The system of blocking the tax invoice registration has been in operation for three months already. Given that very often after stoppingthe registration of tax invoices the State Fiscal Service of Ukraine (SFS) subsequently refuses to register them, taxpayers are forced to apply to the court to protect their rights.
Proving the Credibility of Operation in Case of Blocked Tax Invoice: Freight and Marketing Services
The system of blocking the tax invoice registration has been in operation for three months already. Given that very often after stopping the registration of tax invoices the State Fiscal Service of Ukraine (SFS) subsequently refuses to register them, taxpayers are forced to apply to the court to protect their rights.
To date, we can already draw some conclusions regarding the practice of the SFS refusing to register tax invoices and further appealing against such decisions in court.
It should be noted immediately that despite the provisions of the Order of the Ministry of Finance of Ukraine No. 566 of June 13, 2017 and the Resolution of the Cabinet of Ministers of Ukraine No. 190 of March 29, 2017, when making a decision to refuse to register a tax invoice the authorised SFS commission, in many cases, does not indicate the grounds for such a refusal at all, and if it does, then the grounds are: “taxpayer’s submitting the copies of documents that are drawn up in violation of the law and/or insufficient for the SFS commission to decide to register the tax invoice/settlement adjustment”, without any specific indication of the documents referred to above.
However, based on the existing judicial practice, appealing against the SFS decision on refusal to register a tax invoice only on grounds of formal deficiencies is unlikely to entail positive results, since the taxpayer has to prove the credibility of the economic operation for which the tax invoice has been drawn up.
Taking this into account and in view of disputes between taxpayers and the SFS regarding the refusal of the latter to register tax invoices, we are proposing to consider, what exactly should prove the credibility of economic operations on invoices drawn up by the companies providing freight and marketing services, in particular, in respect of their receipt of bonuses for stimulating sales of products.
Services Provided by Freight Companies, for Example, Services on Freight Transportation by Vehicles
As prescribed by the current legislation:
As is well known, according to the provisions of the current legislation, any economic operation has to be formalised by the respective primary documents. As regards the provision of services on freight transportation by vehicles, this should be, first of all, a consignment note, as directly stipulated by the Rules of Freight Transportation by Vehicles in Ukraine approved by the Order of the Ministry of Transport of Ukraine No. 363 of October 14, 1997.
Also, the Resolution of the Cabinet of Ministers of Ukraine No. 207 of February 25, 2009 determined an exhaustive list of documents necessary for carrying out the domestic freight transportation by vehicles. Thus, in case the transportation is carried out based of the agreement between the customer and the carrier, along with other documents, it is necessary to draw up the following documents certifying the fact of transportation: a consignment note; a waybill marked to show that pre-trip medical examination of the driver and technical inspection of the vehicle (for drivers of the legal entity) have been conducted; and the respective permits for the transportation of hazardous freights and freights with excessive weight or size.
Position of the SFS:
The Order of the Ministry of Finance of Ukraine No. 567 of June 13, 2017 approved an exhaustive list of documents sufficient for making a decision on tax invoice registration. However, despite this list, taxpayers will not only have to provide these documents, but also prove the following:
- The taxpayer’s practical ability to carry out the mentioned operations on the provision of services, taking into account the time, location of the property, and the volume of material resources economically necessary for the provision of services, including the availability of managerial and technical staff, fixed assets, and vehicles.
Taking into account numerous explanations provided by the SFS representatives at their meetings with taxpayers, it is not uncommon for carriers to use services of natural persons who are not officially employed and/or vehicles they do not own (either on the right of ownership, or based on lease);
- Availability of all primary accounting documents.
Herewith, tax officers pay attention not only to the availability of all primary documents, but also to the correctness of their execution; in the first place, this concerns consignment notes certifying the fact of transportation. Based on the practice established according to the results of tax audits, it is likely that the SFS may not take into account “non-ideal” primary and other documents, for instance, if a consignment note does not indicate the times of loading and unloading of goods, or the certificate of transfer and acceptance of services does not specify the place of its compilation, etc.
Position of the court:
Given that judicial disputes are limited to proving the credibility of economic operations, one should not forget about the position repeatedly expressed by the High Administrative Court of Ukraine (HACU) and the Supreme Court of Ukraine (SCU) (for example, Decision of the HACU of August 23, 2017 in the case No. 826/16338/13-а and Decision of the SCU of June 27, 2017 in the case No. 2а-6549/11/1470) that the analysis of the credibility of economic activities has to be based on the data of the taxpayer’s tax accounting and bookkeeping and their correspondence to their actual economic content. At the same time, the primary documents, which are the fundamentals for bookkeeping, have to record only the data on economic operations that have been actually carried out.
To support an economic operation on freight transportation carried out under order, taxpayers may also provide the court with the following documents: agreements on providing transportation services, consignment notes, or certificates of transfer and acceptance of services provided. However, this list is minimal, if we summarise the information provided in judicial decisions regarding the evidence available in a particular case. Therefore, it is also advisable to provide the court with other available documents, such as waybills, administrative orders, bank statements, calculations of the cost of provided services, etc.
