On 6 November 2012, the Presidium of the Supreme Commercial Court of the Russian Federation (the "SCC") tried a case in which it needed to rule on whether a transaction should be declared invalid.

According to the case materials, the tax inspectorate carried out a field tax audit, following which it discovered that the company had declared unjustified tax deductions. It was established that the general director of a counterparty company on behalf of whom an agreement and other respective documents were signed died before the date of signing of these documents. The inspectorate also discovered that the counterparty had neither staff nor fixed and productive assets. Referring to the above circumstances, the tax inspectorate applied to court to declare the agreement invalid due to its nullity.

Overturning the decisions of the three lower courts which had supported the position of the tax inspectorate, the SCC stated that the tax authorities are entitled to apply to court with a claim to declare agreements invalid only if this is done within the framework of monitoring compliance with tax legislation and if receipt of taxes and charges will be the result of satisfying the claim. If however, during a tax audit, it was established that the tax base was understated due to an incorrect legal qualification by the taxpayer of the relevant transactions, then the tax authorities have the right to amend the legal qualification of transactions themselves and to apply to court with a claim to levy additional taxes (penalties and fines). Therefore, an application by the tax inspectorate to court with a claim to declare a transaction invalid on the basis that it was entered into for the purposes of tax evasion goes beyond the competence of the tax inspectorate.

[Ruling No. 8728/12 of the Presidium of the Supreme Commercial Court of the Russian Federation, dated 6 November 2012]