In the issue of the journal "Nalogoved" for August 2015 it`s been published the article by Yury Mirzoev CEO and executive director Zaurbek Akhmetov of the company "Mitra". It covers: assessment of the court procedural violations during the tax control and inspection solutions by making its results as a formal counter to the principles of competition and optionality. The authors fear the spread of such law enforcement, which is promoting the replenishment of the budget, but in violation of the right to the protection of taxpayers.
The court's assessment of procedural violations in tax control and the making decision by the tax inspection on its results as formal contradicts the principles of adversariality and disposability. The authors are afraid of extending such law enforcement practices that contribute to the replenishment of the budget, but which violate the taxpayers' right to protection.
Seven to eight years ago, courts were often critical of the taxpayer's arguments about non-compliance by inspectors with the procedure for carrying out tax control measures and processing its results, collecting evidence, reviewing verification materials and drawing up a decision to prosecute.
In the opinion of the judges, such violations are purely formal, don`t interfere with the realization of the basic rights of the taxpayer and, accordingly, do not entail the cancellation of the contested non-normative act.
Some tax experts justified the departure of courts from the recognition of tax authorities' decisions as invalid on formal reasons. At the same time, they pointed out that if the court established a non-payment of the tax, then the procedural defects of the documents in themselves don`t indicate a violation of the balance of private and public interests.
We disagree with this thesis. In our opinion, non-compliance by the inspection with the procedure for documenting and reviewing the materials of the on-site tax audit can have consequences.
Nevertheless, paying tribute to the courts (primarily arbitration), it should be noted that the decision of the inspection was still canceled, when it was impossible to establish the essence of the alleged violations from it and the act of verification.
As a result, the tax authorities began to draw up acts and decisions with a reasoning part that is relatively adequate to the requirements of the law. It seemed that the problem was exhausted, and the rules of the game were more or less defined. But this is only at first glance.
An illustration of the "advanced" judicial practice is the case, which revealed a previously unprecedented indulgence of the court to procedural violations of a formal nature, committed by the tax authority. The court was so successful in establishing objective truth that, instead of verifying the inspection decision, the law actually took over its functions and tried to carry out a second tax audit.
The crux of the matter is as follows. The inspection conducted an on-site tax audit of the Company - the construction company on the correctness of the calculation and timeliness of payment (withholding, transfer) of taxes and fees for 2011, at the end of which an act was drawn up. In the act of verification, there was no reference to any primary document. Moreover, it was impossible to understand from his text what exactly the majority of violations consisted of. In the section on the profit tax, inspectors, with the exception of certain episodes, did not even indicate which transactions (transactions), contractors, and construction objects they consider to be reasonable or unreasonable. The inspection was limited only to ascertaining the alleged underreporting of income and overstatement of expenditures. In the text of the act, the inspectors indicated amounts for certain types of expenses that they found to be justified and, on the contrary, unreasonable for tax purposes. Moreover, this document did not allow to obtain the total amounts by simply arithmetic summation of incomes and expenditures for individual episodes.
Of course, the Company didn`t have the opportunity to exercise its right to submit motivated objections to such an act, as it directly stated in the relevant document and asked the tax authority to provide detailed explanations on the alleged offenses. This requirement was ignored by the inspection.
Based on the results of review of the audit materials, the tax authority ruled that the Company should be held accountable for committing a tax offense. In this document there was a reference to some Appendix No. 4A, which wasn`t given to the taxpayer either with the act of verification or with the decision (see the text on the fields).
This isn`t the only procedural violation of the tax authority. So, he appointed review of the audit materials, taking into account additional measures of tax control before the deadline for the completion of the specified events, not having acquainted with their results the Company. In violation of clause 4 of Article 101 of the Tax Code, the inspection refused to consider the documents, submitted by the taxpayer after the expiration of the objections filed for the verification act, but before the completion of additional tax control measures. In addition, she didn`t return the originals of all primary documents to the Company after the end of the audit, which also deprived him of the right to submit motivated objections and considered the audit materials, taking into account additional measures of tax control, without having confirmation of the notification of the head of the Company about the time and place of their consideration.
In a statement to the arbitration court, the taxpayer indicated violations, committed by the tax authority and requested that its decision be declared illegal and void entirely on the basis of clause 14 of the article of the Tax Code. The Company's emphasis was on violation of clause 8 of Article 101 of the Tax Code of the Russian Federation, since this actually led to the deprivation of his right to pre-trial protection. Not understanding exactly what the imputed infringements are, it could not be effectively defended: to submit motivated objections to the verification act and appeal to the higher tax authority. Among other things, the taxpayer justified his demands with the legal position of the Presidium of the Supreme Arbitration Court of the Russian Federation.
It would seem that, under such situation, the court couldn`t fail to take into account the fact that the Company was deprived of the opportunity to submit motivated objections to offenses not reflected in the act of verification. However, the court of first instance (as well as the appellate and cassation courts, which left its decision unchanged), contrary to the principles of discretion and adversity, on which the existing arbitration procedural legislation relies, decided to seek an objective truth. Thus, the judicial process to verify a specific non-regulatory act of the inspection for compliance with the law has turned into a repeat on-site tax audit.
