RF SAC Presidium re VAT deductibility on fixed asset liquidation.
Legal Update No. 161.
Goltsblat BLP advises that the Presidium of the RF Supreme Arbitration Court issued Resolution No. 17969/09 of 20 April 2010 on a case relating to VAT deductibility on fixed asset liquidation.
So far, judicial resolutions concerning VAT deductibility have been rather contradictory.
In the case in question, the tax authority, following the position of the RF Ministry of Finance, disallowed deduction by the taxpayer of VAT payable on dismantling of plant buildings, claiming that such works (fixed asset liquidation) did not involve any production or sale operations or VATable transactions, since the buildings had been written off the taxpayer’s balance sheet.
The RF SAC Presidium did not agree with the tax authority’s findings and ruled that, under clause 2, Article 171 of the RF Tax Code, VAT is not deductible only in the cases expressly stipulated in clause 2, Article 170. Nor does clause 2, Article 170 of the Tax Code include fixed asset liquidation among cases when VAT constitutes part of the cost of goods (works, services) for profit tax purposes.
The RF SAC Presidium clarified that a fixed asset is used in a business activity for multiple and integrated purposes, including installation, operation and, if business so requires, liquidation of a fixed asset. Under the circumstances, the taxpayer was eligible for VAT deduction on payments to the fixed asset liquidation service provider, while the tax inspector’s position was without merit.
It should also be noted that the approach taken by the RF SAC Presidium stipulates the right of a taxpayer that previously failed to deduct VAT paid on fixed asset liquidation to claim such deductions in a VAT declaration for the current period (clause 1, Article 54 of the RF Tax Code). Furthermore, the taxpayer may exercise this entitlement within three years of the end of the tax period in which it emerges.
If the tax authorities disallow such tax deduction, their decision may be contested in arbitration court. Considering that the RF SAC Presidium has recognised this interpretation of the tax provisions as valid, applicable and binding, the taxpayer stands a goods chance of winning the court case.
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