Time to prove
"The point of evidence base formation in tax disputes is shifted to consideration of the case on fact" DMYTRO DONETS, A PARTNER, head of PRACTICE OF DISPUTE SETTLEMENT AT PWC LEGAL LAW FIRM, EXPLAINS THE NEW PARADIGM
— Can we talk about change in the paradigm of consideration of tax disputes in the context of creation of the new Supreme Court (SC) and the adoption of new procedural codes?
— The paradigm, of course, will change, and not only in tax disputes, otherwise there would be no need to adopt the new procedural codes and create the new SC. What we can observe today is that the court will become more innovative, there will be the opportunity of electronic communication with the court. However, the court cannot technically implement such innovations, but it is a prospect of the near future.
Unfortunately, we can see a certain "conflict" between the Supreme Administrative Court and the Supreme Court of Ukraine in recent years, which caused formation of contradictory practice in tax disputes and had a negative effect on taxpayers. It is difficult to give a protective argument at opposite positions of the highest judicial authorities. Unpredictability and instability in this matter are the enemies of business. Reducing the activities of the highest special courts to a single denominator will have a positive effect on the quality of justice. However, new judges will come with new ideas and approaches to consideration of cases along with reform of the SC composition. It is important not to lose the practice that became well-established for years.
Significantly lengthy terms of case consideration are caused by the heavy load of administrative judges. This concerns not so much the courts, as the system of state agencies in general. Tax disputes make up the vast majority of administrative cases. For example, when I headed one of the departments at the State Fiscal Service (SFS), I had more than 100,000 cases with taxpayers in my scope of jurisdiction. It is necessary to change the approaches of state agencies to work so as to reduce the number of disputable situations and not to transfer them to the judicial dimension.
— How will the strategy and tactics of customer protection change in this regard?
— The point of evidence base formation is shifting. The courts de facto carried out a repeated tax audit until quite recently. At the same time, the parties could present additional evidence, call witnesses, find new lines of argument during the whole proceeding. The evidence should be formed before consideration of the case in fact from now, otherwise the judge has every right to reject it. This will speed up the proceeding considerably, since attempts to delay it via endless filing of documents and unreasonable petitions are stopped.
In this regard, the plaintiffs should be ready to form a documentary and witness base, expert opinions at the pre-trial stage.
— What tools to fight a procedural saboteur do the parties to a dispute actually receive?
— The legislator significantly limited possible loopholes for procedural diversions. In particular, the "radial" filing of claims is stopped (simultaneous filing of 10–15 identical claims by the plaintiff in the search for the "necessary" judge). The plaintiffs can be fined for such actions. Moreover, the possibility of re-filing a claim on the same bases after its withdrawal is now blocked, opportunities for removal of judges are limited. The possibilities of delay in a proceeding by filing of numerous applications and petitions are excluded thanks to the shift of a point of evidence base formation to the pre-trial stage.
At the same time, quite often, the "radial" filing or withdrawal of claims is not due to diversionary motives, but attempts to ensure the right for objective dispute consideration. The judicial system is not ideal, it is subject to corruption risks and political pressure.
— How will the adversarial nature of a proceeding be affected by the opportunity given to participants of a tax dispute to involve a legal expert?
— Definitely, positively. Ukrainian legislation is imperfect: in some cases, the provisions contradict each other, in others, they establish parallel requirements. State authorities usually interpret the rules of law with a jaundiced eye, since it is situationally profitable for to them. The legal expert is a person who will give an independent opinion, explain how to interpret things systemically and apply a provision. His or her participation in a proceeding is excellent help for both taxpayers and judges.
Nevertheless, the number of tax disputes regarding application of the rules of law is not so high, coming to about 20–30 %. The other disputes concern assessment of circumstances and the facts, but here the legal expert will not be able to help. But another expert will help — the new Code of Administrative Legal Proceedings (CALP) of Ukraine enables the enlisting of not only state experts, but also private ones. It is connected to some degree with insufficiently high quality of work of experts of state institutions and their susceptibility to political pressure.
— Can the introduction of an attorneys monopoly affect the unity of practice in tax disputes? And how will this affect the level of legal fees for an attorney's services?
— Frankly speaking, I think that introduction of the attorneys monopoly will not affect the speed of consideration of cases and unity of judicial practice. Acquisition of the status of attorney by a lawyer will not automatically change his or her approach to representing the client’s interests. The Supreme Court will be able to unify the practice. The attorneys monopoly will play only a disciplinary role — the attorneyship binds a lawyer on certain professional ethics.
The court fees of business should be reduced, since the new Code of Administrative Legal Proceedings of Ukraine contains a clearer mechanism of their compensation. It is difficult to estimate a certain effect, if we take into account that a court has the right to assess the validity of the amount of compensation.
— What are the new categories of disputes that produce the development of legal tax relations?
— Let’s note some trends. The first one is connected with globalization of the economy — business is beyond the limits of one jurisdiction and this generates disputes connected with cross-border transactions (transfer pricing, definition of the beneficial owner of income). We have already had decisions from the first and appeal instances on transfer pricing, many decisions regarding beneficial ownership of income. The approaches of tax authorities evolve and become more sophisticated. This has an impact on the level of complexity of disputes.
The second trend is disputes of a local nature connected with changes in national tax legislation. Courts of the first instance have lots of claims on illegal blocking of VAT invoices, work of the VAT electronic administration system.
Some categories of disputes are becoming less of an issue. For example, massive disputes on VAT refunds have almost disappeared in connection with changes in legislation — the system of payment of budgetary compensation became more transparent and simpler.
There are disputes that are always relevant: these are claims caused by unfair actions on the part of counterparties (disputes on an unreal business transaction). Approaches taken by tax authorities change, positions of plaintiffs and courts change, but such disputes have not become less of an issue in more than ten years.
I think that there will be disputes in electronic commerce in the near future. This issue is on the agenda of advanced tax administrations and lawyers all over the world. We hear a lot about disputes with giants like Amazon, eBay, Google. Electronic commerce is a difficult category: business can be registered in one jurisdiction, the equipment can be in another, service personnel can be in the third one, and the goods are on sale all over the world. Where should the income be taxed? It is an issue that disturbs many people now. And Ukraine has taken a waiting stance in this direction, focusing on advanced tax administrations.