What is the relevant legislation relating to tax administration and controversies? Other than legislation, are there other binding rules for taxpayers and the tax authority?
The tax legislation of Ukraine is rather complex and consists of various legislative acts. According to the Tax Code of Ukraine, the relevant Ukrainian tax legislation consists of: the Constitution of Ukraine; the Tax Code of Ukraine; the relevant laws regulating customs duties; interna- tional agreements that are in force, consent to the binding nature of which was given by the Verkhovna Rada of Ukraine, and which govern questions of taxation; the other legal acts adopted on the basis of the Tax Code or on the basis of the laws on the customs service; and the decisions adopted by the local authorities on local taxes and fees.
Ukraine is a party to a number of bilateral and multilateral treaties that govern questions of taxation, including double taxation treaties.
Also, the Ministry of Finance of Ukraine may issue general tax consultations (on some commonly confusing legal questions), and the State Tax Service of Ukraine may issue individual tax consultations (upon request of taxpayers). In such individual and general tax consulta- tions, the tax authority expresses its position on a particular question of interpretation and application of tax rules. Therefore, taxpayers may be guided by such consultations in their activities. Moreover, if the taxpayer breached the tax legislation acting in accordance with such tax consul- tation, no fines or penalties shall apply to such taxpayer.
What is the relevant tax authority and how is it organised?
The State Tax Service of Ukraine is the central body of executive power that implements state tax policy, and it is the highest supervisory body for taxation.
In regions of Ukraine, it is represented by its separate branches – the Head Offices of the State Tax Service. The Head Offices of the State Tax Service mainly perform management, control and supervisory functions (eg, conduct tax audits, administer taxes, issue individual tax consultation).
Also, there are State Tax Inspections that are subdivisions of the Head Offices of the State Tax Service. The Tax Inspections are mainly engaged in administrative services and provide specific services to taxpayers, such as registration and accounting of taxpayers, and of the objects of taxation, as well as maintaining records in the state registries.
Compliance with tax laws
How does the tax authority verify compliance with the tax laws and ensure timely payment of taxes? What is the typical procedure for the tax authority to review a tax return and how long does the review last?
The tax authority verifies compliance with the tax laws by means of tax audits. The tax authority may also address written requests for infor- mation to taxpayers in the cases exhaustively established by the Tax Code of Ukraine. Under the Tax Code, there are the following types of tax audits:
A desktop audit is performed automatically for all tax returns and tax invoices normally and regularly submitted by taxpayers. Conducting such an audit does not require the prior notification of a taxpayer, or an order from the head of the tax authority. The audit is carried out solely on the basis of data specified in the tax returns and data from the electronic administration system. The subjects of the desktop audit are the correctness of calculations, the compliance with other formalities applicable to tax returns, the timeliness of registration of tax invoices and the timeliness of payment of taxes.
A documentary audit is the most general tax audit of taxpayer activity, which is conducted under an order from the head of the tax authority. The subject of such audit is the timeliness, reliability, completeness of accrual and payment of all taxes and fees provided by the Tax Code, as well as compliance with currency and other legislation, control over which is entrusted to the tax authorities, compliance by the employer with legislation on employment contracts, employment relations with employees. A documentary audit is carried out on the basis of tax returns, financial, statistical and other reporting, registers of tax accounting and accounting, primary documents used in accounting and tax accounting and related to the calculation and payment of taxes and fees, as well as on the basis of the other documents and tax information received by the tax authority in the manner prescribed by the law. The audit is divided into several types: scheduled or unscheduled tax audit, on-site or off-site tax audit.
Scheduled tax audit
A scheduled tax audit is performed based on the list of taxpayers subject to the scheduled tax audit. This list is prepared in advance for the next year and published on the official website of the State Tax Service of Ukraine. This list can be amended twice a year.
Unscheduled tax audit
An unscheduled tax audit may be performed only in the exhaustive list of cases directly foreseen under the Tax Code. For example, in cases when the tax authority receives the information, which shows possible violations of tax legislation, and such information is not disproved by the taxpayer in response to a prior written request from the tax authority.
An on-site audit is carried out at the location of the taxpayer. An off-site audit is carried out at the location of the tax authority.
