Fictitious Counterparty: The First Judicial Practice of the Supreme Court in Tax Disputes
25.01.2018
On January 16, 2018, the Supreme Court issued a ruling in case No. 2a-7075/12/2670, in which the taxpayer’s cassation complaint was dismissed, and the decisions of the lower courts remained unchanged.
The subject of the dispute was that the tax authorities had reassessed the taxpayer’s tax liabilities for VAT and corporate income tax due to the fact that the transactions with the counterparty were considered non-genuine. This conclusion was made by the tax authorities because the director of the counterparty had been convicted under Article 205 of the Criminal Code of Ukraine (fictitious entrepreneurship).
After reviewing the case circumstances, the Supreme Court agreed with the findings of the previous courts and stated that all the primary documents of the counterparty were improper, as they were signed by a director who had no connection to the company, as established by the court’s verdict.
Referring to the previous position of the Supreme Court of Ukraine expressed in the ruling of December 1, 2015, in case No. 826/15034/14, the Supreme Court noted that the status of a fictitious or illegal enterprise is incompatible with legal business activity. The business transactions of such enterprises cannot be legitimized even with formal accounting documentation.
Thus, the judicial practice in this category of disputes remained unchanged.
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