SAC: Tax deductibility of expenses requires providing evidence about real supplier

In the case in question, a corporation claimed cost of goods delivered as deductible for income tax purposes. The tax authority asked the taxpayer to specify for whom the invoice for the purchased goods had been issued, who had ensured the transport and loading of goods, where the goods had been stored, with whom the taxpayer had agreed on these transactions and how these transactions had been paid. Even though it was indisputable that the goods had been delivered and accepted, it was unclear who had delivered the material.

The SAC drew attention to its previous rulings, according to which, on one hand, formal deficiencies of accounting documents may not on their own affect the possibility to claim deductibility of expenses but, on the other hand, in such cases it is necessary to prove the real circumstances of a transaction by other means. According to the SAC, the fact that the declared supply had indisputably been delivered does not suffice, as the taxpayer must also prove that tax deductible expenses were incurred in relation to a specific person. If entities partaking in a specific transaction are not clearly identifiable, such expenses may not be treated as deductible for income tax purposes.

The SAC believes that such a requirement is fully consistent with the logic of income tax: expenses that are claimed as deductible by one taxpayer represent another taxpayer’s taxable income. It is therefore in the financial administration’s interest to determine all persons involved in a transaction.

For income tax purposes, it is therefore not entirely necessary to prove that a supply was delivered by the entity stated in accounting documents but it is essential to determine who the real provider of the received supply was to be able to treat related expenses as tax deductible.