The problem of (non)taxation of compensation for legal costs compensated to individuals

The paper examines the economic nature of compensation for legal expenses from the point of view of their taxation or non-taxation by personal income tax and military levy, with systematic consideration of judicial practice. The relevance of the study lies in the fact that the State Tax Service of Ukraine insists that the amount of legal expenses reimbursed to an individual by a court decision by a legal entity or an individual entrepreneur is included in the total monthly (annual) taxable income of such a payer as an additional benefit and is taxed by personal income tax and military levy on general grounds. However, such an interpretation contradicts common sense, since legal expenses are mandatory payments that a party to a legal dispute needs to ensure access to justice and effective protection of their rights (expenses for professional legal assistance, expenses for expertise, etc.). The legal positions of courts of civil, administrative, and economic jurisdiction are investigated. The position of the Supreme Court is emphasized that compensation for legal costs by its legal nature is mandatory compensation provided for by law, and is actually a form of compensation for material damage caused to a person by unlawful actions/inaction, decisions of the other party in the case and forced material losses that the person suffered in connection with the application for judicial protection. Therefore, the amount of court fees that are compensated to a person by a court decision is not included in the total monthly (annual) taxable income of such a payer, and therefore in this case the bank or financial institution does not act as a tax agent. The decisions of administrative courts on the cancellation of individual tax consultations of the opposite content of tax authorities are studied.