Company’s actions in case of inability to fulfill tax obligation

Such circumstances may be related to the taxpayer’s loss of access to its units/property, destruction of documentation, equipment, other property as a result of hostilities, etc. 

The tax legislation provides for the taxpayer who is unable to fulfill its tax obligations in a timely manner (compliance with tax payment deadlines, submission of reports, registration of tax or excise invoices, etc.), the release from the liability provided by law with the obligatory fulfillment of such obligations within 6 months after the end of martial law in Ukraine.

At the same time, if the possibility of fulfilling tax obligations, the deadline for which falls on the period from 24.02.2022 to the day of such renewal, has been restored, the taxpayer is exempt from liability provided that such obligations are fulfilled within 60 calendar days from the first day of the month following the month of renewal of such possibilities.

It should be borne in mind that to apply the above provisions of the law, the taxpayer must confirm to the supervisory authority the impossibility of fulfilling the tax obligation. 

Therefore, we propose to consider how exactly such confirmation should be made, what documents and within what timeframe should be provided to the supervisory authority.

Submission of an application and supporting documents by the taxpayer

Confirmation of the impossibility of fulfilling tax obligations is carried out in accordance with a separate procedure approved by Order of the Ministry of Finance of Ukraine dated 29.07.2022 No. 225 (the “Procedure”).

The Procedure, inter alia, sets out the grounds for the taxpayer’s inability to fulfill its tax obligations and the lists of documents confirming such inability separately for both legal entities and individuals.

The grounds for the impossibility of fulfilling tax obligations include, in particular, the loss (destruction or damage) of primary documents, computer and other equipment, the inability to use them or remove them as a result of hostilities; staying in a settlement where hostilities are taking place/the settlement is under temporary occupation, etc.

To confirm the impossibility of fulfilling tax obligations, a taxpayer must submit to the supervisory authority:

• an application, which must contain, in particular, i) justification of the grounds for confirming the impossibility of fulfilling tax obligations with reference to documentary evidence; ii) an exhaustive list of attachments; iii) information on which tax obligations the taxpayer is unable to fulfill and for which periods; iv) information on the circumstances related to military (combat) operations, terrorist acts, sabotage or other force majeure circumstances caused by military aggression, temporary occupation;
• documents (copies of documents), other information confirming the inability to fulfill tax obligations in a timely manner.

Depending on the grounds for the taxpayer’s inability to fulfill tax obligations, the list of documents to be submitted to confirm this, is determined in each case.

Such documents may include, but are not limited to: an act certifying the fact of a fire; information from the State Register of Real Property Rights in case of its destruction; an extract from the Unified Register of Pre-trial Investigations regarding a criminal offense in case of theft/destruction/loss of property (fixed assets); a document confirming the absence of funds in bank accounts; documents confirming the suspension of the bank, postal service operator, and main departments of the Treasury; documents confirming the loss/destruction of accounting documents and a number of others. 

It is important to remember that if the application does not contain the mandatory data specified in the Procedure, and the submitted documents do not show a causal link between the circumstances caused by military aggression and their direct impact on the ability to fulfill the tax obligation, this may be a reason for refusing to make a decision on the impossibility of fulfilling the tax obligation. This is stated, in particular, in the resolutions of the Supreme Court as of 06.12.2023 in case No. 280/6502/22, as of 28.02.2024 in case No. 280/6527/22.

Also, the Supreme Court in its ruling of 04.10.2023 in case No. 160/19575/22 noted that the circumstances of impossibility of timely fulfillment of tax liabilities must be real and objective, not formal, and the taxpayer must provide an exhaustive list of documents confirming the occurrence of circumstances that make it impossible to conduct business and fulfill tax obligations.

