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Below I outline the main trends accompanying Ukrainian tax litigation in 2011.
For the first thing, the tax litigation became much slower, in particular when it comes to the court proceedings conducted by administrative courts of appeal and the Highest Administrative Court of Ukraine.
Administrative courts (in charge of tax disputes in Ukraine) are understaffed to catch up with the formidable inflow of new work. For instance, it takes several months for an administrative court of appeal to register case files obtained from the administrative court of first instance, not to mention how long it takes for the former to have the cases decided. The similar situation exists with the Highest Administrative Court of Ukraine which is also remarkably overloaded by the work.
The sharp rise in the work coming to the administrative courts is not only an accident brought about by the increasing litigation activities of the Ukrainians. This reason is also in play, but the more important determinator is the comparatively recent redistribution of the jurisdiction between general and administrative courts ending up with the pension cases fell again under the jurisdiction of the administrative courts.
It is worth mentioning that the great increase of work resulting from the above reform touched upon only the administrative courts of appeal and cassation levels. Nothing changed at the level of the district administrative courts. Like in former times, the pension cases are at present tried by general courts of first instance.
For the second, in 2011 the tax authorities were extremely aggressive in their attempts to comply with the budget revenues targets. This led to a great many tax disputes related to “null” transaction. The tax authorities assert that the transactions of taxpayers are “null” due to their contravention of the public order and seek the taxpayers to cancel their deductable expenses and/or input VAT reflected in tax accounts based on this assertion.
To substantiate the “nullity” of the transactions, the tax authorities refer to what can be termed in general sense as “business purpose test” or “substance over form doctrine”. They treat the transactions as “null” taken into account such factors as the shortage of labor and material resources of the taxpayer’s suppliers, their absence at their registered offices, their low VAT burden, etc.
Although in many cases the above claims of the tax authorities were nothing more than just bare allegations, not all courts were bold enough to dismiss such ungrounded allegations to found for the taxpayer.
Finally, the Tax Code of Ukraine had an immense influence on tax litigation.
For instance, the provisions of the Tax Code of Ukraine pertaining to the revocation of the individual tax consultations provided by the tax authorities found their application. A taxpayer issued with a disadvantageous individual tax consultation is not supposed to wait until the tax authorities to carry out his audit and charge him with additional tax assessment based on this consultation. He can appeal to court instantly to get the consultation revoked and to compel the tax authorities to issue a new consultation in line with the directions set out in the court decision.
It is also expedient to note the modification introduced by the Tax Code of Ukraine with reference to tax evasion cases. While according to the repealed tax laws in case of an asserted tax evasion there were both the institution of the criminal case by the tax police and the issuance by the local tax office of a tax assessment charging the taxpayer with the additional tax liabilities and fines, the Tax Code of Ukraine ceased this practice. Pursuant to the Tax Code of Ukraine in case of an alleged tax evasion the taxpayer cannot be issued with the tax assessment until the respective criminal case is resolved by the court.
This eliminated formerly wide-spread practice where in parallel to the criminal case investigated by the tax police there was the administrative litigation launched by the taxpayer to cancel the underlying tax assessment (tax notification-decision). If such administrative litigation was successful, the taxpayer would have chances to dismiss the criminal case concerned based on the decision of the court.
Given the large number of groundlessly instituted criminal cases related to tax evasion, the instant novelty of the Tax Code is not received well in the eyes of Ukrainian businessmen. This makes them even more susceptible to the abuses of tax officials.
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