An actual audit is performed at the place where the taxpayer performs its business activities, under an order from the head of the tax authority, with no prior notification of the taxpayer. This audit may be performed in the limited list of cases exhaustively defined in the Tax Code. The subject of such audit is taxpayer’s compliance with the legislation on cash circulation regulation, cash transactions, licences, certificates, including the production and circulation of excisable goods, compliance by the employer with legislation on employment and arrangement of labour relations with employees.
Types of taxpayer
Are different types of taxpayers subject to different reporting requirements? Can they be subjected to different types of review?
The reporting requirements (eg, reporting period, tax rate, form of declara- tion) depend on (1) the types of taxes paid; and (2) on the type of taxpayer. For example, payers of company income tax (CIT) submit either quarterly or annual CIT declarations (the CIT reporting period depends on the annual income of the taxpayer). Payers of value-added tax (VAT) submit monthly VAT declarations. Only legal entities or private entrepre- neurs may be CIT or VAT taxpayers. Personal income tax is paid under the annual report by individuals who receive certain types of income defined by the Tax Code or is paid by the tax agent on behalf of the individuals. All taxpayers are subject to all types of tax audit. However, the length of the tax audit may depend on whether the taxpayer is classified as a large taxpayer or small business.
For example, the duration of scheduled documentary audits should
not exceed 30 working days for large taxpayers; 10 working days for small businesses; and 20 working days for other taxpayers. These terms, however, may be prolonged.
What types of information may the tax authority request from taxpayers? Can the tax authority interview the taxpayer or the taxpayer’s employees? If so, are there any restrictions?
The tax authority may receive information from taxpayers in the following cases:
- within the tax audit; and
- under the respective written request in the cases established by the Tax Code. In both cases, the tax authority may request the provision of the following documents: primary documents used for accounting and tax accounting purposes, financial, statistical and other reporting connected with calcu- lation and payments of taxes and fees, registers of tax accounting and accounting. The list of documents laid down in the Tax Code is not exhaus- tive, and the tax authorities may request any information or documents directly related to the data reflected in accounting or tax reports.
Also, within the tax audit, the tax authority has the right:
- to receive written explanations from officials of the taxpayer on issues related to the subject of audit, and their documentary confir- mation; and
- to receive explanations from employers or their employees, or persons whose work is used without documentary arrangement, during audits on compliance by the employer with the legislation on the conclusion of an employment contract, arrangement of employ- ment relations with employees, compliance with the legislation on taxation of wages paid.
Available agency action
What actions may the agencies take if the taxpayer does not provide the required information?
Two scenarios are possible if a taxpayer does not provide the requested information as follows:
- non-provision of information requested during the tax audit will be
- considered an offence of tax legislation and subject to a fine. Also, documents that were requested from a taxpayer but not provided are deemed to be absent, which leads to negative tax implications; and
- non-provision of information requested outside of a tax audit under the respective written request, or failure to provide such informa- tion in full or within the established time limits may lead to an unscheduled tax audit of such taxpayer.
Protecting commercial information
How may taxpayers protect commercial information, including business secrets or professional advice, from disclosure? Is the tax authority subject to any restrictions concerning what it can do with the information disclosed?
Under the Tax Code, the taxpayer has the right to non-disclosure of the information by the tax authority without his or her written consent, if such information is classified as confidential or if it constitutes a state, commercial or banking secret.
Also, according to the Tax Code, the tax authority is under the duty of confidentiality, as it is obliged to ensure the non-disclosure of information with limited access, received, used, stored during the performance of the functions entrusted to the tax authorities.
Documents that contain commercial secrets or confidential informa- tion shall be submitted to the tax authority separately. The receipt of such documents shall be confirmed by a written act of acceptance, signed by the representatives of the tax authority and the taxpayer, and specifying the person that received them.
Limitation period for reviews
What limitation period applies to the review of tax returns?
As a general rule, tax authorities may conduct a tax audit and unilaterally determine the amount of tax liabilities to be paid within a period of 1,095 days (three years) following the deadline for submission of a tax return (or actual date of filing of a tax return if the deadline was missed) or the deadline for payment of taxes accrued by the tax authorities. A specific seven-year limitation period is prescribed for transfer pricing audits. If no additional tax assessments are made within this period, a taxpayer is released from tax liabilities and no dispute regarding such liabilities can be initiated.
