The Federal Commercial Court of the North-West District (the “FCC”) recently reviewed a case on holding an organisation liable for the unsubstantiated reduction of profit tax and VAT. The case had been referred to the courts because one of the organisation’s suppliers was not actually located at its registered address. In addition, errors were found on consignment notes, such as not providing (i) a clarification of the signature of the individual authorised to release goods for loading; as well as (ii) the details of the power of attorney under which goods were received for transportation.

In rejecting the arguments of the tax authorities, the FCC stated that tax legislation does not forbid accepting for accounting purposes primary accounting documents that have been inaccurately established. According to the FCC, the determining factor when setting the tax base for profit tax and VAT is the fact that the acquired goods are used for industrial purposes and recorded in the accounts.

In addition, the FCC emphasised that instances where a supplier is not located at its registered address and/or it has fewer employees than deemed necessary to fulfil a particular job description, will not be considered evidence to deny the reality of economic operations with the supplier, and it does not prove it has acted in bad faith.

It should be borne in mind that the courts of these instances have been inconsistent when applying these principles in comparable situations.

[Decree No. А13-6216/2011 of the Federal Commercial Court of the North-West District, dated 16 July 2012]