Refusal of VAT refunds in 2021 and 2021

Refusal of a VAT refund is a fairly common occurrence on the part of the tax service. Usually it is the result of a desk audit of a tax return, but sometimes the already refunded tax is restored after an on-site audit of the taxpayer or his counterparties. About the current judicial practice and the most common reasons for refusal - in the material PPT.ru.

Cancellation of the refund can be complete or partial, and the grounds for refusing a VAT refund vary, but cannot go beyond the scope of the articles of the Tax Code. A taxpayer who has been denied a tax refund has the right to act depending on the circumstances and the real state of affairs: challenge the decision of the Federal Tax Service or agree with it and pay the arrears. Judicial practice has long been established in this kind of cases, but it is not unambiguous. Let's look at all this in more detail and consider when, and most importantly, under what circumstances, arbitration courts rejected taxpayers following the Federal Tax Service.

Errors in documents

This reason is the most common for refusing a VAT refund, but at the same time the easiest to appeal in court. In such cases, there are the most positive court decisions for taxpayers.

Due to the fact that one of the grounds for applying a VAT deduction is the invoice, the most errors, as a rule, are found in this document. The standard grounds for refusal to apply the right of deduction, and, accordingly, VAT refund in such cases are:

Signing of a document by unauthorized persons. Judicial practice on the possibility of deducting VAT on an invoice signed by an unauthorized person is contradictory. When the tax authority manages to convince the judges that the invoice was signed by a person who did not have the right to do so, the courts most often refuse to apply the deduction (resolutions of the FAS ZSO dated 02/05/2014 in case No. A27-279/2013, FAS MO dated 08/06. 2013 in case No. A40-143375/12-108-225 and others).

See also “Invoice with facsimile: new clarifications from the Ministry of Finance.”

The court also sided with the inspectors in a case where the customer, performing an intermediary role, incorrectly issued an invoice. These actions violated paragraph 6 of Article 169 of the Code in terms of the signing of the invoice by officials or authorized persons of the supplier, and not the intermediary (decision of the Moscow City Court of May 29, 2013 No. A40-9840/13-39-33).

Find out if one person can sign an invoice here.

At the same time, there are also decisions in which judges accept as justification for VAT deductions invoices signed by unauthorized (unidentified) persons (resolution of the Supreme Arbitration Court dated April 20, 2010 No. 18162/09, FAS North-West District dated February 1, 2011 No. A66 -3490/2010, FAS CO dated November 16, 2010 No. KA-A40/2493-09).

Indication of the actual address of the buyer instead of the legal address given in the Charter. In most cases, this is considered an error, since the law does not separate the addresses of legal entities - there is one, which is indicated in the constituent documents. Therefore, judicial practice on challenging denials of deductions due to this error is ambiguous. There are many negative decisions for taxpayers, but there is also positive practice, which is based on the judges’ opinion that Article 169 of the Tax Code, in particular paragraphs 5 and 6, does not clearly state which address should be indicated. Therefore, this reason for the tax authorities’ refusal to deduct is not sufficient for judges to justify the decision (Resolution of the Federal Antimonopoly Service of the Moscow Region dated 04/08/2009 No. KA-A40/2493-09).
Discrepancy between the amount of the cost of goods and that calculated by the inspectors or indicated in the contract (without taking into account changes made later). In this case, we are talking about situations where inspectors compare the cost of goods in the invoice with that stated in the contract, but do not take into account changes made later to the contract. Or when the tax inspector himself calculated, for example, the work performed from the documentary information available to him, and this amount did not coincide with the one that was displayed in the invoice. Traditionally, deductions are denied using the justification contained in paragraphs. 8 clause 5 art. 169 of the Tax Code of the Russian Federation. However, if it is possible to prove in court that the inspectors’ opinion is wrong and document this, then there is a possibility of obtaining a positive decision.
Errors in the counterparty's checkpoint number, lack of numbering of sheets if the document is multi-page. However, for these and other similar reasons, tax inspectors cannot refuse a deduction, since this contradicts paragraph 2 of Article 169 of the Tax Code.
Cases when the invoice reflects little information, in particular, some information is missing (for example, about quantity, units of measurement, tariff, amount excluding VAT or conditions for advance payment), but the rest of the documents were in perfect order and all other conditions for accepting VAT for deduction were met. Typically, such errors in registration lead to denial of the right to deduction, and judicial practice confirms the conclusions of inspectors.

