A dispute arising from a claim filed by a supervisory authority seeking to invalidate transactions concluded by sham companies, as established by a court judgment, falls within the jurisdiction of an administrative court - SC GC

Cases on claims filed by the supervisory authority to invalidate transactions concluded by enterprises that did not carry out economic activities, as established by a court verdict, and to apply the statutory consequences of their invalidity are subject to consideration by administrative courts in accordance with the rules of the Code of Administrative Procedure of Ukraine.

This conclusion was reached by the Grand Chamber of the Supreme Court in an administrative claim filed by the Main Department of the State Tax Service against two business entities to invalidate supply agreements.

Under the circumstances of the case, the court found the director of one of the LLCs, who signed the relevant agreements on behalf of the legal entity, guilty of committing a criminal offence under Part 2 of Article 205-1 of the Criminal Code of Ukraine and established that the LLC was registered for a monetary reward without the purpose of conducting business. When applying to the court, the plaintiff argued that the defendants had entered into the disputed agreements contrary to the interests of the state and society and without the purpose of actually producing legal consequences, but to reduce tax liabilities.

The courts of first and appellate instances granted the claim.

The issue in this case was establishing the jurisdiction for disputes concerning tax authorities' requests to invalidate transactions that were not intended to have legal consequences, despite a court verdict confirming the enterprise's lack of economic activity.

In resolving the dispute, the Grand Chamber of the Supreme Court emphasised that the status of a fictitious, illegal enterprise is incompatible with carrying out legal business activities. Business operations of such enterprises cannot be legalised even if they have formal confirmation in the form of contracts and accounting documents.

Consequently, there is no economic activity between the business entities, as the latter was created on the basis of knowingly false information in the documents submitted for state registration of a legal entity in accordance with the law. In other words, this company was created fictitiously without the purpose of conducting business.

In view of the above, since according to the court verdict, one of the LLCs did not carry out any economic activity, the legal relations in this case arose exclusively in the public law plane, and the purpose of this LLC was to evade taxation and obtain illegal tax benefits without legal grounds. Therefore, by filing this lawsuit, the tax authority exercised its power in public law relations with two entities, one of which did not carry out economic activity, regarding the fulfilment of their tax obligations and the formation of a tax credit.

The Grand Chamber of the Supreme Court agreed with the conclusions of the courts of previous instances that the transactions concluded between the defendants are subject to invalidation.

Resolution of the Grand Chamber of the Supreme Court of 8 May 2025 in case No. 420/12471/22 (proceedings No. 11-114апп24) - https://reyestr.court.gov.ua/Review/127423333.

This and other legal opinions of the Supreme Court are available in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.