Russian Supreme Court rules against formalistic approach to assessment of VAT offset grounds

09/07/2020

On 14 May 2020, the Russian Supreme Court issued a decision in favour of a Russian taxpayer (the “Decision”), which contains detailed guidelines on how to assess the good-faith conduct of Russian taxpayers claiming VAT offset. The Decision, which was issued in an online format, contains a careful and detailed digest of the positions and arguments that should be taken into account when justifying the VAT offset claimed. In particular, the Decision switched the courts’ focus from the formalistic approach normally applied by the Russian tax authorities to the reality and commercial grounding of the operations giving rise to a VAT offset. As a result, the Decision could set a precedent for resolving similar court cases on the recently codified concept of unjustified tax benefit in Russia. The arguments presented in the Decision may be instrumental for taxpayers attempting to prove their positions in court.