1. The subject of the dispute is the legality of tax deficiency notices (tax notices-decisions) by which the controlling authority assessed additional tax liabilities to the enterprise due to the alleged unreality of business transactions with a counterparty that exhibited signs of being a fictitious entity.
2. In rendering its decision, the Supreme Court was guided by the principle that the existence of a conviction against a counterparty’s official under Article 205 of the Criminal Code of Ukraine (fictitious entrepreneurship) does not serve as an automatic ground for deeming transactions unreal. The Court emphasized that an administrative court must assess the reality of transactions based on primary documents, their proper execution, and economic substance, rather than merely referencing a criminal conviction. In this case, the Supreme Court underscored that it was departing from its previous position (set forth in the ruling of the Supreme Court of Ukraine dated December 1, 2015, in case No. 826/15034/17), according to which the status of a fictitious enterprise a priori precluded the possibility of legalizing business transactions. The Court noted that a business entity with signs of being fictitious remains a legal subject, and its documents must be taken into account if they confirm the actual movement of assets. Furthermore, the Court indicated that a criminal conviction does not create a prejudicial effect for an administrative court unless it establishes specific circumstances regarding the actions or omissions of the plaintiff itself. Consequently, as the plaintiff provided all necessary primary documents confirming the reality of the services, there are no grounds for additional assessments.
3. The Supreme Court granted the cassation appeal, overturned the appellate court’s decision regarding the denial of the claim, and upheld the court of first instance’s decision to declare the tax notices-decisions unlawful and to cancel them.
