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We helped our Client to appeal against tax violation notification letters about imposition of VAT and rent

The Law Firm “Pravova Dopomoga” received a request from a Client, an individual entrepreneur, who through his own effort prepared a lawsuit against the tax inspection for recognition as unlawful and cancelation of tax violation notification letters (TVNL), but before bringing a case to the court he decided to use the services of a lawyer in order to get advice on the formal correctness of the statement of claim, its reasonableness and perspectives for sustaining of asserted claims.

After analyzing the text of the document, the specialists of the Law Firm “Pravova Dopomoga” concluded that the position of the Client is based solely on the description of factual circumstances and is not supported by the provisions of the law and litigation practice. The latter, by the way, is essential in disputes with the tax inspection. Hence, it was decided to redact the draft of the administrative lawsuit of the Client based on the materials provided by him.

The subject matter of the Client’s requirements was reduced to objections against the TVNL adopted with respect to him in view of the results of tax audit regarding the imposition of value added tax and rent with punitive sanctions respectively.

To sum up, the Client was faced with a sanction of approximately UAH 110,000.00 according to the both TVNL.

1. The tax inspection left out of consideration the tax credit created by the Client concerning the acquired commodities and materials.

According to the fiscal authority, these commodities and materials were not related to the entrepreneurial activity.

It should be noted that such a statement was not in line with the factual circumstances of the case and the Client wrote about it in the lawsuit in detail. And the lawyers of the of the Law Firm “Pravova Dopomoga” added necessary legal framework to the factual basis.

In accordance with clause 201.10 of Art. 201 of the Tax Code of Ukraine, a tax invoice issued on demand of buyer by a taxpayer who carries out operations on supply of goods/services is the basis for calculating of tax amounts related to the tax credit.

Subject to clause 198.6 of Art. 198 of the Tax Code of Ukraine the amount of tax paid (accrued) resulting from the purchase of goods/services and not confirmed by tax invoices should not be included to the tax credit.

The Client, in fact, formed a tax credit based on the results of business transactions with the counterparties on the grounds of tax invoices, which he provided to the tax inspection during the audit. This means that the Client has the documents confirming the fact of usage of acquired commodities and materials in economic activities.

An additional point is that our specialists strengthened the stated position by litigation practice in favor of taxpayers (attaching copies of relevant court judgements), which came down to the fact that allocation to the gross expenditures of the amount of expenses incurred by IE (individual entrepreneur) within the frame of its entrepreneurial activity and at the same time directly related with the improvement of capital assets and used in the framework of legitimate activities of IE is permissible.

Moreover, some commodities and materials acquired by the Client were included to the List of measures and means for occupational safety and health, the costs for implementation and acquisition of which should be included to the expenditures (Decree of the Cabinet of Ministers of Ukraine dated June 27, 2003 No. 994).  

Thus, in particular, the acquisition, of lamps, shower cabin, equipment for the room for taking food, etc. by the Client was one of the necessary measures for occupational safety and health and, accordingly, was associated with economic activities.

Taking the foregoing into consideration, the conclusions of the tax authority concerning the understatement of the amount of VAT by the Client and the imposition of tax debt with punitive sanctions due to this are unlawful.

2. Our provision of a rationale for the additional rent charged to the Client was as follows.

Pursuant to Art. 6 of the Law of Ukraine “On Land Lease” and Art. 125 of the Land Code of Ukraine, land leasehold arises from the moment of state registration. Therefore, the amendments to the land lease agreement also come into force after their state registration.

State registration under appendixes to agreements that changed the normative monetary value and raised the payment for land for the Client, non-payment of which formed the backbone of the relevant TVNL, was not made, therefore, they did not enter into force, and their provisions, including clauses on increased rent, cannot be applied.

In addition, the landlord violated the procedure for introduction of amendments to the lease agreements.

Thus, we made an emphasis on the fact that the TVNL on imposition of rent is unlawful and should be cancelled.

3. The lawyers of our firm separately touched the question of the legitimateness of Client’s inspection, which, as it turned out, was carried out with violations.

In particular, the tax authority illegally extended the term of audit violating clause 1.2.4 of the Methodological recommendations regarding the procedure of interaction between departments of the State Tax Service when organizing, conducting and implementing taxpayer audit materials (Order of the State Tax Service of Ukraine dated October 31, 2012 No. 948) as it did not deliver to the Client neither the copy of the order, nor the assignment with a note indicating the extension of audit term.

Thus, the work carried out by the representatives of Law Firm “Pravova Dopomoga” resulted in a well-pleaded, logically set out statement of claim of the Client strengthened by the excerpts from the litigation practice and important applications.

As a result, the Client’s claims under the lawsuit were satisfied by the court.

 

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