If a taxpayer has obtained an unjustified tax benefit, a tax reconstruction is carried out: the tax liabilities of that taxpayer are determined. Account is taken of the real character and the economic substance of the transaction that was made.
The tax authorities must take exhaustive measures aimed at establishing the true amount of the taxpayer's tax liability. That would rule out charging the taxpayer tax in an amount greater than the law provides (Resolutions of the Constitutional Court of 17.03.2009 No. 5-П and of 22.06.2009 No. 10-П, Ruling of the Constitutional Court of 27.02.2018 No. 526-О, and others).
The courts must also determine the scope of the taxpayer's rights and obligations from the true economic content of the relevant transaction (clause 7 of Resolution of the Plenum of the Supreme Commercial Court of 12.10.2006 No. 53).
One method of tax reconstruction, for the purpose of calculating profit tax, is set out in subclause 7 of clause 1 of Article 31 of the Tax Code: the tax authorities may determine the amounts of tax by a calculation method, on the basis of the information they hold about the taxpayer and about similar taxpayers.
If the tax authority has found that the taxpayer intended to obtain an unjustified tax benefit, or has established that the taxpayer submitted unreliable documents or failed to exercise due diligence in choosing the counterparty, the real amount of the costs for profit tax is to be determined under subclause 7 of clause 1 of Article 31 of the Tax Code. The calculation method is not applied to VAT (Resolution of the Presidium of the Supreme Commercial Court No. 2341/12 of 03.07.2012 in case No. А71-13079/2010 (OAO Kamsky Plant of Reinforced Concrete Products and Structures)).
In its letter of 31.10.2017 No. ЕД-4-9/22123@, the Federal Tax Service of Russia explained that, in subclause 2 of clause 2 of Article 54.1 of the Tax Code, the legislator limited the right to take profit-tax expenses and VAT deductions into account if it is established that the transaction was performed by a person not named in the primary documents. That reading of Article 54.1 of the Tax Code deprived taxpayers of the right to a tax reconstruction.
The tax authorities' approach on this point was later revised, and the position of the Presidium of the Supreme Commercial Court in the case involving OAO Kamsky Plant of Reinforced Concrete Products and Structures became relevant again. In its letter of 10.03.2021 No. БВ-4-7/3060@ (the letter), the Federal Tax Service of Russia confirmed taxpayers' right to a tax reconstruction, but stressed that the form of the taxpayer's fault matters (clause 4 of the letter).
Tax legislation provides for two forms of a taxpayer's fault: intent and negligence.
If a tax offence was committed intentionally, the taxpayer must provide information and documents making it possible to identify the real performer and the parameters of the disputed transaction (clause 10 of the letter). If the taxpayer does not disclose the real performer, the right to a tax reconstruction is lost (clause 11 of the letter).
If there was no intent, but the taxpayer ought to have known of a paper-only document flow involving technical companies, and it is not disputed that the taxpayer incurred the costs, the tax liabilities are calculated as follows:
- where the real performer is identified, expenses and tax deductions are taken into account by reference to the parameters of actual performance (clause 17.1 of the letter);
- where the real performer cannot be identified, the right to deduct VAT is not granted, and the profit-tax liability is determined by the calculation method under subclause 7 of clause 1 of Article 31 of the Tax Code (clause 17.2 of the letter).
Clause 17.2 of the letter also states that taxpayers must assist the tax authority in disclosing the real performers under the transactions.
The courts likewise proceed on the basis that taxpayers must assist in drawing the completed business transactions out of the "shadow" turnover.
In particular, the rulings of the Supreme Court of 04.03.2015 No. 302-КГ14-3432 in case No. А33-666/2013 (ZAO Gornye Mashiny), of 27.09.2018 No. 305-КГ18-7133 in case No. А40-32793/2017 (ZAO NPF Tekhnokhim) and of 15.12.2021 No. 305-ЭС21-18005 in case No. А40-131167/2020 (OOO Spetskhimprom) state that if a chain of supply of goods (work, services or raw materials) includes "technical" companies (that is, companies that do not carry on real economic activity), and the tax authority has information and evidence making it possible to identify with certainty the person who actually performed under the transaction and paid the tax due on that performance, then the buyer's unjustified tax benefit may be recognised as that part of the expenses taken into account in calculating corporate profit tax, and of the VAT deductions the buyer applied, which corresponds to the mark-up added by the "technical" companies.
In its ruling of 19.05.2021 No. 309-ЭС20-23981 in case No. А76-46624/2019 (Firma Meri), the Supreme Court concluded that the organisation had neither the right to apply VAT deductions nor the right to take the disputed expenses into account in full when calculating profit tax, and had no right to a reconstruction under subclause 7 of clause 1 of Article 31 of the Tax Code. The court found that the taxpayer had organised a document flow involving "technical" companies, while the products were carried by individuals (drivers) who had no contractual relations with the taxpayer. Neither during the tax audit, nor when its results were considered, nor when the case was heard in court did the organisation explain: (a) what part of the carriage had been performed by the drivers, and (b) what part of the money credited to the individuals' accounts related to payment for the carriage and formed the drivers' taxable income, rather than to the cashing-out of funds.
The position that, in determining the true tax liabilities, information and documents on the real performers must be taken into account if the tax authority has them, is also set out in the resolution of the Arbitrazh Court of the Volga Circuit of 25.02.2022 in case No. А12-5451/2021 (OOO Trading House Rastvoro-Betonny Kombinat).
The conclusions of the courts in case No. А10-133/2020 (OOO NBS-Group) also deserve attention. The ground for the additional assessment of VAT under the decision of 06.02.2019 was that, in 2016, the company had claimed VAT deductions on transactions with OOO Baikalremstroy, which had not in fact entered into the transactions.
On 13.12.2019, that is, after the tax authority had issued its decision on the audit, the company named OOO INITS Sershin as the real performer and filed amended VAT returns. OOO INITS Sershin in turn issued an adjustment invoice to the company, removing OOO Baikalremstroy from its sales book, and the company made the corresponding changes to its purchases book.
In the courts' view, the tax authority had no grounds to allow the VAT deduction, because the amended returns were filed after the audit had already been carried out.
In its ruling of 12.04.2022 No. 302-ЭС21-22323 in that case, the Supreme Court concluded that the courts had in substance taken a formal position and agreed with the tax authority that there were no grounds to allow the VAT deduction. The Supreme Court noted that, judging both by the audit materials and by the judicial acts, the tax authority and the courts had not found that, in the disputed periods, goods had in fact been supplied by OOO INITS Sershin to the company. Sending the case back for a fresh hearing in the court of first instance, the Supreme Court directed the lower courts to examine whether the company's relations with OOO INITS Sershin were real.
Judicial practice therefore confirms that the position developed by the Federal Tax Service of Russia in its letter of 10.03.2021 No. БВ-4-7/3060@ is well founded. It points to the need for taxpayers to disclose, in good time (that is, before the tax authority adopts its decision on the tax audit), who in fact performed the transactions, which in turn reduces the risk of unjustified additional assessments following an audit and removes the need to challenge them.
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