But there is a case when the FAS ZSO, in its resolution dated February 14, 2013 No. A03-1222/2012, came to the conclusion that such shortcomings in the preparation of the invoice did not lead to the receipt of an unjustified tax benefit. The court proceeded from the presumption of good faith of the taxpayer, and it was also found that the information specified in the tax returns was reliable. The court referred to the decision of the Constitutional Court of October 16, 2003 No. 329-O.

See also our material “What errors in filling out an invoice are not critical for VAT deduction?”

However, there are also negative court decisions taken not in favor of taxpayers. However, this was due to such severe cases that such decisions are not surprising. In particular, the tax service justifiably refused to refund the tax in a situation where a deduction was accepted from a company that had not been registered as a legal entity (Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 01.02.2011 No. 10230/10 and decisions of the courts of first instance).

Lack of documents

Another common reason for refusal of VAT refund is the lack of documents, in particular invoices (Form 1-T). In this case, there is contradictory judicial practice, but there are also decisions that are positive for taxpayers - for example, Resolution of the Federal Antimonopoly Service of the Moscow Region dated December 17, 2010 No. KA-A40/15868-10. The court referred to the fact that the basis for registering goods is the TORG-12 form, and not 1-T.

We also recommend that you read our material “Primary document: requirements for the form and the consequences of its violation”

This subgroup of common reasons for refusing a tax refund also includes situations when inspectors do not receive documents from counterparties confirming the fact of a transaction.

In their decision, the fiscal authorities refer to the fact that the taxpayer consciously seeks to obtain a tax benefit on transactions that cannot be verified (for example, if the counterparty has managed to be liquidated by this point).

The court's decision in this case will please taxpayers. In particular, the resolution of the Federal Antimonopoly Service of the North-Western District dated May 21, 2012 No. A56-54176/2011 states that failure by the counterparty to provide documents is not grounds for denial of the right to deduction. It should be taken into account that in this court decision the court established the reality of business transactions, the absence of unjustified tax benefits, and the presence of properly executed documents confirming the right of the company to apply deductions for value added tax.

Pretend Partner

VAT deduction will be denied if the taxpayer claimed a deduction on an invoice issued by an unreliable counterparty. In this case, the courts support the inspectors if there is evidence that the company received an unjustified fiscal benefit. This conclusion was made in the resolution of the Arbitration Court of the North Caucasus District dated March 28, 2021 No. F08-755/2016.

In a controversial situation, the Federal Tax Service refused to refund the tax, since the company’s counterparty actually did not have the necessary conditions to achieve the results of the declared economic activity. The supplier did not employ the personnel necessary to fulfill the contract; fixed assets, production assets, warehouses and vehicles were not listed.

Thus, it is obvious that the business partner was a nominal one; he simply was physically unable to fulfill the terms of the signed agreement. The court pointed out the unreality of business transactions and agreed with the decision of the controllers.

Errors in reporting

Quite often, tax inspectors do not bother to request additional information from the taxpayer and, if an error is discovered in the tax return, they simply refuse a refund. When challenging their actions, the tax service refers to the fact that, in accordance with Article 88 of the Tax Code of the Russian Federation, they are only vested with the right to demand an explanation from the taxpayer, but are in no way obliged to do so.

In counterbalance to such arguments, one can refer to the decision of the Constitutional Court of July 12, 2006 No. 267-O.

There are also situations when the fiscal authorities force the taxpayer to submit an updated declaration to reflect previously omitted information on invoices that were submitted for deduction at a later period. If you refuse to clarify a return that has already been submitted, the tax service also refuses a refund.

