Court supported legality of position of tax officials

The Grand Chamber of the Supreme Court considered in order of written proceedings cassation appeal of Main Directorate of the State Tax Service in Kyiv region in case No. 320/12137/20 on the claim of a legal entity for collection of fines, inflationary losses, expenses and moral damages from the State budget of Ukraine.

Satisfying claims in part, the court of first instance, with conclusion of which the appellate court also agreed, proceeded from the fact that in the judicial procedure, based on the consideration result of case No. 320/1844/19, it was established that right to charge penalty at the 120 percent level of the discount rate of the National Bank of Ukraine for violation of terms of budget reimbursement, the plaintiff had in connection with illegal inaction of tax authority regarding the failure to submit a conclusion to the treasury service body indicating the VAT amount declared for budget reimbursement according to the declaration for February 2014, as being inconsistent.  

In addition, courts of the first and appellate instances reached a conclusion on the application to disputed legal relations in terms of collection of inflationary losses and 3 percent per annum according to provisions of Article 625 of the Civil Code of Ukraine, which provide for civil liability for non-fulfillment of a monetary obligation. Such conclusions of the courts of both instances are substantiated by the legal position of the Grand Chamber of the Supreme Court set out in ruling in case No. 910/4590/19 as of 04.07.2020, regarding the transfer of such a dispute to the jurisdiction of administrative courts. Also, the courts of previous instances took into account legal opinion of the Supreme Court set out in ruling in case No. 922/1008/16 as of 13.06.2018, regarding the unlawful collection of 3 percent per annum for a day when money were paid (collected).  

Satisfying claims in part of collection in the claimant’s favor of inflationary losses, the courts of the first and previous instances proceeded from compliance of accrual with norms of the Law of Ukraine No. 1282-XII as of 03.07.1991 "On indexation of monetary incomes of the population" and Procedure for indexation of monetary incomes of the population, approved by ruling of the Cabinet of Ministers of Ukraine No. 1078 as of 17.07.2003.  

Based on the content analysis of provisions of Article 7 of the Code of Ukraine on Bankruptcy Procedures, the appellate court came to the conclusion that in order to refer case to the jurisdiction of commercial courts, property claims in the litigation must be directly related to the bankruptcy proceedings.

Deciding on the jurisdiction of dispute, the appellate court pointed out that special rule for determining jurisdiction in this case should be Paragraph 8 of Part 1 of Article 20 of the Commercial Procedure Code of Ukraine, according to which commercial jurisdiction does not include disputes about determination and payment (collection) of monetary obligations determined according to the Tax Code of Ukraine.

Based on the fact that provisions of the procedural law have a prevailing effect resolving conflicts regarding selection of appropriate court jurisdiction, the appellate court concluded that disputes within the bankruptcy case, where one of the parties is a tax authority, by nature and content relations are related to the determination and payment (collection) of monetary obligations according to the Tax Code of Ukraine. Since such claims relate primarily to the verification of legality of actions of the subject of power, the appellate court came to the conclusion that claims within the scope of this dispute are subject to consideration in order of administrative proceedings.  

Rejecting argumentations of Main Directorate of the State Tax Service in Kyiv region regarding the jurisdiction of cases of this category to commercial courts with reference to conclusions of the Grand Chamber of the Supreme Court set out in ruling as of 21.09.2021 in case No. 905/2030/19, the appellate court noted that the subject of dispute in the specified case is tax notification-decision. Instead, the subject of dispute in this case is collection from the State budget of Ukraine in the plaintiff’s favor of fines, inflationary losses, expenses and moral damages.

One of the reasons for challenging court decisions in the cassation appeal of Main Directorate of the State Tax Service in Kyiv region is violation by the courts of previous instances of the jurisdiction rules of this dispute and adoption of the contested decisions without taking into account legal position of the Grand Chamber of the Supreme Court set forth in ruling in case No. 905/ 2030/19 as of 21.09.2021, since bankruptcy proceedings have been opened against the plaintiff, and by decision of the Commercial Court of Kyiv region as of 07.05.2016 in case No. 911/3456/15, the plaintiff has been declared bankrupt and liquidation proceedings have been opened.  

The Grand Chamber of the Supreme Court in the ruling in case No. 320/12137/20 as of 04.13.2023 regarding the jurisdiction of dispute noted that the taxpayer’s demands (including after opening of bankruptcy proceedings and recognition of him as bankrupt with opening of the liquidation proceedings against him) on collection from the controlling body in the plaintiff’s favor of penalty for the amount of budget arrears from VAT according to Paragraph 200.23 of Article 200 of the Tax Code of Ukraine, inflationary losses and annual interest due to the nature and content of relationship are precisely related to the existence of budget arrears for the VAT reimbursement, which is regulated by regulations of the Tax Code of Ukraine. Such claims relate primarily to the verification of legality of actions of the subject of authority, and resolving a dispute about collection of fines, inflationary losses and annual interest from the budget, question of amount of the VAT arrears, payment term of such arrears and duration of the delay must arise before the court. The above specified testifies to the public-legal nature of such dispute, and therefore this dispute is subject to consideration precisely according to rules of administrative proceedings.