Tax liabilities can be assessed after the expiry of the limitation period if:
- no tax return was lodged for the respective period; or
- a taxpayer’s official was convicted for the avoidance of payment of the relevant tax liabilities, or criminal proceedings were terminated for non-exculpatory grounds.
At present, this limitation period is suspended for the period from 18 March 2020 to the last calendar day of the month (inclusive) when the quarantine established by the Cabinet of Ministers of Ukraine throughout Ukraine to stop the spread of the coronavirus ends.
Alternative dispute resolution
Describe any alternative dispute resolution (ADR) or settlement options available.
The tax assessment or any other decision of the territorial bodies of the State Tax Service (the Head Offices) can be appealed at the State Tax Service of Ukraine within 10 working days following the day of receipt by the taxpayer of a decision of the tax authority (in some cases, this deadline can be renewed).
The decision on the appeal shall be taken by the State Tax Service of Ukraine within 20 calendar days, but the review deadline can be extended to a maximum of 60 days. As a result of consideration of the appeal, the decision of the tax authority may be revoked in whole or in part or left unchanged.
This procedure is considered a pre-trial dispute resolution mecha- nism. At the same time, it is optional and does not influence the further possibility of a taxpayer to file a court claim.
Collecting overdue payments
How may the tax authority collect overdue tax payments following a tax review?
First, the tax authorities can file a claim to a court regarding overdue payments (tax debt) recovery. In such a case, the debt can be forcibly recovered from the taxpayer’s accounts.
The property of a taxpayer who has a tax debt is subject to a tax lien. The lien is imposed over the property owned by the debtor in proportion to the amount of the debt. If the amount of the debt is lower than approximately €98, a tax lien is not applicable. A special official of the tax authority (a tax manager) is appointed in order to describe the property subject to tax lien, and to sell the property in order to recover tax debt (if the taxpayer does not have enough monetary funds to repay the tax debt). The property on lien can be sold via an auction or through trade organisations. If the debt is recovered any time before the conclu- sion of the sales agreement, the sale must be cancelled.
An administrative arrest of the property is an additional mechanism for enforcing tax payments. It is applied in exceptional circumstances, inter alia, if a taxpayer:
- violates the rules on the alienation of the property on bail;
- refuses to conduct an inspection regarding the condition of the property on bail; or
- does not admit the tax manager to describe the property subject to bail. Administrative arrest provides for a prohibition or a significant limita- tion on the possibility of the taxpayer to exercise ownership rights over the property. The legality of administrative arrest shall be reviewed by the court within 96 hours of its imposition. Penalties
In what circumstances may the tax authority impose penalties?
Penalties can be imposed on a taxpayer for an offence related to tax. The full list of tax offences is defined in the Tax Code. To qualify as a tax offence, the action or inaction shall be unlawful and, for certain offences directly provided in the Tax Code of Ukraine, there must be guilt on part of the taxpayer.
Penalties are most commonly imposed if the tax authority unilater- ally determines the amount of the liability in tax. In addition, penalties are provided for the alienation of property on tax bail without the consent of the tax authorities; delay in making tax payments; delay of submission of tax returns or registration of tax invoices; violation of the rules on the accrual; withholding and payment of taxes on the part of the tax agent, among others.
How are penalties calculated?
There are two basic types of penalties: fixed amount or in percentage terms. Fixed penalties can be determined directly in the Tax Code in Ukrainian hryvnias or can be calculated as a certain amount in subsist- ence minimums.
Fixed penalties are imposed, for instance, for failure to file a tax return or transfer pricing report, for mistakes in tax returns or late payments of tax.
Penalties are usually calculated in percentage terms in cases where the tax authorities unilaterally determine the amount of tax liabilities, or additionally assess tax or reduce the tax credit. In some cases, the penalties are calculated in percentage terms by setting their maximum amount as a specific number of subsistence minimums.
What defences are available if penalties are imposed?
The imposition of penalties can be challenged, just like any other decision of the tax authorities, at the State Tax Service of Ukraine or in a court.
