Success story: PwC Legal successfully defended a major agro trader in a tax dispute
18/04/17
Recently team of lawyers from Attorneys’ Association “PwC Legal” (hereinafter - “PwC Legal”) successfully defended the interests of the Client, one of the world’s leading processors of agriproducts, in a tax dispute before the State Fiscal Service of Ukraine (hereinafter - the “SFS”).
As a result of a tax audit that took place in September – November 2016, the Client was assessed on multimillion amount of taxes (CPT, VAT) and fines (related to tax assessments and currency controls). Those tax assessments and fines came about as a result of the tax office’s claim that the Client had understated its taxable income, attempted to cover the provision of marketing services and breached a statutory rule prescribing remittance of funds under foreign economic contracts with non-residents.
The core issue with regard to this episode was biased interpretation of the provisions of the said contracts by the tax office.
In particular, the foreign contracts envisaged an application of additional premiums to standard prices in cases where the goods were in compliance with the ISCC Plus standard (international sustainability carbon certification) and this fact was confirmed by delivery notes issued by the Client. Depending on the market conditions, the Client in certain cases charged the premium and in other cases the said premium was not applied. In turn, the tax office came to the wrong conclusion that the Client understated its taxable income in cases when the premium was not charged given that (in tax authority’s opinion) all supplied goods complied with the ISCC Plus standard. Besides that, the tax office argued that even in cases where the premium was charged, a VAT of 20% should have been charged, instead of 0%, even though they were export transactions. The argument was based on the tax office’s view that such premium constituted a remuneration for marketing services designed to search for end customers, which required the goods to be in compliance with the ISCC Plus standard.
The Client disagreed with the tax office’s position and engaged PwC Legal to support its challenge of these fines and assessments during the administrative hearing procedure.
PwC Legal built a defence file using a wide range of arguments, detailing in the course of the hearing specific features of the Client’s business model, provision of documentary support as it was applicable in cases where the premium was charged as well as when it was not, clarifying specifics of the income recognition in the context of the disputable contracts, etc. Besides that, taking into account that the said contracts were regulated by English law, PwC Legal boosted its case by providing the SFS with a legal opinion on the interpretation of the contracts’ provisions, which was issued by a reputable London based law firm.
As the result of the PwC’s professional help, the Client’s position was upheld by the SFS and the tax assessments and fines in respect of this episode were cancelled.
Team members: Andrey Pronchenko, Managing Partner, Alexander Protsyuk, Attorney-at-Law, Head of Dispute Resolution practice, Evgen Bidniy, Senior Attorney
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