Proving the right to deduct the VAT on the restoration of architectural monuments in the Russian Supreme Court

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. 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.

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