In what circumstances may the tax authority collect interest and how is it calculated?
Interest is usually imposed by the tax authorities for overdue tax liabili- ties or amounts of penalties (fines) not paid within the statutory period. It is calculated in percentage terms for each day of the delay or for the existence of the unpaid tax liabilities.
Are there criminal consequences that can arise as a result of a tax review? Are these different for different types of taxpayers?
If the additionally assessed tax liability is in excess of approximately €100,000, this might indicate the existence of tax avoidance as a criminal offence. Based on such facts, a criminal investigation can be initiated.
Individual taxpayers or officials of business entities are subject to criminal liability for tax avoidance. The penalties may include fines, prohibition on certain activities or confiscation of property.
What is the recent enforcement record of the authorities?
According to the official statistics of the State Tax Service, during the first quarter of 2021, nearly €13 million of taxes was additionally accrued by the tax authorities in the course of audits. However, a big percentage of additional assessments are subsequently challenged by taxpayers, often successfully.
For instance, during the first five months of 2021, 3,800 cases related to additional accrual of taxes were reviewed by courts, concerning nearly €1 billion. Forty-two per cent of cases were decided in favour of taxpayers. Approximately 31.5 per cent of additional tax assessments or other decisions challenged before the State Tax Service were invalidated in full and the other 6 per cent were partially annulled.
THIRD PARTIES AND OTHER AUTHORITIES
Cooperation with other authorities
Can a tax authority involve or investigate third parties as part of the authority’s review of a taxpayer’s returns?
Yes. In the course of tax audits, the tax authorities have the right to receive explanations from officials (employees) of the taxpayer on issues related to the subject of the audit and their documentary confirmation.
The tax authority has the right to initiate the counter audit of the taxpayer counter-party of the business operation with such a legal entity if the tax authority believes it looks suspicious.
During the tax audit, the taxpayer must provide to the tax authority copies of all documents that are related to the tax audit. The exception to this rule is the confidential information of the taxpayer.
Outside of tax audits and in order to receive any information, the tax authority uses the mechanism of a written request. The taxpayers have a right not to provide any information to the written request if such a request does not meet the requirements specified by the Tax Code of Ukraine.
If the written request made by the tax authority is ignored unrea- sonably, the latter has the right to conduct an unscheduled documentary tax audit, which refers to the main sanction for a taxpayer.
Does the tax authority cooperate with other authorities within the country? Does the tax authority cooperate with the tax authorities in other countries?
The Head Offices of the State Tax Service cooperate with local tax authorities regarding the exchange of tax information for the purposes of tax audits.
Furthermore, the tax authority has the right to request and receive the information necessary for the implementation of control functions from other state authorities. For example, if during the tax audit the tax authority reveals the fact of violation of labour legislation, the tax authority may inform the State Labour Service of Ukraine, which may trigger a labour inspection of the company. Also, the tax authority may apply to the tax police for the provision of information about the criminal case of the taxpayer or its officials and use this information against the taxpayer within the tax audit.
Information exchange with the tax authorities in other countries can be made only if there is a relevant international agreement between Ukraine and other countries. In practice, Ukrainian tax authorities actively use this tool to receive additional information about the taxpay- er’s transactions from foreign tax authorities. In the majority of cases, foreign tax authorities provide the requested information if such obliga- tion is established in the relevant international tax treaty.
Voluntary disclosure and amnesties
Do any special procedures apply in cases of financial or other hardship, for example when a taxpayer is bankrupt?
Tax legislation provides rules that apply to specific cases of hardship. There is a possibility for postponement and instalment of due dates of tax liabilities and tax debt if certain conditions are met. For example, a taxpayer can get a postponement in the event of force majeure and instalment when the company may become bankrupt if it pays the tax
liabilities or in the case of the company’s reorganisation.
There is also a mechanism of write-off. The tax debt can be written off in the event of bankruptcy or liquidation of a taxpayer. Tax debt with
an expired statute of limitations or which occurred due to force majeure is also subject to write-off.
Are there any voluntary disclosure or amnesty programmes?
The country’s government has repeatedly declared the need for disclo- sure programmes. The main aim of such initiatives was to ensure a reduction in the shadow sector of property, financial stabilisation in the country and the prevention of tax offences in the future.
