Tax Digest #6: Court cases 2019
Summarizing the results of 2019, we present to your attention an overview of the most important tax litigations.
1. The Ruling of the Supreme Court of the RF dated 12.07.2019 # 307-ЭС19-5241 on case # А05-879/2018, Lesozavod 25 JSC (Recognition of the equipment as movable property)
The Supreme Court judicial board decided that any machinery and equipment not specially classified as part of immovable property (e.g. communications inside the buildings necessary for their operation; equipment of built-in boiler plants, water-, gas- and heat-conducting devices, as well as sewerage devices) should be deemed as movable property for the purpose of the Tax on the Assets of Organizations (Property Tax).
The fact of installation of equipment in a building specially designated for its operation, including if subsequent relocation of the equipment will require additional costs and partial liquidation of the building, does not mean that the purpose of the equipment is maintenance of the building.
2. The Ruling of the Supreme Court of the RF dated 13.12.2019 # 301-ЭС19-14748 on case # А43-5424/2018, Sladkaya Zhizn’ LLC (VAT offset from the cost of advertising leaflets)
The Supreme Court judicial board decided that the taxpayer was eligible to offset the VAT from the cost of advertising leaflets due to the following:
- for VAT deduction there should be the objective relationship between the acquisition operations and the related sale operations, or, when the costs are general in nature and cannot be correlated with each unit of goods, work and services sold — costs should be generally directed to ensure VATable activities;
- as an advertising is always aimed at attracting attention to the subject of advertising and its promotion; therefore, the purchase of advertising leaflets to promote the subject of advertising, whose sales are VATable, is related to VATable activities, therefore, the taxpayer is eligible to offset the input VAT.
3. The Ruling of the Supreme Court of RF dated 30.05.2019 # 305-ЭС19-4394 on case # А40-125588/2017, Orion International Euro LLC (About deduction of expenses on banners on public service vehicles)
The Supreme Court judicial board ruled that expenses incurred for producing and application of advertising banners on public service vehicles (i.e. trams, trolley buses, buses, etc.) should be recognized deductible without limitations alike any banners immobile – outdoor / exterior advertising.
4. The Judgment of the Moscow Regional Arbitrazh (State Commercial) Court dated 11.09.2019 on case # А40-142855/2018, ONEXIM Group LLC (On the risks of managing offshore companies from Russia)
Cassation court judicial board ruled that for the purpose of “place of supply” rules the place of management should be determined based on the location of the executive bodies of foreign buyers.
5. The Ruling of the Supreme Court of RF dated 26.08.2019 # 309-КГ18-26166 on case # А47-9881/2017, Ural’skaya metallolomnaya kompaniya LLC (Tax accounting and deduction of expenses incurred for managing the subsidiaries)
The Supreme Court judicial board ruled that there is no special limitations for deduction of expenses incurred for managing the subsidiaries as well as there is no rule in tax law to divide these expenses between tax bases for dividend incomes (0% tax rate) and incomes from sales (20% tax rate), because tax base for dividend incomes is the full amount of dividends received, but not the profit (income minus expenses).
6. The Ruling of the Supreme Court of RF dated 14.11.2019 # 305-ЭС19-14421 on case # А41-76253/2018, LLC KRKA Pharma (On applying the clarifications of the Federal Tax Service)
Clarifications of the Federal Tax Service published and sent to the tax authorities can lead to taxpayers' legitimate expectations regarding the assessment of their behavior by the State.
Courts should assess the legitimacy of tax inspectorates' decisions considering whether the inspectorate’s actions were in line with the clarifications of the FTS.
7. The Decision of the Arbitrazh (State Commercial) Court of Moscow dated 22.11.2019 on case # А40-118135/2019, Agroaspect LLC, Trade House Perekrestok JSC – X5 Retail Group (Obtaining unjustified tax benefits from the restructuring)
The Court decided that as in the chain of restructuring transactions there were no clear business purpose, including no changes in holding structure except intra-group changings of the participants of some of the entities in a group, but there were only tax benefits, these benefits should be deemed unjustified.
8. The Judgement of the Moscow Region State Arbitrazh Court of RF dated 27.01.2020 on case # А40-40782/2018, JSC Erich Krause Finland (Purchasing services through intermediary “nominal” company residing in offshore jurisdiction)
Tax inspectorate ruled that since the counterparty of the taxpayer reside in offshore jurisdiction could not and did not provide the services, rendered in fact by the third party, the deduction of the expenses under the transaction were disallowed.
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