Successfully defended a client in a precedent-setting case on the splitting up of a business

Our team represented a management company in a tax dispute in a situation where the company was acquiring work and services from third parties using the simplified taxation system and selling them to owners of blocks of flats applying a VAT benefit. The tax authority accused the client of splitting up a business, joined the taxpayer and its contracting parties, denied the benefit to the company and reassessed the taxes upwards based on the general taxation system.

Our lawyers followed up the project starting from the stage of preparing objections to the audit report and further on at all stages of administrative and judicial appeals of the tax authority's decision. It is extremely difficult to win a tax dispute, especially in court. This project was particularly challenging because certain parties to the transaction actually were related and this served as a reason for accusations that the 18 companies were working as “one entity”. It was necessary to distribute the pool of the tax authority’s evidence between different companies and to insist that no grounds existed in relation to a certain contracting party.

As a result, the court took the client's side, having considered the following aspects important: contractual bonds were formed before the benefit was introduced, and this confirms the existence of a business purpose; contractors may violate legislation, but it is necessary to identify whether the taxpayer was involved in this and whether it received any tax economy in connection with it; no violations were identified during the previous tax audit.