Deadlines for submitting an application and documents by a taxpayer

The Procedure sets the following deadlines for submitting an application and documents:

1. no later than 09.30.2022. This deadline applied to those taxpayers who, as of the date of entry into force of the Procedure – 06.09.2022, could submit an application, the above documents and information to the supervisory authority;
2. simultaneously with the acquisition of the ability to fulfill one of the tax obligations (registration of a tax invoice, submission of reports, payment of an outstanding tax liability, etc.). In this case, the application and documents must be submitted no later than 60 calendar days from the first day of the month following the month of restoration of such possibility. 

This deadline applies to those taxpayers who were unable to submit an application and documents before 30.09.2022, as well as to those who, as of 06.09.2022 or after that date, fulfilled their tax obligations but lost the ability to fulfill them due to military aggression.

Peculiarities of consideration of applications and documents by the supervisory authority

The application and supporting documents and information provided are reviewed by the supervisory authority within 20 calendar days from the day following the day of their receipt, with the possibility of extending the review period.

If the submitted documents are insufficient, the supervisory authority shall send a preliminary decision within the specified period with a suggestion to provide specific additional documents to confirm the grounds for the impossibility of fulfilling tax obligations specified in the application.

In this case, the court practice shows that the actions of the supervisory authority to refuse to make a preliminary decision in case of insufficient documents or failure to specify in the preliminary decision the specific additional documents to be provided, are unlawful. 

Such a violation of the Procedure by the supervisory authority may be the basis for canceling the decision on the possibility of fulfilling the tax obligation. After all, failure to make a preliminary decision puts the taxpayer in a state of legal uncertainty, which deprives him of the opportunity to provide the package of documents necessary in the understanding of the tax authority, and creates prerequisites for the supervisory authority to exercise negative discretion – to make a decision on the possibility of timely fulfillment of tax obligations (resolution of the Second Administrative Court of Appeal as of 30.11.2023 in case No. 520/5995/23, as of 21.11.2023 in case No. 520/10562/23).

The taxpayer may submit additional documents, justifications/explanations within 10 calendar days from the day following the day of receipt of the preliminary decision.

When reviewing the documents and information provided by the taxpayer, the supervisory authority must establish a causal link between the force majeure circumstances that occurred as a result of armed aggression, the direct impact of such circumstances on the taxpayer and the possibility of fulfilling the tax obligation as of the date on which the deadline for fulfilling such obligation falls.

Based on the results of the review, a decision is made on the possibility or impossibility of timely fulfillment of the taxpayer’s tax obligation.

The decision on the possibility of fulfilling the tax obligation may be appealed in administrative or judicial proceedings.

It is worth noting that the failure to specify in such a decision the specific arguments for its adoption and the documents not submitted by the taxpayer may be a reason for its cancellation. In such circumstances, the supervisory authority has no legal grounds to refuse to recognize the taxpayer’s inability to fulfill the tax obligation (resolution of the Sixth Administrative Court of Appeal dated 07.11.2023 in case No. 320/6464/23, resolution of the Second Administrative Court of Appeal dated 14.12.2023 in case No. 520/10727/23 and dated 07.12.2023 in case No. 520/4723/23).

In addition, if the taxpayer provides the supervisory authority with comprehensive documents to confirm the relevant circumstances of the impossibility of fulfilling the tax obligation, and if the supervisory authority does not properly assess the grounds specified in the application, the decision of the supervisory authority on the possibility of fulfilling the tax obligation may be canceled (resolution of the Seventh Administrative Court of Appeal dated 27. 11.2023 in case No. 560/8097/23, resolutions of the Second Administrative Court of Appeal dated 05.12.2023 in case No. 520/16237/23 and dated 14.12.2023 in case No. 520/12001/23, resolution of the Third Administrative Court of Appeal dated 13.12.2023 in case No. 280/328/23).

Thus, the process of confirming the impossibility of timely fulfillment of the tax obligation is quite complicated, as the application to the supervisory authority must be preceded by a proper assessment and documentation of the circumstances that led to such impossibility. In addition, the application must provide reasonable explanations and comprehensive documents confirming the causal link between certain circumstances caused by the armed aggression and their impact on the ability to fulfill the tax obligation. 

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