Friday, April 28, 2017

"Servicing Appendages" of State Fiscal Service of Ukraine

Co-authored by Anton Havryk 
Foreword  

Apparently, the only lazy did not hear about the deprival of the local  tax offices of their powers to audit taxpayers since 2017. As of now, only the tax authorities of regional (oblast) and central levels can perform tax audits. Such an official clarification  has been provided by the State Fiscal Service of Ukraine in its  letter dated  17 January  2017 "On Carrying out of Tax Audits in 2017".  

This is an undeniable fact widely explored by hardly all specialised media in Ukraine. However, what powers have the local tax offices been additionally deprived of during the minor tax reform of 2017 and how may  this affect the tax litigation in Ukraine?     

Redistribution of functions

Since 1 January 2017 there has been a serious redistribution of powers among  the different levels of the State Fiscal Service of Ukraine. The powers of local tax offices have been narrowed in the most severe manner. The exhaustive list of these powers are now set out in section 19-3 of the Tax Code of Ukraine. New functions of local tax offices are as follows: (і) servicing taxpayers and (іі) doing registration work (registering taxpayers and keeping registers related to taxation).

Local tax offices do not retain any other functions.

As we can see, the narrowing of the powers of local tax offices go far beyond the deprival of the power  to carry out tax audits. Below,  we will discuss what exactly functions the local tax offices have been deprived of and what functions they have kept.  

Acceptance of tax returns

Section 19-3 of the Tax Code of Ukraine does not  specify anything about the acceptance of tax returns. However, the  practice has already been established  under which the local tax offices continue  accepting tax returns of taxpayers. 

It is likely that the acceptance of tax returns is considered as part of servicing taxpayers or part of registration work (namely, registering the objects related to taxation). 

Notices of tax assessment

Local tax offices are no more in charge of  issuing notices of tax assessment. As of now, the only tax authorities of regional (oblast) and central levels can issue such documents.

Notices of tax assessment issued by local tax offices following 1 January 2017 must be revoked. We faced this situation by our own. Some notices of tax assessment issued to our clients by local tax offices after 1 January 2017 have been revoked by the tax authorities of regional (oblast) level. The reason for the revocation was that the local tax offices had  no more  right to issue such documents.

Repayment of tax debt

This is also now exclusively within the powers of tax authorities of regional (oblast) or central level to enforce a tax debt. From our own experience, following 1 January 2017 one of our clients was issued a tax demand. It was signed by the deputy head of the tax authority of regional (oblast) level. The local tax office was indicated in the tax demand as a recipient of the tax demanded only. 

Refund  of erroneously and/or excessively paid taxes

It is unlikely that the refund  of erroneously and/or excessively paid taxes still belongs to the functions of local tax offices related to servicing taxpayers or doing registration work.

It is quite logical that local tax offices are no more in a position to sign documents authorizing the refund of erroneously and/or excessively remitted taxes to taxpayers and to hand over those documents to the State Treasury Service of Ukraine. It can be assumed that tax authorities of regional (oblast) level must sign the above documents and pass them to the State Treasury Service of Ukraine.

However, as of the date of the publication of this article the unofficial position of the State Fiscal Service of Ukraine is that the signing of documents authorizing the refund of erroneously and/or excessively remitted taxes to taxpayers still rests within the powers of local tax offices. What were those arguments used by the State Fiscal Service of Ukraine to bolster this position remains a major  mystery for us.

VAT refund

It is logical that desk and documentary tax audits  in the course of providing VAT refund must be carried out by tax authorities of regional (oblast) level.  

The situation is not clear enough with regard to entering data to the Register of VAT Refund Applications, including data on “approved” VAT refund. However, it is most probably that tax authorities of regional (oblast) level must enter these data to the Register of VAT Refund Applications.

According to section 19-3 of the Tax Code of Ukraine the powers of local tax offices in respect of doing registration work do not extend beyond the registers administered by the bodies of the State Fiscal Service of Ukraine. Yet, in this case the Register of VAT Refund Applications is administered  by the Ministry of Finance of Ukraine, rather than by the State Fiscal Service of Ukraine.  

Influence on tax litigation

Taking account of the redistribution of the functions between the authorities of the State Fiscal Service of Ukraine of different levels, we can provide the following recommendations for the purposes of tax litigation:

- If a tax audit or a notice of tax assessment was carried out/issued following 1 January 2017 by the local tax office, the notices of tax assessment can be well reversed because of the excess of powers on the part of the local tax office.

- If a tax demand or any other contested decision associated with the collection of tax debt was  adopted after 1 January 2017,  those decisions can be well reversed because of the excess of powers on the part of the local tax office.

- In the cases concerned with the refund of erroneously and/or excessively remitted taxes and VAT refund a serious thought should be given to the replacement of defendants from  local tax offices to tax authorities of regional (oblast) level