Herewith, in contrast to the position of the SFS, which does not take into account the abovementioned documents, if they contain errors or deficiencies, courts have repeatedly stated that, on its own, the availability or absence of individual documents, as well as deficiencies of their execution cannot be the grounds for the opinion on the absence of economic operations, if other data show changes in both the structure of assets and liabilities and the payers’ equity capital resulting from their economic activities (Decision of the HACU of September 12, 2017 in the case No. 805/177/16-а).
Also, in addition to submitting primary documents, taxpayers will have to prove in court their ability to generally provide the respective services. Herewith, the availability of a sufficient material and technical infrastructure can be proven by a statement of the availability of fixed assets signed by the manager and chief accountant of the enterprise, balance certificate, agreements on purchase and sale of vehicles, vehicle lease agreements, etc. A sufficient number of employees can be confirmed by the enterprise certificate, accounts on form 1-DF, labour agreements, civil law contracts, service agreements, etc.
Marketing and Consulting Services
As prescribed by the current legislation:
According to Paragraph 14.1.108 of Article 14 of the Tax Code of Ukraine (hereinafter referred to as “the TCU”), marketing services (marketing) refer to services that ensure the functioning of the taxpayer in the field of market research, sales promotion of products (works, services), pricing policies, organisation and management of the movement of products (works, services) to the consumer and post-sale customer service within the economic activities of this taxpayer. Marketing services include, in particular: services on placement of the taxpayer’s products at points of sale, services on research, study, and analysis of consumer demand, inclusion of the taxpayer’s products (works, services) in sales databases, services on the collection and distribution of information about the products (works, services).
According to Part 1 of Article 9 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”, primary documents are the grounds for the accounting of economic operations. In order to control and regulate the processing of data on the basis of primary documents it is possible to draw up consolidated accounting documents. Herewith, the legislation does not define what exactly these primary documents are in case of marketing services.
Position of the SFS:
Proceeding from the SFS consultation published in the publicly available information resource “ZIR” and the Letter of the SFS No. 5590/6/99-99-19-03-02-15 of March 15, 2016, operations carried out to obtain motivation payments (bonuses) resulting from the achievement of certain volumes of supply of goods are one of the types of marketing services, since the motivational and incentive payments (rewards, bonuses, and other incentives) paid by the official distributor (supplier of products (works, services)), in particular, for the accuracy of procurement forecasts, implementation of the agreed procurement plan, compliance with the range of goods), are directed to stimulate the sales of products (works, services).
As regards the documents that can confirm the provision of marketing services, according to the SFS, these are certificates of transfer and acceptance of services, reports/protocols on provided services/volume of products sold, and other documents drawn up in accordance with the accounting rules.
Herewith, as in the case of transporting services, the SFS invariably draws attention to the deficiencies in documents and the availability of the appropriate material and technical infrastructure for the provision of services.
Position of the court:
When considering cases related to the credibility of economic operations on the provision of marketing services, the High Administrative Court of Ukraine (Decision of September 08, 2017 in the case No. 818/1386/15, Decision of August 23, 2017 in the case No. 808/1335/16, Decision of May 18, 2017 in the case No. 805/1553/16-a, etc.) adheres to the position that the documents confirming the actual receipt of marketing services may be the certificate of transfer and acceptance of services or other document confirming the actual provision of the service, which must include all obligatory requisites of primary documents stipulated by Part 2 of Article 9 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”, a report on conducted marketing research/provided services/achieved results with the clearly stated outcomes of the provided services, as well as accounting and statistical documents confirming an increase in the range of goods, the volume of sales, the amount of income, etc.
Herewith, it should be noted that given the legal nature of marketing services, it is very important to clearly state all details both in the agreement and all primary documents, because the courts will thoroughly examine all provisions of these documents. For example, the fact that the certificates of provided services did not specify the content of economic operations, and the information included in the report to the certificate was based on the overall statistical indicators and did not relate directly to the activities of the customer became the grounds for refusal of the claim and failure of the court to take into account the documents available in the case file as evidence of the credibility of the economic operation (Decision of the HACU of August 30, 2017 in the case No. 815/6355/15).
It should also be noted that according to the court’s position (Decision of the HACU of August 30, 2017 in the case No. 815/6355/15) marketing services can be provided by economic entities that carry out activities corresponding to CTEA 73.20 “Market Research and Public Opinion Polling”. However, unlike the SFS, courts generally treat the taxpayer’s possession of the material and technical infrastructure very appraisingly, depending on the type of services, as some services may be provided even by one person, who has a computer, a telephone, and network access.
Thus, pursuant to the judicial practice, the mere availability of primary accounting documents related to the economic operation directly carried out does not mean that the tax invoice for this operation will be registered. It is also reasonable to be prepared for the fact that it may be necessary to prove the performance of an economic operation by documents confirming the availability of the material and technical infrastructure and labour resources, as well as the actual provision of services (by reports, actual results of marketing research, etc.). Each act performed within the framework of a single economic operation has to be reflected in documents, which, of course, does not facilitate conducting economic activities for taxpayers.