One of the most
controversial innovations brought by the mini tax reform of 2017 is the
mechanism of blocking the registration of VAT invoices. This will work from 1
April 2017 in a test mode and from 1 July 2017 in a full mode.
What for?
The system of blocked
VAT-accounts introduced in 2015 was quite a serious blow to the lucrative
business of those providing fraudulent encashments services in Ukraine.
However, the
representatives of the “industry” turned out to be smart enough to find a “weak
spot” in the system of blocked VAT-accounts and began to exploit it actively.
Despite its advancement,
the system of blocked VAT-accounts is absolutely powerless against abuses
involving supplies to non-taxable persons.
For example, a non-bona
fide taxable person buys on the domestic
market or imports a batch of smartphones. Then it resells them to non-taxable
third parties and obtain cash or even bank transfer payments in the amount
sufficient for recovering the VAT incurred on the purchase of the smartphones.
As a matter of fact, the non-bona fide taxable person does not declare output
VAT arising from the supply of the smartphones and does not register a VAT
invoice.
Consequently, the
non-bona fide taxable person retains the input VAT deduction that can be
"sold" to those interested in saving on remitting due VAT to the tax
authorities. The buyer receives a "set of documents" attesting his
entitlement to the input VAT deduction.
Nonetheless, there is a
small issue for the parties to the trickery. In most cases, the buyer of the
input VAT deduction is not interested in the goods actually sold by the
non-bona fide taxable person (in our example - smartphones). So, the "set
of documents" for the buyer is produced for the sale of something else:
for example, much-favoured "consulting and information services".
In view of the fact that
the implementation of the scheme entails the "transformation" of one
product to another (in our example, smartphones are transformed into services),
the scheme has received the popular name "twist". The very such
"twists" are exactly what the blocking mechanism is called to
counteract.
How will this work?
The blocking mechanism
is as follows:
1) In case of the
detection of a "twist", the tax authorities send a document to the taxable person on the suspension of
the registration of the tax invoice.
2) The taxable person
has the right to submit to the tax authorities his written explanation (with
the attachment of the supportive documents) in order to confirm the lawfulness
of the registration of the tax invoice.
3) The explanation of
the taxable person is considered by a special commission of the State Fiscal
Service of Ukraine within 5 business days from the date of the receipt. Based
on the results of the consideration, the commission takes a decision on the
registration/refusal to register the tax invoice.
4) The taxable person
has the right to appeal from the decision of the commission under the
administrative and /or judicial procedure.
Conclusions and reservations
The mechanism for
blocking the registration of tax invoices is absolutely necessary to counter
VAT fraud. At the same time, the blocking mechanism entails significant risks
for bona fide taxable persons. The latter risk to fall into disgrace of taxmen
endowed with new broad powers.
By and large, much
depends on how well statutory instruments determining grounds for suspending /
canceling the registration of tax invoices are worked out. The adoption of such
instrument is entrusted to the Cabinet of Ministers of Ukraine and the Ministry
of Finance of Ukraine.
It is crucially
important that grounds for suspending / canceling the registration of tax
invoices are formulated with utmost precision and with due regard for the sound
balance of interests of the tax authorities and bona fide taxable persons.
Given the complexity of the issue and the high dependence of the decisions on
the specific circumstances of the case, the task is not simple even for the
authentic tax luminaries.
Let us hope for the
best!
* Photo from youtube.com
