This issue of InfoCourier covers the following topics:

  • Summaries of Court judgments

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Court judgements

Summary of judgment no. 3-18-1328 (31 March 2021) of Tallinn Circuit Court

The Circuit Court examined an appeal by a company board member regarding the Tax and Customs Board’s request for the provision of a personal bank statement endorsed by the bank. The board member had made a payment in the company’s bank account, described as a loan. An examination of the board member’s income , however, did not give reason to believe that such a loan had been granted and the circumstances indicated that the amount concerned may have in fact been the company’s concealed revenue.

The board member argued that requesting the bank statement was against the law as this information was not relevant to the tax proceedings. Further, the board member pointed out that the Tax and Customs Board did not explain in its request why the information previously supplied was considered insufficient and what would be the added benefit of providing the bank statement.

The court addressed the issue of whether the request for the bank statement was justified in order to ascertain facts relevant to the company tax proceedings (including those relating to the availability and the origin of the funds at issue).

The court referred to the following observations:

  • according to § 61 (1) of the Taxation Act, the tax authority has the right to request information from third parties, in order to ascertain facts relevant to tax proceedings. Such persons are obliged to make the requested information available. In this case, the board member was the third party as the tax proceedings related to a company;
  • according to § 62 (1) of the Taxation Act, the tax authority has the right to request that a taxable person or third party present things and bearer securities or submit documents in the possession of the person, in order to ascertain facts relevant to tax proceedings;
  • a suitable criterion for determining the information requested from a third party is the relevance of the information to the tax proceedings. The tax authority is not obliged to explain which circumstances it specifically wishes to examine or how the information and documents requested relate to the specific tax compliance check.

The court found that the request for the provision of a bank statement was justified in order to prove the origin of the money and to evaluate the claims and evidence for reliability.

The report of the case is available here (in Estonian).

Additional information: Tax Advisor Ave Rego, averego@kpmg.com

Summary of judgment no. 3-19-1246 (11 March 2021) of Tallinn Circuit Court

The Circuit Court discussed a case where the tax authority had discovered, in course of a VAT compliance check, that a company had paid a supplier’s invoices without having received the goods specified in the invoices and that the company was aware of the fact. The tax authority took the view that the company was not entitled to deduct the input value added tax charged on these acquisitions, and that the payments effected on the basis of these invoices were unrelated to the company’s business and should be subject to income tax.

The court, however, found certain inconsistencies in the tax authority’s arguments underlying the tax decision. The company has clearly stated that it had acquired a large quantity of goods (a component of ship fuel) through the transactions at issue (and there is supporting evidence from the stock records). Furthermore, the tax authority has not established that the company has not been supplied any such goods. Under the circumstances, it is not possible to argue that the invoices under consideration are not at all related to the company’s actual business transactions, despite the fact that the data specifying the supplier, the type and the quantity of the goods in the invoices may be inaccurate.

The court held that as a supply of goods did take place during the transactions at issue, even though the goods were not identical with those specified in the invoices, the transaction should be treated as an ostensible transaction aimed at concealing another transaction. As the goods thus acquired were used to produce ship fuel for sale (i.e. for the purposes of the business of the company) and there is no reason to believe that the components used for producing the fuel were acquired for free, the payments made on the basis of the invoices cannot be considered totally unrelated to the company’s business. The court was of the view that the written evidence required for income tax assessment was absent or unreliable, and that the tax authority should have made the tax assessment by estimation, in accordance with § 94 (1) of the Taxation Act.

The court concluded that the company’s appeal was, in part, warranted and should be upheld as regards the income tax assessment. With regard to the VAT assessment, the appeal was considered unfounded and this part of the appeal was dismissed.

The report of the case is available here (in Estonian).

Additional information: Tax Advisor Ave Rego, averego@kpmg.com.