The law on tax amnesty was adopted recently in Ukraine. Such an amnesty programme involves disclosing and declaring under- declared assets during a period of one year. Besides, the special duty to be paid in such under-declared assets is much lower than standard tax rates.
By making a disclosure during the tax amnesty, taxpayers would be released from the liability for tax evasion in the past.
The adopted tax amnesty aims, in the main, to normalise issues in the field of monetary regulation and to stimulate the declaration of hidden or late tax payments.
RIGHTS OF TAXPAYERS
Rules protecting taxpayers
What rules are in place to protect taxpayers?
The Tax Code of Ukraine determines the main rights of taxpayers. There is a separate order of the Ministry of Finance of Ukraine that regulates the procedure of registration and submission of taxpayers’ claims and their consideration by the tax authority. It also covers the procedure of taxpayers’ complaints about illegal decisions adopted by the tax authority and hence the protection and realisation of the taxpayers’ rights granted by the Tax Code of Ukraine.
For example, the documents stated above provide that taxpayers can expect a tax authority to provide an efficient and effective service, equal and fair treatment, consideration of the explanations of taxpayers, and to deal with complaints quickly as well as to provide motivated deci- sions. Tax legislation provides disciplinary liability of the tax authority’s officials for violation of taxpayers’ rights and the adoption of illegal tax decisions regarding taxpayers.
How can taxpayers obtain information from the tax authority? What information can taxpayers request?
There are various legislative regulations that provide the possibility for a taxpayer to obtain information from the tax authority (eg, on the amounts of paid income and withheld taxes, on the absence of tax arrears, information from the register of value-added taxpayers).
The Tax Code of Ukraine provides the opportunity for taxpayers to send requests to the tax authority asking for clarifications of tax legisla- tion. In response to such requests, the tax authority provides individual tax consultations on the practical application of certain provisions of legislation. If a taxpayer acts in accordance with the received individual tax consultation and violates tax legislation, such a taxpayer should be released from financial responsibility for any offence committed.
The Law of Ukraine ‘On Access to Public Information’ guarantees the possibility to receive from state bodies, including tax authorities, any information that is recognised as public to any person. Public informa- tion is the information that was obtained or created in the process of the state authorities performing their duties.
Individuals can obtain any information from the State Register of Individuals – Taxpayers at the request of such individual or his/her representative.
When providing legal assistance, an attorney can send an attor- ney’s request to the tax authority to obtain the tax information regarding the client that is provided by the Law of Ukraine ‘On Advocacy and Advocacy Practice’.
At the stage of judicial challenging of tax notice decisions, taxpayers may ask the court to issue an order obliging the tax authority to provide certain documents or information that the taxpayer was not able to receive by him or herself.
Tax authority governance
Is the tax authority subject to non-judicial oversight?
The State Tax Service of Ukraine is subject to non-judicial oversight by the internal control department and the Disciplinary Board, which oper- ates as a part of the tax authority.
Furthermore, it publishes annual reports setting out its perfor- mance for the year and is ultimately accountable to the Cabinet of Ministers of Ukraine, as represented by the Minister of Finance.
Which courts have jurisdiction to hear tax disputes?
Tax disputes, like any other disputes with official authorities, fall under the jurisdiction of administrative courts. The structure of administrative courts includes three instances:
- administrative courts of the first instance;
- appellate administrative courts; and
- the Supreme Court (Administrative Court of Cassation). Lodging a claim
How can tax disputes be brought before the courts?
The grounds for a claim in an administrative court is a violation of a taxpayer’s rights by a decision, actions or inaction of a tax authority.
To lodge a claim, the application must satisfy the formal criteria determined in the Administrative Procedural Code (it must include, inter alia, explanations of the claimant regarding the claims (their grounds), circumstances that confirm the claim and the relevant evidence) and the court fee must be paid.
Individuals or companies, as well as tax authorities, have standing to bring a claim in tax disputes.
The claim can be lodged regardless of its amount, non-monetary disputes may also arise.
The most common option for taxpayers in tax disputes is a declara- tion of the decision, actions, or inaction of a tax authority as unlawful and, in some cases, imposition of a further obligation to act or refrain from actions. In addition, a taxpayer may recover damages caused by such decision, action or inaction of the tax authority as well as the legal fees.
