11.10.06

The final version of Plenum of the Supreme Arbitration Court (VAS) resolution was made public on October 5, 2006. Judges intend to use this resolution to do away with the legal concept of the “unconscientious taxpayer,” replacing the term with “unwarranted tax benefit.” However, according to the text of the resolution, the difference between these concepts is virtually nonexistent. If the VAS Presidium accepts the resolution as-is on October 12, tax officials will be able to declare practically any taxpayer “unconscientious” in the same way they could before.

Officials at all levels have been speaking of the need to eliminate the term “unconscientious,” from legal relations since 2005 (the Constitutional Court began using it in 1998). At one time, the President’s Administration insisted on amending the Tax Code to strengthen the legislation with the so-called “Business Purpose Doctrine” (i.e. any type of transaction made for a non-commercial purpose would be declared a method of avoiding taxes). It was eventually decided that adding a new article to the Tax Code was not essential. Officials intend to fortify the VAS Presidium resolution with the Doctrine’s main postulate.

Within the VAS resolution, the criteria for an “unwarranted tax benefit” are just as vague as those for “unconscientiousness” have been in other documents. Paragraph 5 of the resolution includes a list of characteristics that can be used as evidence or having received an unwarranted tax benefit such as: “The taxpayer could not possibly have completed the indicated transaction with regard to time, location of the property, or amount of material resources” and “the operation was completed using a good that was not in production or that was not produced in the volume indicated by the taxpayer.” Experts are confident that the indicated characteristics are essentially a list of what tax officials consider the “sins” committed by taxpayers.

Paragraph 9 frees judges’ hands all the more, as it is composed in such a way that makes it possible to find practically any businessman guilty of having received an unwarranted tax benefit. The resolution reads: “If a judge determines that the taxpayer’s main objective was to derive profit solely or primarily using tax benefits, the grounds for receiving such benefits may be denied.”

Tax experts confirm that it is not quite clear from the text of the resolution what “primarily” deriving profit using tax benefits means or who determines the criteria for “predominance.” Exporters, for example, take Value Added Tax reimbursement into account in their transactions, as it can have a significant impact on their profitability.

Source: "Biznis" Newspaper