The Court of First Instance ignored all the arguments of the Company about significant procedural violations when conducting a tax audit, processing and review of its materials. At the same time, having failed to establish the circumstances of the infringements, committed to the taxpayer from the act and the decision of the inspection, in addition to the total sums of additional charges, the court ordered the tax authority to submit calculations indicating the counteragents, amounts, reasons for tax assessments for almost all periods.
Later, court sessions were postponed more than ten times, the part I of Article 200 of the Arbitration Procedure Code of the Russian Federation was violated and the taxpayer's right to legal proceedings within a reasonable time. The only purpose was to provide the tax authority with the opportunity to provide explanations, from which the court could determine what amounts and taxes were accrued to the Company, on what grounds, what documents it confirms. In other words, the inspection was able to fill in the information that must necessarily be in its act and decision and the absence of which entails the recognition of such a decision as invalid (paragraph 14 of Article 101 of the Tax Code).
As a result, in the reasoning part of its decision, the court of first instance acknowledged that additional charges for absolutely different episodes were justified than those that were the basis for the act and the decision of the tax authority. At the same time, the court referred to explanations and tables submitted by the inspection only at the stage of judicial review.
So, the courts, in violation of Part 3 of Article 64 of the Arbitration Procedure Code of the Russian Federation, relied on arguments and evidence, which the tax authority neither in the verification act nor in the contested decision was reflected. The decision of the inspection was not checked for compliance with the law, as required by part 4 of Article 200 of the Arbitration Procedure Code of the Russian Federation. Courts, re-examining the audit materials, additionally submitted documents and arguments of the tax authority that were not previously reflected, made a decision based on the results of the on-site inspection of the Company, which contradicts the Arbitration Procedure Code of the Russian Federation and the Federal Constitutional Law No. 1-FKZ of April 28, 1995 "On arbitration courts in Russian Federation".
Such a construction of the judicial process, substitution of competitiveness and disposability by the courts search for "objective truth" violated the right of the Company for judicial protection guaranteed by Article 46 of the Constitution of the Russian Federation. In the course of the trial, the inspection first provided explanations of the circumstances of the offenses, and then, after their refutation by the taxpayer, for the same episodes gave the court entirely different explanations based on other circumstances.
Even at the trial stage the Company was deprived as an opportunity to know which offenses are imputed to him, and the right to judicial protection guaranteed by law. Evidence is the motivation part of the court's decision, in which the amounts and offenses for one episode are taken from the earlier explanations of the tax authority without taking into account the subsequent options. In other cases, more recent explanations of the inspection were taken into account, without taking into account the position originally taken by it. However, the court did not give reasons and did not specify the criteria by which it was guided in assessing the contradictory explanations of the tax authority.
It is noteworthy that higher courts ignored the arguments of the Company, even in the part of those episodes in which the tax authority again changed in the responses to complaints the grounds for additional charges, sums and counterparts already in the courts of appeal and cassation instances, which actually pointed to the error of the first instance court decision the relevant part.
The position of the courts in the commented case can`t yet be considered typical. But given the fact that the number of examples of "pro-budgetary" law enforcement practices of individual courts is growing, it is appropriate to share the fears of extending a similar approach to resolving tax disputes. Against the backdrop of a budget deficit and a reduction in the tax base, there is a temptation to solve the task of replenishing the treasury, taking as a basis the experience of this inspection.
In addition, the catalyst for increasing the number of such judicial acts, can likely be the legal position of the Constitutional Court of the Russian Federation, which allows the tax authority to represent on the stage of judicial review of the evidence, not previously disclosed to the taxpayer (not mentioned and not described in the inspection report and the decision of the inspection). In relation to such acts and decisions in which the offense is not being disclosed at all or partially disclosed, this position of the Russian Federation Constitutional Court to allow for a convenient moment to change the inspection grounds, circumstances and tax qualified tort, and will contribute to the emergence of the institute a judicial investigation of tax offenses.
Indeed, why bother to the tax authority the collection of evidence, detailed in the inspection report attributed the offense for which the taxpayer may submit reasoned objections and thereby reduce the amount of additional charges? It is much easier to confirm the validity of its decision after the fact in court, driving, taking into account the position of the taxpayer under the circumstances reflected in the decision of the general amount of income or under-inflated costs.
In doing so, inspections can well ensure that the percentage of cases won by the taxpayer increases from "modest" 78% in the first quarter of 2014 to 100% in the very near future. But will this not lead to a decline in the business activity of the business and, as a result, a squeeze of the taxable base? Is it possible to bypass the constitutional guarantees of the rights of the taxpayer, secured by the tax and procedural legislation, as well as the Constitution of the Russian Federation, pursuing the good goal of establishing "objective truth" and replenishing the budget?