Combination of claims
Can tax claims affecting multiple tax returns or taxpayers be brought together?
A tax claim can relate to an unlimited number of decisions of the tax authorities addressed to the taxpayer, related by their grounds or the evidence provided. Moreover, there may be several defendants (eg, tax authorities, other public authorities) in a tax dispute.
Theoretically, the taxpayers can bring a common claim. However, as individual acts are usually challenged in tax disputes, such a possi- bility is very rarely used.
Must the taxpayer pay the amounts in dispute into court before bringing a claim?
The taxpayer is not obliged to pay the disputed amounts to bring a claim. The tax liabilities that are challenged are considered unsettled until the final court ruling comes into force.
To what extent can the costs of a dispute be recovered?
If the taxpayer’s claim is satisfied in full or in part, the costs of a dispute borne by a taxpayer (including court fee and costs for legal services) can be recovered from the state budget to the extent the court considers reasonable under the respective evidence submitted by the taxpayer. The taxpayer can also lodge a motion to explain the reasonableness of the expenses.
In the event that a taxpayer loses a dispute, only the costs of the tax authority related to the involvement of witnesses and conducting a probe can be reimbursed.
Are there any restrictions on or rules relating to third-party funding or insurance for the costs of a tax dispute, including bringing a tax claim to court?
There are no restrictions on third-party funding; a third party can pay the court fee by specifying the case in which such a court fee is paid.
Court decision maker
Who is the decision maker in the court? Is a jury trial available to hear tax disputes?
In the court of first instance, a single judge considers the dispute. In appellate courts and cassation court (the Supreme Court), a decision is made by a panel of three judges. In some cases where the panel of judges of the cassation court deems it is necessary to depart from the conclusion on the application of the law in similar legal relations, set out in previously adopted decisions of the Supreme Court, the dispute may be considered by a panel of more than three judges: by the tax chamber, the joint chamber or the Grand Chamber of the Supreme Court.
Trial by jury is not available for tax disputes.
What are the usual time frames for tax trials?
There are two procedures for the review of tax disputes in courts:
- general procedure; and
- simplified procedure.
In the court of first instance, the general procedure shall last for no more than 90 days; and for the simplified procedure, a decision must be taken before a 60-day term expires. The review of appeals and cassation appeals shall be carried out within a 60-day term for each stage.
However, because of a significant overload of administrative courts, all stages of the review of a case usually take a minimum of a year and sometimes even several years.
What are the requirements concerning disclosure or a duty to present information for trial?
As a general rule, with a relevant statement on the merits of the claims, each party to a dispute shall submit all evidence to the court, or indicate the reasons for failure to provide relevant evidence.
There is a process for evidence reclaim, which can be used in cases when a party cannot present evidence. In such cases, a party can lodge a motion for reclaim of evidence by the court. The court can also reclaim evidence on its initiative.
The person possessing the evidence is obliged to provide it upon an order issued by a court. If the person refuses to do so, enforcement measures may be applied, or the court may consider the case according to the evidence available.
What evidence is permitted in a tax trial?
Evidence permitted includes statements from witnesses, written evidence, material evidence and electronic evidence, as well as an expert conclu- sion. The taxpayer and other persons can testify about the circumstances familiar to them that are important for the case. The taxpayer can testify only in the event of consenting to do so or at his or her own initiative.
The experts that have already participated in the review of a case as witnesses cannot provide expert opinions in the same dispute.
There is a general requirement for the state language to be used in court proceedings. Thus, the evidence provided to the court must be in the Ukrainian language. Translators can also be involved in the review of evidence.
Who can represent taxpayers in a tax trial? Who represents the tax authority?
A taxpayer can take part in the proceedings in person or be represented by an attorney-at-law. The general lawyer who is not admitted to the Bar has no right to appear before a court.
For business entities and the tax authorities, self-representation means representation by a director, executive body member and other person authorised to act on its behalf in accordance with the law, charter, order or employment contract.
Publicity of proceedings
Are tax trial proceedings public?
