary evidence that the purchased goods \/ services for VAT were used in specific transactions (which must be clearly defined) that are not the taxpayer\u2019s business activity.<\/p>\n Thus, there are some exceptions, but such exceptions relate to another situation, which is clearly defined in the last (tenth) section of para. 198.5 Article 198 of the TCU:<\/p>\n “If at the time of the taxpayer’s audit, the tax authority has found a shortage of goods purchased by such taxpayer (unless such shortage is due to destruction as a result of force majeure, which is confirmed in accordance with the law) in the act of selective (partial) inventory conducted by the taxpayer at the request of such authority, such goods shall be considered<\/span> as used by the taxpayer in transactions that are not business activity of the taxpayer<\/span>, for the purposes of Section V of this Code”.<\/span><\/p>\n Therefore, the conclusion of the tax authority on the impossibility of confirming the connection with business activity is not enough. The tax authority shall establish the fact of intention to use or the fact of use of the goods\/services in transactions that are not business activity of the taxpayer.<\/p>\n This fact must be confirmed by appropriate evidence. According to the same para. 198.5 Article 198 of the TCU such evidence is primary documents drawn up in accordance with the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”.<\/p>\n Therefore, if the tax authority does not provide any evidence and documents that would confirm that the services received by the taxpayer are intended for use in transactions that are not business activity of the taxpayer, or have begun to be used in such activities, the grounds for additional “compensatory” liabilities should be considered absent under subpara. \u0433) para. 198.5 Article 198 of the TCU.<\/p>\n Once again, the law is formulated not something like “in the absence of certainty \/ proof of use of such services in taxable transactions as part of the business activity of the taxpayer\u2026”<\/span>, but literally “if such goods \/ services\u2026 begin to be used\u2026”<\/span>, that is, for the application of the specified provision the beginning of such use shall be proved and it shall be specified, in what operation such goods\/services were used and for what reason such operation should not be attributed to business activity.<\/p>\n This approach follows from Part 2 of Article 74 of the Code of Administrative Procedure of Ukraine, under which the circumstances, which by law must be confirmed by certain means of proof, cannot be confirmed by other means of proof.<\/p>\n Therefore, since para. 198.5 of Article 198 of the TCU establishes that the beginning of the use of services in non-profit transactions is determined by the date specified in the relevant primary documents, the beginning of use cannot be recognized as proven (and the date of this use with which the law connects the obligation to charge VAT and to draw up the tax invoice) in the absence of primary documents in this regard. At the same time, firstly, there are no primary documents that would indicate non-commercial use, and secondly, such documents could not be analyzed (even if available) given the subject of in-house audit.<\/p>\n Thus, proving within the dispute the fact of non-business use of purchased goods \/ services (and when exactly such non-business use took place) is entrusted to the tax authority, including in view of Part 2 of Article 77 of the Code of Administrative Procedure of Ukraine. And the inability of tax authorities to prove this fact and confirm it with primary documents is already a sufficient basis for declaring the relevant tax surcharges illegal.<\/p>\n The<\/em><\/strong>\u00a0<\/em><\/strong>above commentary<\/em><\/strong>\u00a0<\/strong>presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.<\/em><\/strong><\/p>\n Footnotes:<\/em><\/p>\n 1<\/a><\/sup>In the Unified State Register of Court Decisions is available by the link<\/a>.<\/em><\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" \u0412\u0456\u0434\u0442\u043e\u0434\u0456 \u044f\u043a \u043f\u043e\u0434\u0430\u0442\u043a\u043e\u0432\u0438\u0439 \u043e\u0431\u043b\u0456\u043a \u0437 \u043f\u043e\u0434\u0430\u0442\u043a\u0443 \u043d\u0430 \u043f\u0440\u0438\u0431\u0443\u0442\u043e\u043a \u0437\u0430\u043b\u0435\u0436\u0438\u0442\u044c \u0432\u0456\u0434 \u0431\u0443\u0445\u0433\u0430\u043b\u0442\u0435\u0440\u0441\u044c\u043a\u043e\u0433\u043e \u043e\u0431\u043b\u0456\u043a\u0443, \u0432 \u044f\u043a\u043e\u043c\u0443 \u0432\u0438\u0442\u0440\u0430\u0442\u0438 \u043d\u0435 \u0437\u0430\u043b\u0435\u0436\u0430\u0442\u044c \u0432\u0456\u0434 \u0442\u043e\u0433\u043e, \u0447\u0438 \u043f\u043e\u0432\u2019\u044f\u0437\u0430\u043d\u0456 \u0432\u043e\u043d\u0438 \u0437 \u0433\u043e\u0441\u043f\u043e\u0434\u0430\u0440\u0441\u044c\u043a\u043e\u044e \u0434\u0456\u044f\u043b\u044c\u043d\u0456\u0441\u0442\u044e, \u043f\u0440\u0435\u0434\u043c\u0435\u0442\u043e\u043c \u0443\u0432\u0430\u0433\u0438 \u043f\u043e\u0434\u0430\u0442\u043a\u043e\u0432\u0438\u0445 \u043e\u0440\u0433\u0430\u043d\u0456\u0432 \u0441\u0442\u0430\u0432 \u041f\u0414\u0412 \u0437\u0430 \u043f\u043e\u0441\u043b\u0443\u0433\u0430\u043c\u0438 \u043c\u0430\u0440\u043a\u0435\u0442\u0438\u043d\u0433\u043e\u0432\u043e\u0433\u043e \u0447\u0438 \u0456\u043d\u0448\u043e\u0433\u043e \u0445\u0430\u0440\u0430\u043a\u0442\u0435\u0440\u0443 \u0432 \u0430\u0441\u043f\u0435\u043a\u0442\u0456 \u0432\u0438\u043a\u043e\u0440\u0438\u0441\u0442\u0430\u043d\u043d\u044f \u043f\u043b\u0430\u0442\u043d\u0438\u043a\u043e\u043c \u043f\u043e\u0434\u0430\u0442\u043a\u0456\u0432 \u0442\u0430\u043a\u0438\u0445 \u043f\u043e\u0441\u043b\u0443\u0433 \u0443 \u0433\u043e\u0441\u043f\u043e\u0434\u0430\u0440\u0441\u044c\u043a\u0456\u0439 \u0434\u0456\u044f\u043b\u044c\u043d\u043e\u0441\u0442\u0456. 1. \u0424\u0456\u0441\u043a\u0430\u043b\u044c\u043d\u0438\u0439 \u043f\u0440\u0438\u0432\u0456\u0434 \u0434\u043b\u044f \u0443\u0432\u0430\u0433\u0438 \u043f\u043e\u0434\u0430\u0442\u043a\u0456\u0432\u0446\u0456\u0432 \u0443 \u0430\u0441\u043f\u0435\u043a\u0442\u0456 […]<\/p>\n","protected":false},"author":16069,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[182],"class_list":["post-20300","post","type-post","status-publish","format-standard","hentry","category-exclusive","tag-balans-interesiv"],"_links":{"self":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/20300"}],"collection":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/users\/16069"}],"replies":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/comments?post=20300"}],"version-history":[{"count":33,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/20300\/revisions"}],"predecessor-version":[{"id":20598,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/20300\/revisions\/20598"}],"wp:attachment":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/media?parent=20300"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/categories?post=20300"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/tags?post=20300"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n