Friday, March 22, 2013

10 days for tax appeal

The Tax Code of Ukraine sets forth two limitation periods in respect of challenging tax assessments in courts. The general rule is that a lawsuit against the tax assessment should be brought with 1095 days after the deadline established for the payment of the underlying tax liabilities (paras 56.18 and 102.1 of the Tax Code of Ukraine). However, where the taxpayer has already resorted to the administrative proceedings conducted by the tax authorities of the higher level, this period is reduced to one month after the cessation of such administrative proceedings (para 56.19 of the Tax Code of Ukraine).

Nonetheless, in practice, it is strongly recommended to challenge the tax assessments in court with 10 calendar days upon either (i) the receipt of the tax assessment or (ii) the receipt of the decision of the tax authorities of the higher level issued pertaining to the taxpayer’s appeal.

The point here is that after the expiration of the above 10 days term the tax liability becomes overdue (tax debt). Although the consequent filing of the action with the administrative court should result in the tax liability is no more considered to be overdue (para 56.18 of the Tax Code of Ukraine), this provision is very difficult to rely on in practice. If the action is not filed within the aforesaid 10 calendar days, the tax authorities may treat the tax liabilities overdue (tax debt) and take steps towards the collection of the tax debt.

What does it mean for the taxpayer?

First, the assets of the taxpayer (to the extent to which their book value is compatible with the amount of the tax debt) is subject to tax pledge. Accordingly, the taxpayer faces significant obstacles related to the disposal of his property.

Second, the taxpayer is deprived of the entitlement to an automatic VAT refund. The availability of the tax debt is sufficient ground for moving the taxpayer outside the scope of this simplified procedure (para 200.19.7 of the Tax Code of Ukraine).

Finally, the taxpayer may experience certain problems while applying for labour permits required for the employment of foreign people in Ukraine. In order to obtain such a permit the employer should summit the tax compliance certificate issued by the tax authorities*. It can be assumed that the indication of the tax debt in the certificate may be viewed as a hindrance for receiving the labour permit.

How to act if you see that you cannot manage to prepare and file the high quality lawsuit with the administrative court within 10 days after the receipt of the tax assessment?

The usual practical solution is as follows. The taxpayer lodges the “formal” administrative claim with the tax authorities of the higher level. At the time when the tax authorities are considering your claim (at least 20 days), you are preparing and filing the high quality lawsuit with the administrative court.

*- Para 5 of the Procedure for Issuance, Prolongation and Cancellation of Labor Permits for Foreigners and Stateless Persons approved by the Resolution of the Cabinet of Ministers of Ukraine of 8 April 2009 No 322.