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​HOW RISKY A TAXPAYER ARE YOU?

February 2019 - Tax & Private Client. Legal Developments by GOLAW.

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A new blocking system for tax invoices, along with a new procedure for suspending the registration of tax invoices in the Unified Register of Tax Invoices, has been in operation since March 2018 in Ukraine. According to the new procedure, established under Cabinet of Ministers of Ukraine resolution № 117 of Feb. 21, 2018, the registration of tax invoices is suspended when such invoices meet the risk criteria of the transaction, or when the taxpayer meets the risk criteria set for taxpayers.

How risky a taxpayer are you?

A new blocking system for tax invoices, along with a new procedure for suspending the registration of tax invoices in the Unified Register of Tax Invoices, has been in operation since March 2018 in Ukraine. According to the new procedure, established under Cabinet of Ministers of Ukraine resolution № 117 of Feb. 21, 2018 (hereinafter – the “Procedure”), the registration of tax invoices is suspended when such invoices meet the risk criteria of the transaction, or when the taxpayer meets the risk criteria set for taxpayers.

Why tax invoices are blocked?

One way to avoid the suspension of the registration of tax invoices in the register was to fill in the database of VAT payers for the State Fiscal Service (SFS). This option was widely used by agroholdings, which suffer a lot from this problem. However, it turned out that this option was inefficient, because tax invoices were still been suspended because the taxpayer themselves were still meeting the risk criteria of taxpayers.

The risk criteria of taxpayers (hereinafter – the “Criteria”) were set by SFS letter No. 959/99-99-07-18, dated March 21, 2018 (hereinafter – the “Letter”). Para 1.6 of the Criteria provides several grounds for the recognition the taxpayer as one who meets the risk criteria, according to a decision of relevant commission of the SFS, on including such taxpayer on the list of risky ones. However, there is no special procedure for the notification of the taxpayer about this decision, and the taxpayer mainly only finds out about it after his tax invoices are suspended.

Furthermore, according to the para 13 of the Procedure, a receipt for the suspension of the registration of the tax invoice should contain information about the risk criteria on the basis of which the registration of the tax invoice has been suspended. However, such a receipt indicates only a reference to para 1.6 of the Criteria without any specification of the basis for the recognition of taxpayer as risky.

Thus, without the relevant information, the taxpayer is deprived of the opportunity to submit to the SFS a proper and full set of documents to unblock the tax invoice, or to exclude himself from the list of risky taxpayers.

What does the court say?

Since such disputes between taxpayers and SFS are becoming more common, a certain court practice has already been established.

For example, the Kyiv District Administrative Court in its ruling dated Oct. 21, 2018 in case No. 810/4261/18, found out that the controlling body had grossly violated not only the principle of validity of the decision of the authority, but also the terms of para 13 of the Procedure, because it did not specify in the receipt a specific and clear criterion of risk sufficient to suspend registration of the tax invoice in the Register. Such a conclusion of the court is based on the fact that in the receipt, the fiscal authority only mentioned only a general reference to the compliance of Plaintiff with the abovementioned criteria of the risk specified in para 1.6 of the Criteria. At the same time, the current legislation requires the controlling authority to indicate a particular type of criteria. The fiscal authority was obliged to clearly indicate in the receipt not only the specific type of criteria set in para 1.6, but also the corresponding decision according to which the Plaintiff was included in the list of risky payers.

So what can taxpayers do to find out the criteria on the basis of which they were classified as risky?

Practice, shows that the only effective way is to send an official request to the respective body of the SFS. Such a request will oblige SFS to provide the respective information to the taxpayer. However, such a request also has to be sent by an attorney at law, since a response to such request is obligatory. After the taxpayer receives the answer, they can decide whether it is possible for them to submit the relevant documents to the SFS, or otherwise to appeal against the decision of the relevant commission on being put on the list of risky taxpayers.

In turn, taxpayers will be taken off the list of risky entities only if they cease to meet the risk criteria specified in para 1.6 of the Criteria. It should be mentioned that positive court practice has already begun to be established regarding appeals against decisions on inclusion on the list of risky taxpayers.

In this regard, it should also be noted that the Letter is not a legal act, thus its provisions are informative and not legally bounding. The State Regulatory Service of Ukraine already noted this fact in its letter dated April 19, 2018 No. 3890/0/20-18. The courts have also noted this fact. For example, the Odesa District Administrative Court in its ruling dated Oct. 3, 2018 in case No. 1540/4223/18 found out that the risk criteria of the taxpayer are determined by the Letter, which is not even a normative legal act.

Anticipated changes

Under such circumstances, the question of the legality of the suspension of registration of tax invoices under the risk criteria established by the Letter is raised. For now, in order to resolve this controversial situation, the Ministry of Finance of Ukraine has published the draft order “On Approval of the Risk Criteria of the Taxpayer, the Risk Criteria for the Operations and the List of Indicators, which determine the positive tax history of the taxpayer”. The draft order excludes the following risk criteria: the date of registration by the payer of VAT is not more than three months from the date of registration of tax invoices; there is tax information indicating signs of risky operations by the taxpayer. In our opinion, this will have a positive impact, as the draft of the list of risk criteria of the taxpayer is more exhaustive and does not contain general provisions.