By its Resolution, the Federal Arbitration Court of the Moscow Circuit upheld the ruling of the Arbitration Court of the City of Moscow and the resolution of the Ninth Arbitration Appeals Court on the matter of the legality of the Decision of the Inspect

In its Decision № 12/19 of 14.03.2005б the Inspectorate of the Federal Tax Service №5 for the City of Moscow regarding bringing CJSC “Universal Music” to book for committing a tax violation, reached in accordance with the results of an on-site tax enquiry for the period from 01.01.2001 to 31.12.2002 on questions of observance of tax legislation, the validity of the calculations, fullness and timeliness of payment of taxes (hereinafter – Decision of the tax body), made additions to the taxpayer’s tax on profits of the organization, VAT, road tax and penalties, and also brought the taxpayer to book in the form of fines for incomplete payment of the above-mentioned taxes.

CJSC “Universal Music” disputed the decision of the tax body, and filed a claim with the arbitration court for an acknowledgement of the Decision as invalid.

In its ruling of 07.09.2005 № A40-16280/05-141-108, the Arbitration Court of the City of Moscow satisfied the claim of CJSC “Universal Music” calling for the acknowledgement of the decision of the tax body as invalid. The court dismissed the counter-claim filed by the Inspectorate of the Federal Tax Service № 5 for the City of Moscow regarding the levying of tax sanctions.

By its Resolution of 22.12.2005 on matter № 09AP-12852/05-AK, the Ninth Arbitration Appeals Court upheld the ruling of the court of the first instance, and dismissed the appeals complaint of the Inspectorate.

In granting the demands of CJSC “Universal Music”, the courts based their decision on the grounds that the disputed decision was carried out with crude violations of the requirements of the Tax Code of the RF; the arguments advanced in the Inspectorate’s disputed Decision regarding failure to furnish documents confirming the legality of the taxpayer’s accrued taxes are illegal; in violation of the provisions of p.3 art. 101 TC RF, the Decision of the tax body fails to indicate the nature and circumstances of the alleged breaches of the law by the claimant, references to documents and other information on which the arguments of the tax body are based, there are no references to original book-keeping documents; the violations of the provisions of art. 101 TC RF discovered by the tax body present grounds for declaring the Decision invalid by virtue of p.6 art. 101 TC RF; in the course of the court consideration of evidence presented in confirmation of the legality of the disputed unstatutable legal act, the tax body furnished the court with no materials; the arguments of the claimant were not duly overcome; the occurrence of tax violations were not proven by the tax body.

The Resolution of the Federal Arbitration Court of the Moscow Circuit of 12.04.2006 № KA-A40/2533-06 revoked the above-mentioned court acts and the matter was directed to the Arbitration Court of the City of Moscow for a new consideration.

Moreover, the cassational instance indicated in its Resolution that the court must accept and evaluate the documents and other evidence furnished by the taxpayer as grounds for its objections to the acts of the on-site inspection, irrespective of whether these documents were presented to the tax body within the terms specified by p.5 art. 100 TC RF; the court did not fulfill the demands of the law and the instructions of the Plenum of the Higher Arbitration Court of the RF insofar as in granting the demands advanced, the court indicated that it considered selectively part of the documents presented by the claimant”, and such an evaluation of evidence is counter to the provisions of art. 71 APC RF; the court did not consider every piece of evidence in the order determined by law, did not check which documents the taxpayer presented to the tax body upon demand, whether there was a sufficient number of them for the conclusions made in the disputed decision, which documents among those presented to the court were not presented during the course of the inspection not in the disputing of the act and why they were not presented to the tax body.

In a new consideration of the matter, the courts should take the above into account, check whether the decision of the tax body was in compliance with the law, and whether it violated the rights and protected interests of the claimant on the day of its pronouncement.

A second consideration of the matter by courts of the first and appeals instances, allowing for the instructions of the Federal Arbitration Court of the Moscow Circuit and on the basis of a full examination of the documents presented by the parties, the courts reached the same conclusions as in the first consideration of the case. The claim by CJSC “Universal Music” was satisfied by the ruling of the Arbitration Court of the City of Moscow of 29 December 2006 and the Resolution of the Ninth Arbitration Appeals Court of 30 march 2007 № 09AP-2325/2007-AK on matter № A40-16280/05-141-108, and the Decision of the tax body was acknowledged as invalid, and the counter-0claim by the Inspectorate of the Federal Tax Service of Russia № 5 for the City of Moscow, calling for tax sanctions, was dismissed.

By the Resolution of the Federal Arbitration Court of the Moscow Circuit of 11 July 2007 № KA-A40/6214-07-P, the indicated court acts remained in force.

The interests of CJSC “universal Music” were represented in arbitration courts by advocates and attorneys of the Law firm “YUST.”

This case is of interest firstly due to the circumstance that in the course of the consideration of the matter, representatives of taxpayers not only overturned the claims of the Inspectorate that the fact that the taxpayer lacked primary documents and did not furnish such during the on-site inspection were proven, but also established that the court must accept and evaluate documents and other evidence furnished by the taxpayer in the course of the court consideration, irrespective of whether the taxpayer submitted them to the tax body within the period determined in p.6 art. 100 TC RF.