Tax trial proceedings are usually public, both court hearings and court rulings are open. Any person can be present at the court hearing and take photos, videos or audio recordings of the hearing, subject to certain limitations that may be imposed by the law in individual cases. The other party to the dispute may object to the publicity of the trial and the court may grant such objections if it considers this to be grounded.
The access of third parties to court hearings has, however, been limited lately because of the pandemic.
Burden of proof
Who has the burden of proof in a tax trial?
The burden to prove the legality of decisions, actions or inaction lies with the respondent tax authority.
At the same time, procedural rules provide for the general principle of the adversarial nature of the parties in the process. In this regard, according to the position of the Supreme Court, if the tax authorities
have proven misstatements in the documents submitted by a taxpayer, then the burden of proof regarding such arguments is shifted to the taxpayer. In practice, the burden of proof lies upon the taxpayer and the tax authority usually presents the same information in the procedural documents that was stated in the tax audit act, with no justification or explanation why they came to such conclusions.
Case management process
Describe the case management process for a tax trial.
The tax trial is managed by the presiding judge, who decides on the procedural issues (eg, appoints court hearings or decides whether the case will be examined in the course of a written procedure). The parties can lodge motions regarding procedural issues and the judge decides on such motions by written ruling or during a court hearing.
Can a court decision be appealed? If so, on what basis?
A court decision can be appealed in front of an appellate court because of the following:
- incomplete clarification of the circumstances of the case;
- the fact that the circumstances that the court established were not proven;
- wrong conclusions of the court; and
- incorrect application of substantial law or violations of procedural law.
An appeal can be brought within 30 days after the decision of the court is announced (obtained).
The appellate court reviews the case on the basis of the available evidence and additionally submitted evidence, and verifies the legality and validity of the decision of the court of first instance within the argu- ments and requirements of the appeal.
A Supreme Court is treated as ‘the court of law’, which usually does not clarify the factual circumstances of the case. Therefore, a cassation appeal can be reviewed on limited grounds; namely, if the previous judg- ments of the Supreme Court in similar legal relations were not applied by the appellate court; if the claimant provided a sufficient justification for derogation from the previous judgment of the Supreme Court; or if there is no judgment of the Supreme Court in similar legal relations. A cassation appeal can also be brought owing to incorrect application of substantial law or violations of procedural law in the closed list of situations.
The time frame for bringing a cassation appeal is 30 days after the decision of the appellate court is announced (obtained).
UPDATE AND TRENDS
Key developments of the past year
What are the current trends in enforcement of tax controversies? What are the current concerns of the authorities and taxpayers in relation to the enforcement and handling of tax controversies and are these likely to change? Are there proposals to change the relevant legislation or other rules?
The following general current trends in enforcement of tax controver- sies can be highlighted:
- The procedure of dispute resolution at the level of tax authorities (the ‘administrative appeal’) is not effective enough owing to the strong fiscal approach of the tax authorities and, in most cases, it entails a negative result for taxpayers. That is why taxpayers often refer to a court after an administrative appeal to resolve their tax dispute or even avoid an administrative appeal and refer to a court immediately.
- Tax authorities usually appeal against court decisions that are in favour of taxpayers to all court instances, even when they have no reasonable grounds to file such appeals.
- More taxpayers involve the Business Ombudsman Council in the settlement of tax disputes in the administrative appeal. This body may independently analyse the tax case and support the taxpayer in the appeal if it comes to the conclusion that the position of the taxpayer is reasonable. The tax authority is obliged to take into account the recommendations and conclusions of the Business Ombudsman Council while taking its decision on the case.
- Changes to Ukrainian tax legislation made in 2020 and 2021 imple- mented in it the mutual agreement procedure applicable to the settlement of disputes connected with international taxation. It is expected that such a procedure will contribute to the effectiveness of their resolution. This is in order to fulfil the OECD Action Plan on Base Erosion and Profit Shifting.
- New rules introduced into tax legislation of Ukraine in 2020 and 2021 provided for a new concept of the taxpayer’s guilt in violation of tax legislation. It is expected that it will contribute to a rise in tax disputes resolved in favour of taxpayers.
