The Supreme Court confirmed that if a value added tax payer begins to use goods, services, non-current assets that were previously purchased with value added tax with the formation of a tax credit for these amounts, in transactions that are not the taxpayer’s economic activity, it is necessary to calculate tax liabilities for value added tax based on the tax base determined in the manner established by Clause 189.1 of Article 189 of the Tax Code of Ukraine (except for cases established by Clause 189.9 of Article 189 of this Code). To conclude that there are grounds for calculating tax liabilities on the basis of the provisions of Subclause 198.5 of Article 198 of the Tax Code of Ukraine, it is necessary to establish the fact of non-taxable or non-economic use of goods or services and non-current assets.
The Supreme Court, by its resolution in case No. 360/4169/21, dismissed the cassation appeal of the Main Department of the State Tax Service in Luhansk region and left unchanged the decision of the Luhansk District Administrative Court of November 22, 2021 and the resolution of the First Administrative Court of Appeal of October 25, 2023.
Circumstances of the case
LLC “GREEN LOGISTICS” filed a lawsuit with the court to declare illegal and cancel the tax notices-decisions dated July 8, 2021 No. 1341/12320703, No. 1342/12320703 and dated July 15, 2021 No. 1398/12321805.
The tax authority concluded that the plaintiff violated clause 198.2, subparagraph “g” of clause 198.5 of Art. 198, p. 189.1 art. 189, p. 201.10 art. 201 of the Tax Code of Ukraine and overestimation of the amount of budget VAT reimbursement for March and April 2021.
In particular, the tax authority believed that:
the VAT amounts for vehicles purchased on March 9, 2021 (MAN TGS 28.440 car and WIELTON PS3 trailer) cannot be attributed to the tax credit, since the main purchase and sale agreement and registration took place only on March 10, 2021;
spare parts, brake fluid and car branding services purchased in March 2021 were used in transactions not related to the taxpayer’s business activities.
Decisions of the courts of previous instances
The Luhansk District Administrative Court, by its decision of November 22, 2021, left unchanged by the decision of the First Administrative Court of Appeal dated October 25, 2023, satisfied the claim: it declared the contested tax notices-decisions unlawful and canceled them.
The courts established that:
the date of receipt of the goods is the date of the invoice dated March 9, 2021, and not the date of conclusion of the main contract or registration of the vehicles;
the purchased vehicles and spare parts were used in the plaintiff’s business activities, which is confirmed by primary documents;
the on-site inspection for April 2021 unlawfully took into account the conclusions of the documentary unscheduled inspection.
Position of the Supreme Court
The Supreme Court left the cassation appeal unsatisfied, and the decisions of the courts of previous instances unchanged.
The Court of Cassation reached the following conclusions:
From the analysis of the above tax legislation norms, it follows that the norm of Clause 187.1 of Article 187 of the Tax Code of Ukraine establishes the rule that a tax invoice is drawn up on the day of the occurrence of VAT tax liabilities by the payer – supplier of goods/services, determined according to the rule of the “first event”. Such a tax invoice, registered in the Unified State Register of Taxes in accordance with the procedure established by law, is the basis for the payer – buyer of goods/services to attribute the tax amounts indicated in it to the tax credit;
The term “shipment of goods” used in Clause 187.1 of Article 187 of the Tax Code of Ukraine is understood not as the fact of the emergence of ownership of goods, but as the beginning of the process of physical movement of goods from the place of their permanent location (storage) with the supplier, or other transfer of property formalized in accordance with the procedure established by law. Similarly, the concept of “receipt of goods/services” provided for in paragraph 198.2 of Article 198 of the Code of Civil Procedure of Ukraine should be considered as the beginning of the process of receiving and accounting for goods from the supplier. Both of these transactions provide that the fact of their commission must be formalized in the relevant primary document, drawn up in accordance with the requirements of accounting. Therefore, for the purposes of tax accounting for value added tax, the basis for the formation of tax liabilities and tax credit for VAT by taxpayers are the relevant primary documents that certify the fact of a change in the structure of assets and liabilities, equity of the business entity. Expense invoices dated March 9, 2021 are the appropriate primary document confirming the fact of receipt of vehicles; a tax invoice drawn up on this date and registered in the Unified State Register of Taxes and Customs Unions gives the right to a tax credit. The court of cassation notes that the date of receipt of goods/services by the buyer may differ from the date of shipment of such goods/services. However, in the disputed legal relations, there is no reason to believe that the plaintiff received the vehicles later than March 9, 2021.
