The reality of operations as a condition for deducting VAT
The value added tax can be presented for deduction by submitting to the tax authority a package of documents for the operation for which the deduction is claimed. In addition to the package of documents drawn up in accordance with the law, the operation itself must be real, that is, held in business circulation and pursuing a business goal — making profit.
If the tax authority, having considered the package of documents, comes to the conclusion that the operation was not real, the deduction will be denied.
Plot of affairs
The tax authority following the results of the on-site tax audit concluded that the company received an unjustified tax benefit under contracts with six counterparties.
As follows from the documents, under the contract for the installation of a hangar in one of the villages of the Arkhangelsk region, the work could not be performed: this is the territory of the military unit, a visit to the village is carried out on the basis of a special permit, and during the period when the contract was carried out, the hangar was installed is prohibited.
According to the documents of the company, the installation of the hangar was carried out on the site owned by her, which was refuted by representatives of the armed forces.
Under the contract for the dismantling of metal structures on the territory of the same village, no work was carried out either: the dismantling was carried out by military personnel of a military unit, and not by the contractor under the contract. The military had no contractual relationship with the contractor of the company.
According to another contract concluded for the purpose of laying brick walls and building partitions, the company had a counterparty, whose director was a "mass director" (director and founder of more than 20 companies). Examination of the signature indicated that the documents were signed not by the director, but by other persons. The director himself indicated that he had never been to the Arkhangelsk region, he does not know the director of the company.
The contractor for the piling contract corresponds to the characteristics of an organization created not for the purpose of carrying out real business activity: there is one employee in the staff, there are no resources to perform the work, and the testimony of witnesses indicates that the company itself performed the work under the contract.
Also, the tax authority determined the inconsistency of information about suppliers of organizations that were contractors of the company under contracts, inconsistency in the texts of contracts and closing documents.
Companies were assessed taxes, fines and penalties. The company appealed the decision of the tax authority. The court recognized the legal decision of the tax authority.
Judicial act: Resolution of the Arbitration Court of the North-Western District of October 10, 2018 in the case of A05-14016 / 2017
The findings of the court:
1. When making a decision, the court was guided by the fact that every transaction reflected in the accounting records must be real: it must be held for a business purpose (profit).
2. The court for each of the contracts for which deductions were claimed, considered signs of the presence or absence of reality. In a situation with a closed settlement, the absence of reality was obvious, as well as in a situation with a “mass director” and in a situation with a company that was not created for doing business.
3. The court indicated that the fact of a company’s disagreement with the findings of the tax authority cannot in itself constitute grounds for invalidating the decision of the tax authority.
Comments:
1) The reality of operations is one of the basic conditions for the submission of VAT deductible: the operation must take place in the past in accordance with the terms of the contract, and the counterparty under the contract must have sufficient material or other (human resources) base for the execution of the contract.
2) Signs of unreality of operations: the contracting party under the contract - with a “mass director”, was not created for business activities, he does not have the material base, the work in principle could not be carried out at the facility or there are no documents confirming that entry into the territory was allowed, where the object is located, and other similar signs.
3) When conducting business, the taxpayer is obliged to exercise due diligence and carefully approach the choice of counterparty under the contract.
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