In this case, as an argument, you can use the Resolution of the Federal Antimonopoly Service of the Moscow District dated February 15, 2013 No. A40-36661/12-20-180, in which the court came to the conclusion that failure to submit a “clarification” is not a reason for deprivation of the right to deduction and, accordingly , compensation provided that the taxpayer complies with all other conditions, in accordance with Articles 169, 171 and 172 of the Tax Code of the Russian Federation.

In 2014, the Plenum of the Supreme Arbitration Court of the Russian Federation came to a similar conclusion. Paragraph 27 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated May 30, 2014 No. 33 states that tax deductions can be reflected by the taxpayer in the tax return for any of the tax periods included in the corresponding three-year period. In 2015, the taxpayer’s right to transfer deductions to any tax period within a three-year period was enshrined in law. And if the three-year period is missed, the refusal to deduct will be legal and the courts will support the tax authorities (Decision of the Supreme Court dated September 4, 2018 No. 308-KG18-12631)

See also “Three years to deduct VAT: a trap in the Tax Code of the Russian Federation.”

Errors in registration

When justifying the refusal to provide a VAT refund, tax inspectors often do not recognize the fact of registration due to incorrectly executed documents.

Thus, inspectors may consider acts of acceptance and transfer of inventory items unacceptable if they do not contain a seal. However, the imprint is not a mandatory requisite when preparing primary documents - this is precisely the indication contained in the album of unified documents, approved by Decree of the State Statistics Committee of the Russian Federation dated December 25, 1998 No. 132. In addition, taxpayers themselves can develop their own forms of documents, which may lack any optional details.

Tax authorities also refuse to allow developers to recognize VAT deductions during the phased capitalization of work on a construction site based on forms KS-3 and KS-2. In the opinion of the Ministry of Finance, which is expressed in its letters dated 10/14/2010 No. 03-07-10/13 and 03/05/2009 No. 03-07-11/52, these documents are not the basis for recording the completed volume of work during construction in progress, and serve only as a basis for calculations.

At the same time, there is also positive judicial practice. For taxpayers who want to exercise their right and are ready to defend their case in court, the conclusions drawn by the decisions of the Federal Antimonopoly Service of the Moscow District dated 04/19/2012 in case No. A40-77285/11-107-332 and 04/07/2011 No. KA-A40 may be useful. /2227-11 in case No. A40-60156/10-35-331.

Accounting for property through account 08, and not directly at 01, is also, according to the tax authorities, a basis for refusing to apply a VAT deduction. This position is set out by the Russian Ministry of Finance in letter dated January 29, 2013 No. 03-07-14/06. When challenging a tax authority’s decision to refuse to apply a deduction, one should turn to positive judicial practice in resolving similar issues. It is worth familiarizing yourself with the following court decisions: FAS Volga-Vyatka District dated 05/13/2014 in case No. A11-3359/2013, FAS Moscow District dated 08/21/2013 in case No. A40-134549/12-108-179, FAS North-Western District dated January 27, 2012 in case No. A56-10457/2011, FAS of the Ural District dated August 24, 2011 in case No. A07-18288/2010.

Liquidation and return

In general, the company independently fulfills the obligation to pay taxes and fees, unless otherwise established by law and agreement (Clause 1, Article 45 of the Tax Code of the Russian Federation). Excessively paid or excessively collected taxes, fees (penalties, fines) are subject to return directly to the payer in the absence of debt (Article 78). The Ministry of Finance of Russia, in letter dated April 12, 2021 No. 03-02-07/1/24222, explained that upon liquidation of an organization, only the liquidated company itself can return the overpayment of any tax. The owner will be denied a return, since this is not provided for by law. This was indicated by the Constitutional Court of the Russian Federation back in 2015 in the Determination of the Constitutional Court of the Russian Federation of June 23, 2015 No. 1233-O. Therefore, you need to write an application for a tax refund in advance, before the organization is excluded from the Unified State Register of Legal Entities.