Before the date of receipt of the goods, has lawfully attributed the relevant VAT amounts to the tax credit.
In accordance with Clause 198.5 of Article 198 of the Tax Code of Ukraine, the taxpayer is obliged to calculate tax liabilities based on the tax base determined in accordance with Clause 189.1 of Article 189 of this Code, and to draw up no later than the last day of the reporting (tax) period and register in the Unified Register of Tax Invoices within the terms established by this Code for such registration, a consolidated tax invoice for goods/services, non-current assets (for goods/services, non-current assets purchased or manufactured before July 1, 2015, – if during such purchase or manufacture the tax amounts were included in the tax credit), if such goods/services, non-current assets are intended for their use or begin to be used: a) in operations that are not subject to taxation in accordance with Article 196 of this Code (except for cases of operations provided for in Subclause 196.1.7 of Clause 196.1 of Article 196 of this Code) or the place of supply of which is located outside the customs territory of Ukraine; b) in transactions exempt from taxation in accordance with Article 197, Subsection 2 of Section XX of this Code, international treaties (agreements) (except for the cases of transactions provided for in Subsection 197.1.28 of Clause 197.1 of Article 197 of this Code and transactions provided for in Clause 197.11 of Article 197 of this Code); c) in transactions carried out by the taxpayer within the taxpayer’s balance sheet, including transfer for non-productive use, transfer of production non-current assets to non-production non-current assets; d) in transactions that are not economic activities of the taxpayer (except for the cases provided for in Clause 189.9 of Article 189 of this Code). Therefore, if a value added tax payer begins to use goods/services/non-current assets that were previously purchased with value added tax with the formation of a tax credit for these amounts in transactions that are not the taxpayer’s economic activity, then he must calculate tax liabilities for value added tax based on the tax base determined in the manner provided for in Clause 189.1 of Article 189 of the Tax Code of Ukraine (except for cases provided for in Clause 189.9 of Article 189 of this Code). To conclude that there are grounds for calculating tax liabilities on the basis of the provisions of Subclause 198.5 of Article 198 of the Tax Code of Ukraine, the fact of non-taxable/non-economic use of goods (services) and non-current assets must be established. In the resolution of May 23, 2023 (case No. 640/8449/20), the conclusions of which the complainant refers to for not being taken into account, the Supreme Court, analyzing the above-mentioned norms of tax legislation, concluded that the legal regulation introduced by subparagraph “g” of paragraph 198.5 of Article 198 of the Tax Code of Ukraine consists in the fact that a previously formed tax credit is withdrawn (written off) by calculating tax liabilities. At the same time, it should be noted that the period in which the VAT amounts were included in the tax credit and the period in which, under the conditions specified by the Tax Code of Ukraine, monetary liabilities should be calculated in accordance with subparagraph “g” of paragraph 198.5 of Article 198 of the Tax Code of Ukraine, do not necessarily have to coincide. Accordingly, when verifying the correctness of the formation of a tax credit, the subject of proof is the circumstances that occurred at the time of attributing VAT amounts to the tax credit, and when resolving the issue of the taxpayer’s obligation established by subparagraph “d” of paragraph 198.5 of Article 198 of the Tax Code of Ukraine, the circumstances that occurred during the period of establishing the fact of the cessation of use of the goods/non-current asset in the taxpayer’s own economic activity;
Regarding brake fluid and car branding services, which the complainant notes were not used for any of the vehicles as of March 31, 2021, the court of cassation notes that paragraph ten of paragraph 198.5 of Article 198 of the Code of Civil Procedure of Ukraine provides that if, at the time of the taxpayer’s inspection by the controlling body, a shortage of goods purchased by such a taxpayer is detected in the act of a selective (partial) inventory conducted by the taxpayer at the request of such body (except for the case where such shortage is due to destruction due to force majeure circumstances, which is confirmed in accordance with the legislation), for the purposes of Section V of this Code, such goods are considered to be used by the taxpayer in transactions that are not the taxpayer’s economic activity. Therefore, the taxpayer’s conduct of an inventory of goods at the request of the controlling body during a tax audit is the only legally established means of proving the lack or availability of goods at the taxpayer’s disposal and, accordingly, the use or non-use by the taxpayer of such goods in transactions that are not the taxpayer’s economic activity. Such a position is not