As per the current concerns of taxpayers in relation to the enforcement • and handling of tax controversies, they are mostly connected with the fiscal approach of tax authorities, which cause difficulties in the resolu-
tion of tax disputes without their referral to a court. The concern of the tax authorities is, in turn, that a large number of taxpayers abuse their right to initiate the settlement of a tax dispute in administrative or judi-
cial procedure to delay the payment of tax obligations accrued by the tax authority and which are the subject of the dispute. That is because the
Tax Code of Ukraine provides for the rule that the taxpayer does not have
an obligation to pay them before the administrative or judicial appeal.
At present, there are no essential new proposals suggested on changes to the rules of resolution of tax disputes aimed at fundamental improvement, change of such procedures. However, the Draft Law on Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure Balanced Budget Revenues No. 5600 dated 2 June 2021 may be mentioned in this respect. It provides for the extension of the right of tax lien on a taxpayer’s movable and immovable property, whose value equals the sum of tax liabilities accrued while the dispute regarding such tax liabilities is considered in the administrative or judi- cial order. This is to ensure that the taxpayer will have the necessary resources to cover the accrued tax liabilities if the dispute is resolved in favour of the tax authority.
What emergency legislation, relief programmes and other • initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?
To relieve negative financial consequences for taxpayers caused by the measures for combating the coronavirus in Ukraine (quarantine meas- ures), the Ukrainian parliament has adopted several laws amending tax legislation. In general, such amendments are aimed at tax relief achieved, for instance, by means of tax exemptions regarding certain types of incomes, provision of tax discounts, release from payment of fines and penalties connected with violations of tax legislation, restric- tions in carrying out tax audits, among others.
In particular, this context is specified in the following:
- The Law of Ukraine ‘On Amendments to Certain Legislative Acts of Ukraine Aimed at Providing Additional Social and Economic Guarantees in Connection with the Spread of Coronavirus Disease (COVID-19)’ dated 30 March 2020: releases payment of the land fee for the period from 1 March to 31 March 2020 for land plots owned by individuals and legal entities and used in their commer- cial activities; release from payment of real estate tax, other than land, for the same period for non-residential real estate owned by individuals and legal entities, among others.
- The Law of Ukraine ‘On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Concerning Additional Support to Taxpayers for the Period of Implementing Measures Aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-19)‘ dated 13 May 2020: releases from payment of personal income tax and the military levy of income in the form of partial unemployment benefits for the quarantine period starting from 2 April 2020; suspension of terms till the end of Coronavirus quar- antine in Ukraine for provision by the taxpayers of replies to the requests of tax authorities received till the end of such quarantine; non-application of fines and penalties connected with violation of tax laws from 1 March 2020 till the end of quarantine (with certain exclusions); ban on the carrying out of tax audits (with certain exclusions) from 18 March 2020 till the end of quarantine, among others.
- The Law of Ukraine ‘On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Social Support of Taxpayers for the Period of Restrictive Anti-Epidemic Measures Introduced to Prevent the Spread of Acute Respiratory Disease COVID-19 Caused by SARS-CoV-2 Coronavirus in Ukraine’ dated 4 December 2020: establishment of the minimum tax debt threshold that shall be reached to initiate tax collection procedure, release from personal income tax of special one-time financial assistance from the state for individuals; provision of the right to business entities to reduce the tax base of income tax for the sum of income received as one-time quarantine compensation from the state; tax write-off regarding small sums of tax debts; release from payment of the single tax of certain taxpayers that pay the simplified tax system for the period of December 2020 to May 2021, among others.
There are also other laws aimed at supporting taxpayers, including specific laws for those carrying out activities in particular fields.
Moreover, the Ukrainian parliament introduced into the transitional provisions of the Tax Code of Ukraine a VAT exemption for businesses carrying out import or supply operations of medicines and medical devices needed for combating the coronavirus in Ukraine. The list of these goods and certain specific rules of application of the exemption are established by the government of Ukraine.
It is advisable for taxpayers to fully apply all tax benefits, provided by Ukrainian laws, in order to minimise the negative material effect of the coronavirus. Moreover, some tax benefits are mandatory for appli- cation. For instance, the above-mentioned VAT exemption.
Partner, Head of Tax practice, Restructuring, Claims and Recoveries practice, Attorney at law
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