Other errors

Also, the reasons for refusal of VAT refund may be:

Purchase of goods through subsidies from the federal budget. In this case, VAT, according to paragraphs. 6, paragraph 3, Article 170 of the Tax Code of the Russian Federation, must be restored and attributed to the source of financing, regardless of whether the purchased goods will be used in activities subject to VAT.
Lack of sales in a given tax period. In case of refusal to refund VAT for this reason, when defending, you can refer to the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated May 3, 2006 No. 14996/05 and the letter of the Ministry of Finance of the Russian Federation dated November 19, 2012 No. 03-07-15/148, which was communicated to the tax authorities by a letter from the Federal Tax Service Russia No. ED-4-3/ [email protected] This letter is posted on the Federal Tax Service website in the section “Explanations of the Federal Tax Service, mandatory for use by tax authorities.”
Capitalization of work that has improved the condition of the leased property, if these improvements cannot be separated. The refusal to deduct for goods purchased for these purposes can easily be challenged by referring to paragraph 26 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated May 30, 2014 No. 33 .

Also, enterprises that are required to keep separate records of transactions that are and are not subject to VAT often encounter such refusals.

Advice for taxpayers would be the need to develop and approve a clear accounting policy, which would clearly state what deductions and in what volume should be attributed to a particular type of activity.

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The grounds for refusing a tax refund can be divided into 3 groups:

incorrect execution of documents;
incorrect posting of products, goods, works, services, etc.;
attempts to refund taxes in the absence of revenue.

Tax gap

Tax officials compare the data of counterparties and if there is a gap with the supplier’s data, the deduction may be denied. A tax gap may occur if the counterparty:

will not submit the declaration;
will indicate different information from the incoming invoice in the sales ledger;
will submit a zero declaration.

The tax authorities will ask for clarification and if the error is not corrected, you will have to submit an amendment.

Refusal to refund VAT occurs if suppliers fail to pay VAT. And there is even judicial practice that is not entirely pleasant for taxpayers. Thus, the Presidium of the Supreme Arbitration Court of the Russian Federation, in its resolution dated January 27, 2009 No. 9833/08, indicated that there is a connection between the receipt of tax into the budget from the supplier and the right to deduct this tax by the buyer. That is, such a connection is considered as fulfillment of the norms specified in Articles 171 and 172 of the Tax Code regarding the reality of a business transaction.

Nevertheless, there are also court decisions that are positive for taxpayers. The courts justified their position by the fact that taxpayers cannot be held responsible for the actions of third parties. In addition, the Tax Code does not directly link the taxpayer’s right to a tax refund with the fact of payment of this tax by the counterparty.

Thus, in the resolution of the Federal Antimonopoly Service of the Moscow District dated December 17, 2010 No. KA-A40/15868-10, the court sided with the taxpayer who challenged the refusal to refund VAT due to non-payment of taxes by subsuppliers.

The FAS Moscow District, in its resolution dated January 26, 2010 No. KA-A40/14474-09, supported the taxpayer in a dispute over the right to a tax deduction, concluding that the tax authority could not prove that the taxpayer received a tax benefit from a transaction with a suspicious counterparty and knew about the violations committed by the counterparty.

In another resolution - dated October 25, 2010 No. KA-A40/13657-10 - the FAS Moscow District relied on the fact that the current tax legislation does not stipulate the connection between the acquisition of the right to deduction by the buyer and the fulfillment of the obligation to pay tax by the seller.

VAT refund procedure

Submitting a VAT return to the tax authority

If an organization is engaged in exporting goods, simultaneously with the VAT return, it must provide a package of documents confirming the zero VAT rate. The list of such documents is contained in Article 165 of the Tax Code of the Russian Federation.

Desk inspection

The procedure for conducting a desk audit is regulated by Article 88 of the Tax Code of the Russian Federation.

During a desk audit, the tax authority requests from the taxpayer documents that confirm the legality of applying tax deductions, these include invoices confirming the deduction, primary documents on the basis of which the organization has the right to accept goods for accounting, and accounting cards. By the way, the legislation provides that when conducting a desk audit, the tax authority does not have the right to request additional information and documents from the taxpayer. In addition, the tax authority conducts counter-inspections of counterparties for which the taxpayer has accepted VAT for deduction. The list of documents that can be requested from a counterparty during a counter-inspection is limited to documents directly related to the activities of the taxpayer being inspected.

