How to avoid the admission that transaction is simulated?

Firstly, tax authorities looked at party’s possibility to discharge an obligation due to the contract. Showings of simulated transaction could be shortage of equipment and workers. The main problem is that tax authorities follow a formal approach without taking into account the specifics of the company. We advise you to show to the court all details of work with counterparty and submit arguments why your transaction is valid. For example, due to sick leave many employees, a counterparty can ask agents to this contract’s obligations. Of course, it is necessary to prove that this transaction was going on with the agent’s help. However, there are many situations, where courts take the tax authorities’ side, we recommend to work with counterparties that have sufficient resources to fulfill their contractual obligations. Secondly, mistakes and contradictions in a contract could be reasons, why your transaction may be admitted simulated. But you should understand that mistakes may be in each document. A mistake cannot be the foundation for the admission the transaction invalid. We recommend to inform the counterparty that you want to correct the mistake, if it is. For example, in the Ruling of the Twentieth Arbitration Court of Appeal No. 20AP-2946/2024, the Court did not accept the application that company make a mistake accidentally, because of the absence of evidences. Thirdly, if you have not obligatory documents for transaction, it is also can attract attention from tax authorities. We recommend to exclude the clause of making the obligatory documents from the contract. However, if there are such clauses in the contract, you shall ask a counterparty to send these documents. If the counter party refused to provide these documents, you must save his refusal. Also, tax authorities assume strange the situation, when a non-standard form of settlement is provided. Of course, companies may choose any settlement procedure, including exchange and set-off, however, if such a method of settlement is adopted, it is recommended to prepare a justification in advance as to why this particular method has been chosen. Besides, if there are one method of settlement in the contract, but the company make payment in different way or does not make payment at all, it may be a foundation for tax authorities to suppose that your transaction is simulated. We recommend companies to save all communication with counterparties or clients. It will be as your evidences as your protection in disputed situations.