Invalidation of transactions indicated in VAT tax statements

The existence of contracts for the provision of any services, performance of works and their formal compliance with the established requirements does not indicate the actual fulfillment by the parties of their obligations, is not indisputable proof of transactions. The Republican state Institution "State Revenue Administration for the city of Ust-Kamenogorsk" filed a lawsuit against the Limited Liability Company "Sh" (hereinafter referred to as – LLP), LLP "V", LLP "C", LLP "Construction Company "A" on invalidation of transactions indicated in VAT tax statements for 3-4 quarters of 2011, 2-3 quarters of 2012, 3rd quarter of 2014. By the decision of the specialized interdistrict Economic Court of the East Kazakhstan region dated November 22, 2016 in the claim of the Russian State Institution "State Revenue Administration for the city of Ust-Kamenogorsk" (hereinafter referred to as the Management, tax authority) to LLP "Sh", LLP "V", LLP "S", LLP "Construction Company "A" for recognition invalid transactions indicated in the VAT tax statements for 3-4 quarters of 2011, 2-3 quarters of 2012, and the 3rd quarter of 2014 were refused. By the decision of the Judicial Board for Civil Cases of the East Kazakhstan Regional Court dated January 31, 2017, the court's decision remained unchanged. The Judicial Board for Civil Cases of the Supreme Court overturned the judicial acts of local courts, in the case adopted a new decision to satisfy the claims, to invalidate transactions between LLP "Sh", LLP "V", LLP "C", LLP "Construction Company "A", indicated in the VAT tax statements for 3-4 quarters. 2011, 2-3 quarters of 2012, 3rd quarter of 2014 for the following reasons.

Invalidation of transactions indicated in VAT tax statements

It follows from the case file that Sh LLP was registered as a taxpayer on August 15, 2001. Type of activity – general construction and repair and construction works. In the regular tax statements f.300.00 "VAT declaration" for 3-4 quarters of 2011, 2-3 quarters of 2012, 3rd quarter of 2014, LLP "Sh" reflected settlements with LLP "E", LLP "M", LLP "C" for the amount of turnover in the amount of 49 315 096 tenge, including VAT – 5,917,809 tenge. By the verdict of the court No. 2 of the city of Ust-Kamenogorsk dated May 6, 2016, LLP "E", LLP "M", LLP "C" were recognized as false enterprises. On June 15 and 16, 2016, the Management of Sh LLP sent notifications on the elimination of violations identified by the results of desk control, on the exclusion from deductions of expenses and from VAT offsetting for mutual settlements with pseudo-enterprises. LLP "Sh" fulfilled the requirements of the tax authority by submitting additional tax reports, specifying instead of LLP "E", LLP "M", LLP "C" other suppliers - LLP "V", LLP "C", LLP "Construction Company "A". In confirmation of the mutual settlements of Sh LLP, supply contracts, for the provision of paid services, invoices, invoices, acts of work performed, receipts for incoming cash orders are presented. In rejecting the claim, the local courts proceeded from the taxpayer's right to amend tax records and the lack of evidence indicating the fictitiousness and illegality of transactions. Meanwhile, the conclusions of the courts are erroneous and are not based on the law. The court rejected the claim of the tax authority, referring to the fact that the disputed invoices are one of the proofs of the transaction. It follows from the content of the claim that the Management requested to invalidate transactions confirmed by the presence of invoices indicated in the LLP's tax statements. According to paragraphs 1 and 2 of Article 56 of the Code of the Republic of Kazakhstan "On Taxes and Other Mandatory Payments to the Budget" (Tax Code), tax accounting is the process of keeping accounting records by a taxpayer (tax agent) in accordance with the requirements of the Tax Code in order to summarize and systematize information about taxable objects and (or) objects related to taxation., as well as the calculation of taxes and other mandatory payments to the budget and the preparation of tax reports. Tax accounting is based on accounting data. The procedure for maintaining accounting records is established by the legislation of the Republic of Kazakhstan on accounting and financial reporting. The existence of contracts for the provision of any services, the performance of work and their formal compliance with the established requirements does not indicate the actual fulfillment by the parties of their obligations, is not indisputable proof of transactions.