A regular desk audit is carried out within 3 (three) months, but a desk audit of a VAT tax return is carried out within 2 (two) months from the date the taxpayer submits the tax return. The period for a desk tax audit may be extended to 3 (three) months if there are signs indicating a possible violation of the legislation on taxes and fees.

Making a decision

Or drawing up a desk inspection report. If during the inspection the inspection does not reveal any violations, then within seven days after its completion it must make a decision on VAT reimbursement and its return or offset (Article 176 of the Tax Code of the Russian Federation). The solution could be:

a full refund of the VAT amount declared in the declaration;
a complete refusal to refund the amount of VAT declared in the declaration;
on partial refund and partial refusal to refund the amount of VAT declared in the declaration.

If violations are detected, a tax audit report is drawn up within 10 working days after its completion (Article 100 of the Tax Code of the Russian Federation). Within five working days from the date of drawing up this act, it must be delivered to the representative of the organization against signature or transferred in another way. The organization has the right to send its objections to the inspection report within one month after receiving a copy of the report and to participate in the consideration of the case.

VAT refund to bank account

Or offset against future payments or other taxes. After the tax inspectorate makes a decision, the taxpayer can dispose of the amount specified in the decision at his own discretion:

return to the current account;
credit;
leave the overpayment against future payments.

To do this, you must submit an application to the tax office. The application is submitted in the form recommended by the Federal Tax Service.

According to the law, treasury authorities have 5 days to refund the tax (Article 176 of the Tax Code of the Russian Federation). If an organization has arrears (debts) for VAT, other federal taxes, as well as corresponding fines and penalties, the tax authority has the right to offset them against the refund amount and return the remaining amount to the taxpayer. The organization’s consent to such a decision is not required (clause 4 of Article 176 of the Tax Code of the Russian Federation).

Work of interdependent companies

In practice, the tax inspectorate often expands the signs of interdependence of enterprises, which are listed in Articles 20 and 105.1 of the Tax Code of the Russian Federation. Thus, inspectors suspect taxpayers are dependent on each other if the following can be traced in transactions:

the use of borrowed funds from the lender to pay for goods supplied by him as a supplier;
carrying out payment transactions in one bank;
registration at one legal address;
the fact that the founders of the counterparty companies previously worked in the same company.

But fiscal officials are not always able to prove interdependence, and therefore coordination of actions to obtain illegal tax benefits. Often, inspectors use only formal characteristics. This means that in court the taxpayer has every chance to prove his case. This was the case when the FAS Moscow District issued a resolution dated 02/06/2013 No. A41-11892/12, when the judges considered the VAT deduction to be justified even if there were some signs of interdependence.

What to do

First of all, an internal review should be carried out to understand whether any violation is taking place.

Need to check:

the correctness of invoices from counterparties and the extent to which they correspond to the original receipt documents;
analyze counterparties for integrity (extracts from the Unified State Register of Legal Entities, constituent documents, accounting, etc.);
beneficiaries who are exempt from VAT or have a 0% rate must ensure separate accounting.

If everything is in order, you need to start the appeal process.

You should choose the following procedure:

begin the appeal process to the Federal Tax Service;
if there are no results, it will appeal to the arbitration court.

Results

The main reasons why the tax service denies taxpayers a VAT refund include:

errors in the preparation of accounting documents;
special interpretations of those checking the validity of registering goods;
application of deductions in relation to non-VAT-taxable transactions.

But today, in most cases, the reasons for refusing a refund for this tax are formal and far-fetched.
To substantiate his legal position and protect the right to apply a VAT deduction, the taxpayer should go to court. You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.

Bottom line: checking the counterparty before a transaction is important

The check can be done basic or extended.

Basic: it’s worth getting information about the company on the tax website, in the database of mass registration addresses, checking on the FSSP website to see if there are any enforcement proceedings against the head of the company, and so on.