Lawyers of Pepeliaev Group successfully defended the client, a large building contractor, before the Russian Supreme Court. 

According to the tax inspectorate the company made a mistake and reimbursed VAT before time, specifically, when the transaction was concluded and not when the parties returned property and money to each other in view of the transaction being recognised as void.

The taxpayer pointed out that the mistake did not result in a loss for the state budget, and the tax authority could and should have identified it during the desk tax audit, given that it knew the details. Yet, the tax authority did not do so, and nor did it indicate the mistake or require that any adjustments be made in the tax return.

Having doubts as to whether the transaction had been documented correctly, the taxpayer applied with a query to the regional department of the Federal Tax Service, but received no exhaustive answer. Instead, without waiting for the term of the desk audit to expire the inspectorate scheduled a field audit, during which it recognised the ‘retrospective’ adjustment of the tax obligations as incorrect and pointed out that the taxpayer may perform such an adjustment only in the period when property is returned (when restitution is made). By the time the audit was completed, though, the annual deadline for such an adjustment had expired. 

As a result, the tax authority deprived the company of its right to correct the mistake and recover the tax from the state budget without actually disputing the right to the VAT refund.

The Supreme Court sided with the taxpayer and acknowledged an abuse on the part of the tax inspectorate and the injustice of additional VAT being charged in this situation.

The client was represented by a team of Pepeliaev Group’s lawyers, including Egor Lysenko, Head of the Siberian Office, Andrey Tereschenko, Partner, and Ksenia Litvinova, Head of Tax Practice Group