Pepeliaev Group's lawyers have succeeded in proving in the Russian Supreme Court the right to deduct VAT on the restoration of architectural monuments

In a dispute with the tax authority, lawyers from Pepeliaev Group’s tax practice successfully defended the interests of a company that owns a building which is an architectural monument of national significance in St Petersburg. 

The company has been implementing a project that involved the restoration of the building, which was then adjusted for modern use. This was done by creating a multifunctional facility consisting, more particularly, of a hotel that is to host guests attending the 2018 FIFA World Cup. The dispute with the tax authority concerned whether the company was eligible to deduct the VAT stated in VAT invoices by the contractors which were engaged in the construction work. The tax inspectorate argued that, since architectural monuments are not subject to VAT under the law, the customer is not eligible to deduct the VAT even if the contractors issued VAT invoices. The commercial court of first instance upheld the decision of the tax authority. Last December, the court of appeal set aside the decision and satisfied the taxpayer’s claims. However, the court of cassation subsequently supported the tax authority and dismissed the taxpayer’s claims. 

Just over a year ago, the Russian Supreme Court already considered a case that was similar from a legal perspective. It confirmed the right to deduct VAT for airlines to which airports had issued VAT invoices with respect to transactions referred to in the Russian Tax Code as not subject to taxation. Despite the legal position of the Judicial Board for Economic Disputes of the Russian Supreme Court on similar cases, the court of cassation continued dismissing taxpayers’ claims with respect to work performed on architectural monuments. However, in the autumn, this issue came to the attention of the Russian Supreme Court, and the claims of two taxpayers under two similar cases were referred to the Judicial Board for consideration. Among these was the case of Pepeliaev Group’s client. 

Having considered the appeal, the Judicial Board for Economic Disputes of the Russian Supreme Court set aside the ruling issued by the court of cassation and upheld the decision of the court of appeal, whereby the taxpayer’s claims were satisfied. 

The position of the Judicial Board for Economic Disputes of the Russian Supreme Court will encourage private investors to make investments in the renovation and restoration of architectural monuments . It will also help to harmonise the relations between contracting parties and ensure an adequate tax burden by excluding a break in the chain of claiming VAT. 

The project involved a heavyweight team of lawyers from the St Petersburg and Moscow offices of Pepeliaev Group. Sergey Sosnovsky, head of the St Petersburg tax practice along with Rustam Galiyakhmetov, senior associate, and Vadim Zaripov, head of analytical department of Pepeliaev Group, represented the client at the session of the Judicial Board of the Russian Supreme Court.