Background
The Main Department of State Tax Service in Rivne region conducted a tax audit and imposed tax liabilities and fines totaling UAH 100 million on a national supermarket chain. The claims alleged that the chain had evaded taxes through the use of a large number of individual entrepreneurs.
The First Round of Consideration
ASA Group’s team entered the litigation after the Client lost the first instance and appellate courts. After a detailed study of the Client’s position and court decisions in previous instances, ASA Group’s attorneys identified significant gaps, which they used as arguments to prepare a cassation appeal.
Upon consideration of the cassation appeal, the Supreme Court overturned the decisions of the courts of previous instances and remanded the case for a new trial. The main motivation of the Court: the criminal case materials underlying the conclusions of the lower courts are not solely evidence of violations, so the courts must “consider other evidence”.
The Second Round of Consideration
In the course of the new trial, the courts of first and appellate instances again upheld the position of the tax authorities and dismissed the claim of the supermarket chain.
ASA Group’s attorneys again went to the Supreme Court, which confirmed our arguments and the developed position of the Client’s defense.
Why the Supreme Court overturned the decisions of the lower courts for the second time:
- the courts failed to comply with the Supreme Court’s instructions, again focusing their conclusions solely on the criminal case file and not examining other evidence
- the courts mistakenly identified management reports with primary documents
- the case files do not contain documents referred to by the courts as evidence of violations – the courts simply repeated the position of the tax authorities without even checking whether the relevant evidence and documents are in the case files
- the courts formally considered the conclusion of the expert examination conducted during the pre-trial investigation of the criminal case, which confirmed the absence of documentary evidence of violations.
The Supreme Court in its decision additionally confirmed such positions in the context of tax disputes, namely:
- protocols of investigative actions, interrogations (explanations) can be recognized as evidence only if they are reflected in the course of consideration of the criminal case in court
- before the verdict is passed in criminal proceedings, the protocol of interrogation of a witness cannot be considered as proper evidence in administrative proceedings
- the information reflected in the witness interrogation protocol may be recognized as proper and admissible evidence in an administrative case only if the person confirms such information directly during the trial
- even a court verdict cannot be an indisputable proof of tax law violations – such a verdict should be evaluated by the administrative court in conjunction with other evidence.
In forming such conclusions, the Supreme Court also referred to the resolution of the Grand Chamber of the Supreme Court dated July 07, 2022 in case No. 160/3364/19 and the resolution of the Supreme Court dated January 16, 2024 in case No. 815/749/17).
Results
As a result, thanks to the professional work of ASA Group Managing Partner Igor Mlechko and ASA Group attorney Natalia Pysmenna, the Client received the following benefits:
- a full tax audit of the Client was conducted in preparation for the project, which allowed the Client to assess all additional risks in tax accounting
- won a victory in an almost lost case, because without appealing the decisions of the courts of previous instances by the ASA Group team, the Client risked stopping the work of some of the retail outlets
- UAH 100 million of the Client’s working capital was saved, which allows him to continue working, investing these funds in business development, and paying salaries.
