Blocking tax invoices: up-to-date and practical guidance based on Supreme Court rulings.

Since 2017, legal disputes between businesses and the tax authorities concerning the annulment of decisions refusing to register tax invoices and the obligation to register such invoices have remained a topical issue. Despite assurances from the tax service’s management that no more than 0.4 per cent of tax invoices submitted for registration are blocked, the number of such disputes, in the author’s view, is not decreasing.

The suspension of tax invoice registration, on the one hand, is an effective tool for artificially increasing budget revenues; on the other hand, the legislation does not provide for any sanctions against officials of the tax authorities for taking even knowingly unlawful decisions to refuse registration.

Consequently, judicial redress in this category of disputes remains the only effective, albeit rather lengthy, means of restoring taxpayers’ infringed rights. A favourable outcome of the dispute in court depends to a large extent on the quality of the explanations prepared and the completeness of the supporting documents provided at the stage of the suspension of the tax invoice’s registration.

That is precisely why, even at the pre-litigation stage, it is essential to take into account the relevant legal rulings of the Supreme Court, which establish a consistent body of case law and enhance the taxpayer’s chances of successfully restoring their rights. Below, we will examine some illustrative court decisions on this matter.

Completeness of the documents provided.

It is to the regional State Tax Service authority, which decides on the registration or refusal to register a tax invoice, that the taxpayer must submit all primary documents confirming the reality of the business transactions reflected in the relevant tax invoice (Supreme Court ruling of 29 June 2023 in case No. 640/21884/20).   An indicative list of documents that a taxpayer may submit is set out in the Procedure for making decisions on the registration or refusal to register tax invoices and adjustment calculations in the Unified Register of Tax Invoices, approved by Order of the Ministry of Finance No. 520 of 12 December 2019 (hereinafter referred to as ‘Procedure No. 520’). Each type of business transaction has its own specific requirements regarding the list of documents the taxpayer must submit, but I will provide some general practical advice that will be entirely applicable to any transaction:

• if, at the time of submitting the explanations, there is an outstanding balance owed by the supplier or the purchaser (an advance payment has been received but the delivery date has not yet arrived; delivery has been made but payment has been made only in part or not at all) – attach a duly drawn up reconciliation statement between the parties to the contract;
• we must duly confirm that the payments have been made;
• provide details of how the business transaction, for which the tax invoice was issued, is recorded in the taxpayer’s accounts, namely, provide trial balance statements for accounts 311, 361 and 631 (in the case of purchase and subsequent sale), but only to the extent relating to the business transaction for which the tax invoice was issued.

No less important than documentary evidence of the transaction is a detailed and clear description of it, emphasising the specific features of its execution: reference to the provisions of the contract regarding payment terms (advance payment or deferred payment), terms of delivery of goods/works/services (delivery deadline; who is responsible for delivering the goods; how delivery is confirmed (if a specific list of documents is stipulated, these must be available)).

Requirements for the procedure by which the regulatory authority reaches a decision

The Supreme Court has established a perfectly sound legal conclusion regarding this category of cases, according to which public authorities, when making decisions which, in particular, restrict a taxpayer’s rights, must avoid excessive formalism. The scope of documents to be provided by value-added tax payers in order to dispel any doubts held by the tax authorities regarding the legality of the relevant transaction – the result of which is a tax invoice submitted for registration in the Unified Register of Tax Invoices (URTI) – although specified in Order No. 520, is always unique and depends on the organisation of commercial relations between business entities, the content of contractual relations between them, and the specific features of the legislative regulation of activities in a particular business sector. It is precisely on the basis of a detailed examination of the content of the documents (including the contract), submitted to corroborate the information specified in the tax invoice, it is possible to draw conclusions regarding the feasibility or otherwise of registering the tax invoice in the Unified Register of Tax Invoices, the registration of which was suspended in accordance with the relevant receipt.

It should be noted that when deciding on the registration of a tax invoice, the supervisory authority is not required to carry out a full analysis of the claimant’s business transactions to verify their authenticity. A substantive assessment of business transactions may only be carried out following the completion of a tax audit of the taxpayer, the grounds for and procedure for which are set out in the Tax Code of Ukraine. The subject of consideration in this case is exclusively the correctness and lawfulness of the suspension and refusal to register the tax invoice, and not the reality or commercial nature of the business transactions between the claimant and its counterparty. Such legal conclusions are set out, in particular, in the Supreme Court’s ruling of 19 July 2023 in case No. 420/7850/22, and of 7 December 2022 in case No. 500/2237/20.

Monitoring the compliance of tax invoices and adjustment calculations with the criteria for assessing the degree of risk is a preventive measure, aimed at preventing the unjustified creation of tax credits in respect of transactions that are not supported by source documents or are supported by the taxpayer with copies of documents drawn up in breach of the law. Such monitoring should not, in substance, replace the conduct of tax audits as a means of exercising the tax authority’s administrative powers. A similar conclusion is set out in the Supreme Court’s rulings of 18 July 2019 in case No. 1740/2004/18, of 21 May 2019 in case No. 0940/1240/18, dated 25 October 2019 in case No. 0340/1834/18, and dated 12 November 2019 in case No. 816/2183/18.

However, despite these rather positive conclusions, we must not neglect to provide high-quality explanations and comprehensive supporting documentation for such explanations.

The need for the conscientious exercise of rights granted by tax legislation

From 2023, the procedure for deciding on the registration or refusal to register tax invoices has changed; specifically, after receiving explanations from the taxpayer, the tax authority has the right to request additional explanations and documents that it lacks in order to make a decision.  Furthermore, a taxpayer’s failure to comply with the tax authority’s request (failure to provide, or partial provision of, documents or explanations) constitutes in itself grounds for refusing to register a tax invoice.  In its ruling of 24 March 2025 in case No. 140/32696/23 (link) the Supreme Court concluded that the fact that the claimant does not agree with the list of documents does not negate the obligation to provide such documents or additional explanations setting out the reasons why they cannot be provided or why their request is unfounded. A failure to respond to a request from the tax authority to provide additional documents or explanations may be regarded by the courts as a lack of due diligence on the part of the taxpayer in exercising the rights granted by tax legislation.

The need for the exercise of rights granted by tax legislation in good faith was also emphasised in the ruling of 23 April 2025 in Case No. 620/4035/24 (link). However, in this judicial decision, the Supreme Court adopted a less fiscal stance and noted that the matters to be proven in this case included the circumstances as to whether the tax authority’s request for additional documents to confirm the right to register the disputed tax invoice in the Unified Register of Tax Invoices (URTI) was justified in the light of the circumstances established in this case; whether the contested decision to refuse registration of the tax invoice in the Unified Register of Tax Invoices was duly substantiated and justified, in the context of the relationship between the grounds for adopting such a decision and the claimant’s conduct, as well as the content of the documents and explanations provided by him.

To summarise the above, the following should be noted. Despite the generally positive trend in resolving disputes of this category in favour of taxpayers, a key component of success is a well-conducted pre-litigation procedure aimed at registering the suspended tax invoice. It is precisely at the stage of the initial submission of explanations that the taxpayer must provide comprehensive explanations and supporting evidence which unequivocally demonstrate the occurrence of VAT liabilities, document this fact, and rule out any doubt as to the authenticity of the information contained in these documents. It is therefore advisable for a tax lawyer to be involved at this very stage, as this will ensure a successful resolution of the dispute in court, should it prove necessary to take the matter there.

Read the full article on the website of the Ukrainian Bar Association: here.