Rejecting argumentations of the controlling body that the plaintiff missed deadline for applying to the court with a demand for collection of penalty for a period from 21.04.2014 to 04.04.2018, the courts of the first and appellate instances noted that claim for collection of penalty for the amount of untimely reimbursed VAT from the State budget of Ukraine can be declared within the time limit established by Paragraph 102.5 of Article 102 of the Tax Code of Ukraine for submitting application for reimbursement of the overpaid monetary obligations, i.e. within 1 095 days. Herewith, the courts of previous instances noted that the time limit for applying to the court with legal claims for collection of penalty charged on the amount of budget debt for the VAT reimbursement should be calculated from the next day after its actual repayment. Therefore, the specified claim can be filed within the time limit established by Paragraph 102.5 of Article 102 of the Tax Code of Ukraine, i.e. within 1 095 days from a day after the full payment of budget reimbursement by the tax authority, since interest is a sanction that is calculated from the first day of a delay in returning budget reimbursement until the reimbursement is issued.

The Grand Chamber of the Supreme Court considers conclusions of the courts of previous instances to be erroneous in view of such considerations.

Establishment of procedural terms is provided by the law for disciplining participants of administrative proceedings and their timely performance of certain procedural actions stipulated by the Code of Administrative Proceedings of Ukraine.

The Grand Chamber of the Supreme Court notes that Parts 2 and 3 of Article 122 of the Code of Administrative Proceedings of Ukraine clearly define moment with which the start of counting period for applying to the administrative court is connected, namely from a day when person learned or should have learned about the violation of his rights and freedoms or interests.

Comparative analysis of the word forms "found out" and "should have found out" gives grounds for conclusion about presumption of the possibility and obligation of a person to know about the state of his rights. Ignorance of violation due to indifference to one's rights or unwillingness to find out is not valid reason for missing deadline for filing a lawsuit.

In its rulings, the Grand Chamber of the Supreme Court has repeatedly drawn attention to the fact that valid reasons are recognized only those circumstances that were objectively insurmountable, that is, did not depend on the will of a person who filed administrative lawsuit, are related to really significant circumstances, obstacles or difficulties that made it impossible to go to the court in a timely manner. Such circumstances must be confirmed by appropriate and proper evidence.

Tax Code of Ukraine does not contain direct rule that would determine terms of applying to the court with requirements aimed at protecting and restoring the violated rights of taxpayers in relations that arise in connection with untimely reimbursement of the VAT by the state.

Statute of limitations of 1 095 days, established by Article 102 of the Tax Code of Ukraine, applies, in particular, to right of the controlling body to conduct audit and independently determine amount of monetary obligations (Paragraph 102.1); tax debt collection (Paragraph 102.4); the taxpayer’s right to submit application for reimbursement of the overpaid monetary obligations or their compensation (Paragraph 102.5); the taxpayer’s right to appeal tax notification-decision in the court or other decision of the controlling body (Paragraph 56.18 of Article 56).

At the same time, provisions of Paragraph 102.5 of Article 102 of the Tax Procedure Code of Ukraine do not regulate issues of time limits for appeals to the administrative court, but only establish time limit for the taxpayer to submit application to the controlling body for reimbursement of the overpaid monetary obligations or for their compensation in cases provided for by this Code.

In case under consideration, there are no grounds for taking into account provisions of Paragraph 56.18 of Article 56 of the Tax Code of Ukraine, since the latter, establishing special time limits for applying to the court, overrides Article 102 of this Code and exclusively regulates legal relations regarding the appeal of tax notification-decision or other decision of the controlling body.

In case of untimely reimbursement of the VAT debt and/or interest charged on such debt, the payer, applying to the court, actually asks to protect his right to receive the specified funds, which remain unpaid due to the failure to fulfill a complex of entrusted duties by the subject of authority. Therefore, the subject of appeal in such case is relevant inactivity of the subject of authority, and therefore, provisions of Article 102 of the Tax Code of Ukraine, to which Paragraph 56.18 of Article 56 of this Code refers, cannot be applied.

Taking into account above specified, Article 102 of the Tax Code of Ukraine, including Paragraph 102.5 of this Article, is not the "other law" that establishes special deadlines for applying to the court with requirements aimed at protecting and renewing the violated rights of taxpayers in relations arising in connection with untimely budget reimbursement of the VAT debt and/or interest charged on such debt, and therefore provisions of Part 2 of Article 122 of the Code of Administrative Procedure of Ukraine, which provides for a general six-month period of appeal to the administrative court, are applicable to disputed legal relations.

The Grand Chamber of the Supreme Court summarizes, the VAT payer can apply to the administrative court with requirements to recognize as illegal inaction of the subject of authority to repay debt for VAT reimbursement and/or penalty charged on such debt, within six months from the day when person became aware or should have learned about the violation of his/her rights, freedoms or interests.

At the same time, upon conviction of the Grand Chamber of the Supreme Court, a change in legal regulation, change by the Supreme Court in the protection method of the violated right and factual circumstances regarding the impossibility of exercising right by a person confirmed in the prescribed manner, list of measures aimed at achieving this goal are subject to evaluation by the court upon the claimant's application to renew missed term of appeal to the administrative court in each specific case clarifying seriousness of reasons for missing this term.

Therefore, by ruling of the Grand Chamber of the Supreme Court in case No. 320/12137/20 as of 13.04.2023, the cassation appeal of Main Directorate of the State Tax Service in Kyiv region was partially satisfied, decision of the Kyiv District Administrative Court as of 01.06.2021 and decision of the Sixth Administrative Court of Appeal as of 19.10.2021 were annulled; case was referred to the court of first instance for a new trial.