Advocates at the Law firm "YUST" successfully represented OJSC “MTS” in a dispute with a tax authority

The OJSC “Mobile TeleSystems” (MTS) in February of 2009 requested the Russian Federal Interregional Inspectorate for Large Taxpayers No. 7 to offset the excessively paid VAT sums against future VAT payments. The excessive VAT payments arose when the OJSC “MTS” in March of 2007 to September of 2008 updated the VAT tax declarations for tax periods from April of 2004 to August of 2005.

The Inspectorate refused to offset the VAT sums excessively paid referring to par. 7 Art. 78 of the Tax Code of the Russian Federation (three years since the date of tax payment have already passed).

MTS, believing that the tax authority refusal does not impede the taxpayer to start court procedures to recover the excess payment from the budget by arbitration, filed the respective claim to the Arbitration Court of the City of Moscow.

The Arbitration Court of the City of Moscow by its decision of 12.01.2010 fully satisfied the company’s claim.

The Ninth Arbitration Court of Appeal upheld by its ruling of 29.03.2010 the decision of the first instance court.

The courts, satisfying the company’s claim, found that the excessively paid sum of VAT of the size declared by the MTS is documented and proven and not contested by the tax authority.

Pursuant to the legal position of the Constitutional Court of the Russian Federation laid out in the Ruling of 21.06.2001 No. 173-O, expiration of the term stipulated by par. 7 Art. 78 of the Tax Code of the Russian Federation does not impede the taxpayer to start court procedures to recover the excess payment from the budget. In this case general rules of calculating the limitation period – from the date the person learned or should have learnt about the violation of its right - are to be applied.

The courts agreed with the company’s arguments that MTS should have become aware of the fact and the totals of excessive payments no sooner than the inspection of updated tax declarations for tax periods from April of 2004 till August of 2005 was over and the respective verification acts of the inspection results were prepared.

Accordingly, the 3-year term for the taxpayer’s legal action for setting off the excessively paid VAT sum against future VAT payments by arbitration is to be calculated from the date of each verification act. By the moment of filing the respective claim to the arbitration court the 3-year term calculated from each of the mentioned dates was not over.

The Federal Arbitration Court of the district of Moscow by its ruling of 14.07.2010 upheld previous decisions of the arbitration courts on this case and dismissed the cassational claim of the Russian Federal Interregional Inspectorate for Large Taxpayers No. 7.

Maxim Rovinsky, an advocate at YUST, together with in-house counsel represented MTS in the arbitration proceedings.