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Legal briefing notes

Appeal against the denial of the tax authority for the reimbursement of VAT

Appeal against acts of tax authorities

Organizations and individual entrepreneurs that are engaged in commercial activities and are under the general taxation system have the right to reimburse VAT. Such a function implies the strict application of the rules and procedures of the Tax Code in the Russian Federation.

According to Article 143 of the Tax Code, the VAT payers are:

  • Organizations.
  • Individual entrepreneurs.
  • Persons who transport goods through the system of Customs control.

All the taxpayers during the calculation of the tax that they have to pay are able to use the VAT deduction service. It is intended that the amount of input tax that was paid to the supplier along with the payment for the products.

Taxpayers under the general taxation system when they transfer advance payments for products to the supplier are able to receive a tax deduction from the prepayment that they made against future deliveries, but only if there is a tax invoice (paragraph 12 of article 171 of the Tax Code).

The taxpayer can either use deduction from the advance for a certain tax period or refuse it. You should fully understand that it is impossible to divide VAT between several periods. Upon completion of the entry of goods in the books that were got from the supplier, the taxpayer deducts VAT from the shipping tax invoice and restores VAT from the advance tax invoice.

In case of termination of the agreement or any amendments to the agreement with the supplier the advance tax that was accepted for deduction is restored in the quarter in which the contract expires (according to paragraph 3 of Article 170 and paragraph 12 of Article 171 and paragraph 9 of Article 172 of the Tax Code).

The procedure of the reimbursement of VAT

Russian legislation establishes 2 ways for reimbursement of VAT:

  • The usual method involves VAT reimbursement that is based on the results of a desk audit (according to Article 176 of the Tax Code);
  • The declarative method implies a tax reimbursement in certain circumstances until the end of a desk audit (Article 176.1 of the Tax Code).

The standard procedure of the reimbursement

The taxpayer is able to reimburse the VAT from the budget in case the total amount of the deduction exceeds the amount of the calculated VAT (according to paragraph 2 of Article 173 of the Tax Code).

In most cases, VAT reimbursement is carried out in a general order. So, to reimburse the VAT you should do the following:

  • The taxpayer draws up a tax return and sends it to the Inspection Office of the Federal Tax Service. After that, you should give an application for tax reimbursement. The tax authorities conduct a desk audit is carried out, during which the accuracy of the tax calculation is determined. If no violations were found within seven days after the procedure, the tax authority makes a final decision on tax reimbursement. If during the inspection some violations were found, an act is drawn up within ten days after the end of the procedure.
  • The act and all documents with the results of the audit are sent within five working days. The taxpayer has 15 days to file appeals after receiving the package of documents.

Upon the expiration of filing an appeal, the Inspection Office of the Federal Tax Service considers all documents and decides on reimbursement or refusal. It is sent to the taxpayer for consideration.

If the tax authority has decided to reimburse the paid VAT and in case of a positive variance between the input and billed tax the financial resources are transferred to the taxpayer's account if he has no debts for other types of taxes. Otherwise, the amount of the payment will be automatically distributed to pay off debts.

It should also be mentioned that the reimbursement, in this case, must be carried out by the fiscal authority through the Exchequer Chamber within five working days from the date of the relevant decision.

The denial of the reimbursement of VAT

Do you use the general taxation system? We assume that you periodically have difficulties with the reimbursement of VAT and sometimes they reach the point of absurdity: you have just won a lawsuit against the tax authority for previous periods but it for identical reasons again refuses you to deduct value-added tax.

Unfortunately, this is the reality that most entrepreneurs face. A small diversion from the ideal situation established by the law creates the risk of denial to reimburse VAT. However, a picture that may be ideal at first glance does not guarantee reimbursement.

Most frequently, the slightest "roughness" with the counterparty often becomes the reason for rejecting the request.

It is clear that in such a situation, any businessman needs qualified assistance in the evaluation of benchmarks in choosing counterparty and in the preparation of documents for the reimbursement of VAT and during a desk audit.

The right to VAT deduction

Legally, everything looks quite simple. On approved tax deductions, the taxpayer can reduce the amount to pay.

Such deductions include among others the amount of tax. A taxpayer who concurrently meets all the relevant conditions is able to use the VAT deduction. The conditions are quite formalized and can be implemented by a faithful payer.

Challenging of the fiscal acts

An important aspect of receiving a VAT deduction is the fact that a desk tax audit is mandatory. It should be recognized and you should be ready in advance to provide additional documents and give answers and comments. To achieve a positive result, ensure interaction with your counterparties who provided tax invoices. It is easy to lose the right to a deduction if the service employees doubt the counterparty you have chosen or they record any violations. To minimize the risk of rejection, we highly recommend that you consider the requirements for circumspection.

Even greater efforts will be required if in the reporting period the tax deduction exceeds the amount of tax. Then you can get the difference from the budget. If based on the results of a desk audit, you are denied the right right to a tax deduction, you are able to protect your rights in court.

Thus far, the judicial practice has developed the main approaches to the above issues with little regional specifics. Accordingly, at the time of analysis of the taxpayer's documents, it is possible to make reasonable projections about the prospects of the case.

Litigation mustn't be a panacea. If the precarious nature of the transaction is proved as well as the use of one-day firms, or the lack of circumspection, the deduction and the reimbursement of VAT will be denied. Furthermore, it is necessary to bear in mind that in case of a proven fact of the absence of real nature of transactions, relevant materials will be transferred by the tax authority to the police.

Services on the reimbursement of VAT

The Tsentralny Okrug Law Firm provides services on the reimbursement of VAT at all stages from drafting up documentation and sending the application for the reimbursement to the representation in the court on appealing against the denial of the tax authorities in Voronezh, Lipetsk, Kursk, Belgorod, Tambov, Moscow.

Author is Andrew Kriulin

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