How to challenge the results of a tax audit: case law 2023

With the onset of the COVID-19 pandemic, and subsequently the imposition of martial law in Ukraine, full-scale tax audits of business entities were partially suspended. However, following the entry into force on 8 December 2023 of the Law of Ukraine No. 3453-IX of 9 November 2023, which restored the tax authorities’ ability to carry out full-scale tax audits, the issue of appealing against the results of such audits has become a topical one, as the vast majority of business entities encounter, in the course of their activities, instances where tax audits are conducted unlawfully, unlawful procedural actions by the tax authorities and, of course, the outcomes — the tax audit report detailing the alleged breaches and the tax assessment notice.

You have the right to appeal against the following decisions taken by the tax authorities:

• an order to conduct an on-site or desk audit;
• a tax assessment notice;
• a refusal to register a tax invoice;
• cancellation of a taxpayer’s registration under a specific scheme;
• the imposition of an administrative seizure.

Unfortunately, the legislation does not provide for a procedure for appealing against an on-site tax audit report. In this case, you have the right to submit your objections, which must be taken into account when drawing up the tax assessment notice, which can subsequently be challenged in court.

How can you appeal against the results of a tax audit?

Under current Ukrainian legislation, appeals against tax audits may be lodged in two ways — through administrative channels or through the courts.

The first stage of the appeal is to submit, in accordance with paragraph 86.7 of Article 86 of the Tax Code of Ukraine, objections to the audit report, together with additional documents and explanations.

Sub-paragraph 86.7.1 of paragraph 86.7 of Article 86 of the Tax Code of Ukraine stipulates that objections shall be considered within 10 working days following the date of receipt of the objections to the audit report and/or additional documents and explanations in accordance with this paragraph.

In practice, objections submitted are considered in the absence of the business entity or its representative, and are usually not taken into account by the supervisory authority, with the findings remaining unchanged.

A tax assessment notice is then drawn up, which, in accordance with sub-paragraph 86.7.5 of paragraph 86.7 of Article 86 of the Tax Code of Ukraine, is adopted by the head (or their deputy or an authorised person) of the supervisory authority on the basis of the conclusion of the supervisory authority’s commission on the consideration of objections within five working days following the date on which such a conclusion is adopted by the commission and the provision (sending) of a written reply to the taxpayer in the manner specified in sub-paragraph 86.7.1 of this paragraph.

The second stage involves lodging an appeal through administrative channels (to a higher-level authority) and/or to the court.

Regarding the practice of appealing against the results of tax audits in 2023

Even taking into account the moratorium on tax audits in force in 2023, case law confirms that the grounds for challenging the results remain typical; however, there are several particularly significant ones on which it is worth focusing:

1. The submission of a revised calculation following a desk audit as grounds for conducting an unscheduled audit and suspending the tax authority’s process of issuing the relevant tax assessment notice (Case No. 340/6124/21 of 10 July 2023).

‘The Supreme Court has repeatedly stated that where a taxpayer receives a desk audit report concerning a specific tax return, they are not restricted in their right to submit a revised calculation for that return during the period following the desk audit and prior to the tax authority’s adoption of a tax assessment notice based on the results of such an audit.

In its rulings of 31 July 2018 in Case No. 804/6468/17, and of 3 September 2020 in Case No. 808/2156/17, the Supreme Court stated that the submission by a taxpayer of a revised calculation of value-added tax liabilities within the time limits set out in Article 102 of the Tax Code of Ukraine constitutes grounds for the tax authority to conduct an unscheduled documentary audit pursuant to sub-paragraph 78.1.3 of paragraph 78.1 of Article 78 of the Tax Code of Ukraine. The subject of such an audit is the accuracy of the revised figures for value-added tax liabilities and the consistency of the revised data set out in the annexes with the taxpayer’s source tax and accounting documents.

Author: Natalia Ivanova
Read the full article on the ‘Yurydychna Gazeta’ website here.