Notable Tax Disputes of 2023

I had a pleasure of speaking at the meeting of the Tax and Customs Law Committee of the Ukrainian Bar Association on the topic of the most notable court jurisprudence of the Supreme Court in tax disputes in 2023.

In particular, the following issues decided by the Supreme Court in 2023 came into the focus of my attention:

1) The possibility of recovering damages from the state revenues in the form of a contractual fine paid to the purchaser for the untimely registration of the VAT invoice - the judgement of the Grand Chamber of the Supreme Court dated 1 March 2023 in case No. 925/556/21 initiated by "Manufacturing enterprise "Impuls Plus", LLC on the lack of such a possibility in view of the absence of a cause-and-effect relationship between the suspension of the registration of the VAT invoice and the payment of the fine;

2) The possibility of invalidating a contract concluded between two taxpayers at the request of the tax authority - the judgement of the Commercial Court of Cassation dated 29 August 2023 in case No. 910/5958/20 initiated by the Main Department of the State Tax Service of Ukraine in the city of Kyiv on rejecting the tax authority's claim due to the fact that it did not manage to prove a violation of its civil rights and interests in the course of concluding the disputed contract by the taxpayers;

3) The deductibility for the purpose of corporate income tax of non-refundable financial assistance provided to a related company - the judgement of the Administrative Court of Cassation dated 30 May 2023 in case No. 580/3758/19 initiated by "Sokar Petroleum"LLC in favor of such a deductibility;

4) The possibility of a taxpayer to challenge its inclusion in the plan-schedule of scheduled tax inspections - the judgement of the Administrative Court of Cassation dated 4 October 2023 in case No. 480/12329/21 initiated by "Sumy Development Company", LLC stating that this is an incorrect remedy that cannot be applied; and

5) The possibility of applying the principle of stability of tax legislation - the judgement of the Administrative Court of Cassation (the entire "tax" chamber involved) dated 26 September 2023 in case No. 640/7520/21 initiated by "AERO TELECOM", LLC on the impossibility of the application of this principle.

Abolishment of Moratorium on Tax Audits

I had the pleasure of speaking at the meeting of the Committee on Tax and Customs Law of the Ukrainian Bar Association on the topic of canceling the moratorium on tax audits.

The current situation is such that starting from 8 December 2023 the moratorium on tax audits practically has not been in existence.

Tax authorities were given back almost all the possibilities for conducting tax audits that they had had before the introduction of the "coronavirus” moratorium on tax audits in March 2020. The latter gradually grew into a "military" moratorium on tax audits.

From 8 December 2023 onwards only some minor manifestations of the previously famous moratorium remains to exist, which concern:

- Restrictions on conducting tax audits of individual entrepreneurs of the first and second groups until 1 December 2024;

- Restrictions on conducting tax audits of taxpayers whose tax addresses are temporarily occupied territories, places of military actions or possible places of military actions; and

- Limitation of the scope of scheduled documentary tax audits to certain categories of taxpayers listed in the law until 31 December 2024. At the same time, such categories listed in the law cover a very significant share of taxpayers who may be subject to scheduled tax audits.

Since one of the grounds for conducting a scheduled tax audit is nowadays a low burden of corporate income tax, in order to understand the risks of undergoing the scheduled audit, it is worthwhile for taxpayers to familiarize themselves with the data on the tax burden in the relevant industries. Such data are available on the official website of the State Tax Service of Ukraine at the following link: https://tax.gov.ua/diyalnist-/rezalt/736958.html?fbclid=IwAR2yMavFMtihmn4GI9-ADt5nIjqWtePindAEZBjBmubox75_eebJljF9Rgg

Gilt in Tax Relations

My sincere thanks go to the Ukrainian Bar Association for the great opportunity to speak at the tax forum.

The topic of my speech was guilt in tax relations.

After the small tax reform of 2020 (Act No. 466), a lot has changed in this area. At the same time, the key change was undoubtedly the division of tax offenses into intentional and other ones, as well as the provision of more significant fines for intentional offenses.

Taxation of Foreign Income of Individuals

It was my pleasure to speak at the meeting of the committee on tax and customs law of the Ukrainian Bar Association on the topic of taxation of foreign income of individuals. 

The most complex and at the same time hottest issue in this context is the issue of taxation of Ukrainian refugees in foreign countries. 

Generally, foreign countries treat Ukrainian refugees as their tax residents. Ukraine is not ready to give up the tax revenues and continues considering such refugees as its own tax residents as well.  

The solution to these intricacies lies in the realm of double tax treaties. At the same time, the least favorable situation seems to exist for the refugee who keeps working remotely in Ukraine under an employment contract.  

There is a risk that, in addition to salary taxes withheld in Ukraine, such a refugee may face in the country of his/her foreign stay foreign income tax and possibly social contributions in respect of his/her Ukrainian salary.

Changes to Procedure for Suspension of Registration of VAT Invoices

I was glad to speak at the meeting of the Committee on Tax and Custom Law of the Ukrainian Bar Association on the topic of the suspension of the registration of VAT invoices.

My speech, in particular, concerned the changes to the procedure for the suspension of the registration of VAT invoices brought by the Resolution of the Cabinet of Ministers of Ukraine No. 1428 dated 23 December 2022. The Resolution entered into force on 11 January 2023. It became a kind of compromise between the interests of business and the government in the light of the unprecedented fiscal pressure caused by the system of the suspension of the registration of VAT invoices in the second half of 2022.

Below is a brief summary of the most important changes introduced by the Resolution:

1) Automatic registration of a VAT invoice in case the tax authorities accept the data table of the VAT taxable person subject to certain conditions (does not apply where the regional commission of the tax authorities has already made a decision to decline the registration of the VAT invoice).

2) Unconditional registration of a VAT invoice. It is possible if there is no decision on the compliance of the VAT taxable person with the criteria of riskiness and the CEO of the taxable person holds a similar position in no more than three VAT taxable persons. For unconditional registration, the amount of supplies in one concerned VAT invoice must not exceed UAH 5,000, and the total monthly amount of supplies must not exceed UAH 500,000.

3) The obligation to indicate in the decision on compliance of the VAT taxable person with the criteria of riskiness the detailed information according to which the compliance of the VAT taxable person with a certain criterion of riskiness is established, including: (i) the type of the transaction (purchase or supply); (ii) period of the transaction; (iii) the code of the product involved; and (iv) information about the counterparty of the VAT taxable person involved in the risky transaction.

4) In the context of the notorious paragraph 8 of the criteria of riskiness, a list of tax information codes was introduced (approved by the order of the State Tax Service of Ukraine dated 11 January 2023 No. 17). The tax information code must be indicated in the decision on compliance of the VAT taxable person with the criteria of riskiness based on the specified paragraph 8. The list of codes practically does not change the situation in favor of VAT taxable persons. It has 18 codes which cover almost all the grounds for the riskiness of the VAT taxable persons that the tax authorities can come up with. In the list, for example, you can find an insufficient number of labor resources, the implementation of the transaction with the counterparty in respect of which a decision has already been made on compliance with the criteria of riskiness, and a number of other common grounds for "riskiness" used by the tax authorities in practice.