In a recent decree, the Supreme Arbitration Court of the Russian Federation (the "SAC") has put an end to the dispute on pre-trial appeals against refusals of VAT recovery, indicating that companies are obliged to make pre-trial petitions against such refusals to the higher tax authorities.
The ambiguities relating to appeals against refusals to allow VAT recovery arose from the tax authorities' delivery of two procedural decisions on the matter:
- refusing to hold a party liable for taxes; and
- refusing VAT recovery based on the above-indicated decision.
Current legislation does not stipulate an obligatory pre-trial appeal against a decision to refuse VAT recovery. However, the SAC has concluded that challenging this decision is not possible without the higher tax authorities first having reviewed the facts and circumstances that serve as the basis for taking the decision to refuse to hold a party liable for taxes.
Consequently, companies will be required to follow the pre-trial dispute-resolution procedure by appealing against refusals to allow VAT recovery with the higher tax authorities prior to going to the courts. That being said, the SAC does not clarify whether it is obligatory to appeal against both of the decisions or only the one refusing VAT recovery.
[Decree No. 18421/10 of the Supreme Arbitration Court of the Russian Federation, dated 24 May 2011, on case No. А64-1616/2010]