Invalidation of transactions indicated in VAT tax statements

According to the disputed transactions, "V" LLP provided "Sh" LLP with loader, crane, excavator services, and supplied goods. Construction Company A LLP carried out work on the manufacture and installation of metal fences. LLP "S" supplied the goods. At the same time, the declarations and calculations for taxes on vehicles, property, as well as for individual income and social taxes were not submitted by the suppliers to the tax authorities or were presented with zero indicators. The analysis of the above indicates the absence of a taxable base, employees and, as a result, the inability to provide services. The accuracy of the information provided in invoices and contracts raises reasonable doubts. It follows from the invoices that the goods were allegedly exported by Sh LLP ("pickup"), which indicates that the content of the transaction does not match the way it is executed. When providing services in the field of road transport, the carrier, the shipper and the recipient must strictly comply with the requirements of the Law of the Republic of Kazakhstan "On Road Transport" (hereinafter referred to as the Law) and the Rules for the Carriage of goods by Road developed in accordance with it, approved by Resolution of the Government of the Republic of Kazakhstan on July 18, 2011 No. 826 (hereinafter referred to as the Rules). Contrary to paragraphs 20 and 42 of the Rules, the defendants did not submit to the court travel documents, tear-off vouchers of travel documents confirming transportation, operation (movement) of a motor vehicle, loading and unloading of goods. The invoices for the release of goods also do not contain information about the transport organization that carried out the transportation, which indicates the formality of the transaction concluded in order to create the appearance of financial transactions and optimize the tax burden. According to the invoices, "V" LLP supplied construction tools. However, according to the registration data, his type of activity is printing and other types of publishing activities. Consequently, LLP "V" is not related to the construction market, there is no evidence of the purchase of goods for the purpose of supplying LLP "Sh" in the case. By virtue of articles 41 and 53 of the Law of the Republic of Kazakhstan "On Limited and Additional Liability Partnerships", the director of the partnership, being the sole executive body, acts on behalf of a legal entity without a power of attorney in civil relations. All invoices from "V" LLP are signed by X. At the same time, according to the registration data of the legal entity, the head is T. Thus, the documents submitted by the defendant in the form of contracts, invoices and invoices signed by X. They cannot serve as evidence of transactions that have taken place and indicate the insolvency of the conclusions of local courts. Upon the establishment of Construction Company A LLP without the actual intention to carry out business activities, a criminal case was initiated under Article 215 of the Criminal Code of the Republic of Kazakhstan, referred to as "False Entrepreneurship". As part of the investigation of the criminal case, the head of this company, L., explained that Construction Company A LLP was not originally created for the purpose of conducting business, did not provide any services, did not supply goods. Contracts and accounting documents were formally signed by her. Moreover, none of the suppliers in the VAT declarations reflected LLP "Sh" as the buyer. The actual availability of the goods at LLP "Sh" does not indicate its delivery to LLP "V", LLP "C", LLP "Construction Company "A".  The above indicates that the transactions between the defendants were concluded in order to create the appearance of financial and business operations and optimize the tax burden. All three companies were actually removed from VAT registration due to the absence of location and turnover in the declaration. Despite this, the local courts did not doubt the reliability of the sale of goods and business activities by these enterprises and, contrary to the requirements of paragraph 1 of Article 158 and paragraph 1 of Article 160 of the Civil Code of the Republic of Kazakhstan, refused to recognize the transactions as invalid. In addition, the courts' reference to the audit reports of DP LLP on determining the reliability of settlements between Sh LLP and V LLP, C LLP, by virtue of part 2 of Article 63 of the CPC, cannot be accepted as evidence, since its conclusions are based solely on the accounting documents of Sh LLP, the reliability of which disputed by the tax authority. 

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