Payment of tax following an audit = no penalties: rules under martial law

In the context of armed aggression and economic instability, taxpayers have a particular interest in preserving their capital and minimising additional financial costs. Consequently, the possibility of waiving penalties in such circumstances is one of the tools for protecting business interests.

Current Ukrainian legislation allows for the cancellation of certain fines and the non-imposition of the late payment interest that might arise following a tax documentary audit. This mechanism is provided for in sub-clause 69.37 of clause 69 of subsection 10 of Section XX “Transitional Provisions” of the Tax Code of Ukraine (hereinafter referred to as “sub-clause 69.37 of the Tax Code of Ukraine”). 

In this article, we propose to examine the procedure for its application.

Important: this mechanism does not mean the cancellation of all financial obligations that the tax authorities are authorised to impose on taxpayers. For these purposes, the law clearly requires compliance with several conditions:

• circumstances of the fine’s imposition: exclusively based on the results of a documentary tax audit;
• time limits: tax audits that were resumed or commenced after August 01, 2023 and completed by the date of termination or cancellation of martial law;
• legal grounds for the fine: in connection with the assessment of a tax liability;
• timely payment of such tax liability: 30 calendar days after receipt of the tax assessment notice.

Practical example: A scheduled audit was carried out on the taxpayer. As a result, the VAT liability was increased and fine was imposed. If this tax liability is paid within 30 calendar days, the fine will be waived and no late payment interest will be charged.

However, cancellation is not possible, in particular, in the following cases:

• the conduct of desk or on-site audits;
• the imposition of fine is not based on the amount of the tax liability;
• an appeal against a tax assessment notice imposing the tax liability and determining the corresponding fine and late payment interest.

What steps should be taken for the penalty to be considered cancelled? 

The legislation does not impose an obligation on taxpayers to take any “active” steps to have the fine cancelled in the manner described. Consequently, compliance with the conditions listed above should automatically result in this.

Nevertheless, the possibility of an improper response by the tax authority to the payment of an assessed tax liability should not be entirely ruled out, since this could lead to such a payment being incorrectly recorded or overlooked and, consequently, to the imposition of fines and late payment interest without proper grounds.

Practical recommendation: as soon as possible after paying the tax liability, notify the tax authority in writing and state that the fine is subject to cancellation and that late payment interest should not be charged in accordance with sub-clause 69.37 of the Tax Code of Ukraine.

To ensure the completeness and validity of such a request, it is also advisable to:

• provide the details of the tax assessment notice by which the relevant fines were imposed;
• provide appropriate confirmation of payment of the tax liability.

Although preparing and submitting such a notice does not, at first glance, require significant effort, this step is important as it may prevent the erroneous creation of a tax debt and the need to appeal against it. 

Can the existing overpayment be utilised?

Situations often arise where taxpayers transfer funds to the budget in amounts exceeding their actual tax liabilities. Any overpayment arising in this way may, by law, be applied towards the settlement of future financial obligations.

In this regard, a natural question arises: is the existing overpayment treated as a tax payment for the purposes of waiving a fine?

At present, the legislation contains no provisions specifying which source (the existing overpayment or a separate payment) should be used for this purpose.

Case law currently also does not provide a definitive answer to this question either, although some practical cases do exist. For instance, the Sixth Administrative Court of Appeal, in its ruling of August 19, 2025 in case No. 320/44267/24, concluded that the cancellation of a fine is lawful where the liability is settled using an existing overpayment.

Nevertheless, such ambiguity and the lack of established practice pose certain risks for taxpayers in the event of a dispute with the tax authority. 

Practical advice: pay extra attention to drafting your application to the tax authority for the cancellation of the fine and consult a specialist legal adviser in advance.

Are there any other consequences?

In addition to the immediate termination of the obligation to pay the penalty, the law also establishes an important consequence of using this procedure – the loss of the right to appeal against the tax liability on which the fine was imposed. 

It means that the taxpayer should make an important decision and choose one of two paths: 

• to accept the assessed tax liability (pay it) and at the same time waive the fine imposed in respect of it, or
• retain the right to appeal against such a tax assessment and the corresponding fine.

In essence, this choice relates to a specific tax assessment notice. As practice shows, a documentary tax audit may reveal violations of a completely different nature and, as a result, several tax assessment notices may be issued. It is important to understand that the option chosen regarding one of them does not deprive the taxpayer of the right to appeal the others.

Conclusions

Martial law legislation provides a special legal mechanism which allows certain fines to be cancelled and late payment interest not to be charged following the results of documentary tax audits. 

When used correctly, this tool enables businesses to minimise financial losses relatively quickly, even at the stage of receiving tax assessment notices. 

At the same time, it is always necessary to carefully weigh up what would be more appropriate in a specific case, depending on the nature of the violations identified by the tax audit and other circumstances – whether to cancel the penalty by paying the corresponding assessed tax, or to appeal both.