Following an audit, the tax authority determined that prices for controlled transactions of grains had been below the arm’s length price and issued an assessment of additional taxable income.
According to the tax authority, the correct application of the arm’s length principle in this case required the price of the controlled transaction to be compared with the prices (price range) of comparable uncontrolled transactions on the basis of the information available on the date closest to the date of the controlled transaction – and not on the date where the controlled contract had been concluded. For that purpose, the tax authorities had looked at prices from a different sources including non-public databases.
An appeal was filed by “Novo-Sanzharsky Grain Storage LLC” with the Administrative Court.
Judgment
The Administrative Court decided in favour of “Novo-Sanzharsky Grain Storage LLC” and annulled the tax assessment issued by the tax authorities.
Excerpt in English
“The task of administrative court proceedings is to effectively protect the rights, freedoms and interests of individuals, rights and interests of legal entities from violations by public authorities.
Accordingly, if an interested person files a claim with the court, the administrative court must provide a legal assessment of the actions of the authority in making a decision and check its compliance with the criteria of legality, which are applied to the decisions of the authority and which are enshrined in Article 2 of the Code of Administrative Procedure of Ukraine.
In other words, regardless of the decision taken by the taxpayer on admission (non-admission) of officials to the audit, when challenging the results of the audit conducted by the controlling authority in the form of tax notices-decisions and other decisions, the taxpayer is not deprived of the opportunity to refer to violation by the controlling authority of the requirements of the legislation on conducting such an audit, if it believes that they cause the unlawfulness of such tax notices-decisions. At the same time, as noted above, such grounds of claim, if any, should be given a legal assessment by the courts in the first instance.
Thus, the fact that the specialists of the controlling authority were allowed to conduct an audit is not a basis for an indisputable conclusion about the legality of the appointment and conduct of such an audit, and, accordingly, the arguments of the controlling authority in this regard are groundless.
Similar conclusions on the application of the law were formulated by the Supreme Court as part of the panel of judges of the Administrative Court of Cassation in its decision of 21 May 2024 in case No. 440/8798/22.
Taking into account the established circumstances of the case and the legal regulation of the disputed legal relations, the court concludes that there are sufficient factual and legal grounds to declare unlawful and cancel the tax notice-decision of the Main State Tax Service in Poltava region No. 000123632302 dated 28.12.2023 in full solely on the grounds of unlawfulness of appointment and conduct of the audit in accordance with paragraph 522 of subsection 10 of section XX of the Transitional Provisions of the Tax Code of Ukraine.
Therefore, the claim should be satisfied in full.”
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