Lawyers Quashes 26-million Client Tax Claims

INTELLECT-S’s client, represented by Roman Rechkin, sued the tax inspectorate for legal costs amounting to RUB1.4 million.

INTELLECT-S represented a nation-wide operating railway builder and maintenance provider in its action against tax authorities over unjust tax assessment.

The firm's senior partner Roman Rechkin helped OOO Remput rebut unfounded tax claims consisting of over RUB820,000 in assessment of corporate profit tax, over RUB17 million in assessed VAT, and over RUB8.2 million in late interest and administrative fines imposed on the plaintiff upon its field tax audit.

The case revolved around two points. One was the corporate profit tax which tax inspectors had estimated, rather than computed, alleging that the plaintiff had never submitted documents necessary for computation. The plaintiff's counsel proved the contrary: that the taxpayer had sent the documents on request before the audit. Secondly, the tax authorities had had all primary records, already duly filed with the regional tax police directorate.

The other point was the assessment of VAT on plaintiff's payments to its subcontractors engaged to perform work for OAO Russian Railways. The plaintiff had all documents properly identifying all its subcontractors, whereas the tax authority alleged that other persons had done the work, accusing the plaintiff of deriving undeserved tax benefits by exaggerating tax refund claims. The defendant produced no evidence (it had none) of the plaintiff's affiliation with the subcontractors or demonstrating its relationships with their managements; in the absence of either, no collusion to obtain illegal tax benefits could be proved.

The defense's softest spot was that the tax inspectorate never demonstrated any sensible reason behind the alleged "tax scheme" which it claimed the plaintiff used, and failed to explain what constituted the alleged tax benefit and exactly how the plaintiff allegedly benefitted. A loss of more than RUB111 million which the taxpayer had actually paid to its subcontractor to save less than RUB18m in VAT, did not qualify as a tax scheme, Rechkin told the court.

The court accepted the plaintiff's argument presented by INTELLECT-S attorney, and avoided the decision of the tax inspectorate.

In return, INTELLECT-S's client, again represented by Roman Rechkin, sued the tax inspectorate for legal costs amounting to RUB1.4 million.

However reasonable, the Sverdlovsk Regional Arbitrazh Court reduced the figure 11 times down to RUB125,000 on a nebulous pretext of "doubt-raising source of the taxpayer's money" out of which it had paid attorney fees, and that the percentage of the disputed amount it paid to the firm was a "success fee veiled" in the plaintiff's agreement with INTELLECT-S.

The plaintiff's attorney's Rechkin demonstrated that a fee agreed as a percentage of the disputed amount did not contravene the law.

The appellate court accepted the plaintiff's argument and varied the trial court's ruling by its opinion handed down on March 27, 2013, ordering the tax inspectorate to pay the plaintiff's legal costs in full, over RUB1,4m.

Rechkin believes that suits for costs will reduce the number of frivolous tax claims and their subsequent challenges in court in future: 

Consistent legal cost recovery will lead tax inspectorates to make claims only where they are quite confident of their merits, he says.

Tax Disputes, Tax Inspections, Tax Law

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