The issue of blocking tax invoices in 2023.

Since 2017, the issue of suspending the registration of tax invoices (so-called ‘blocking’) has remained a topical one; furthermore, the number of VAT payers who are forced to prove to the tax authority that the transactions reflected in tax invoices have actually taken place is steadily increasing year on year. And the possibility of suddenly receiving a decision that a taxpayer meets the risk criteria (so-called ‘riskiness’) hangs over every VAT payer like the sword of Damocles, since, should such ‘fortune’ befall them, the very existence of a business that relies on VAT-registered customers could be called into question. For a purchaser, dealing with a high-risk supplier means not only, at the very least, a delay in receiving a VAT credit, but at worst — its loss, as well as the buyer being classified as high-risk, leading to the subsequent blocking of their own tax invoices and so on down the supply chain. At the same time, despite 20 months of full-scale war, neither the regulatory authorities nor the legislature are in any hurry to ease the pressure of these blocking measures on businesses even slightly. And all the changes previously announced and introduced in 2023, which were supposed to be steps towards accommodating taxpayers, have, to put it mildly, failed to change the situation. The nature of these changes and the reasons why they have not had a significant impact on the situation are discussed below.

On 8 March 2023, amendments came into force to the Procedure for making decisions on the registration/refusal to register tax invoices/adjustment calculations in the Unified Register of Tax Invoices, approved by Order of the Ministry of Finance of Ukraine No. 520 of 12 December 2019 (hereinafter — the Procedure for Decision-Making). From that date, taxpayers have been able to supplement the explanations and documents provided to the controlling authority for the purpose of making a decision on the registration of a tax invoice whose registration had been suspended. However, this opportunity is not automatic and arises only where the tax authority requests the taxpayer to provide additional explanations and documents that are lacking for the decision to be made. The taxpayer is granted five working days from the date of receiving the notification from the tax authorities to prepare explanations and/or copies of documents. On the one hand, this is undoubtedly a step towards supporting businesses, as it now provides an opportunity to convince the tax authorities of the need to register the tax invoice; on the other hand, the implementation of this Procedure, as always, leaves much to be desired. Thus, notifications regarding the need to provide additional explanations and documents are sent to taxpayers exclusively via the State Tax Service’s electronic document management system — the Taxpayer’s Electronic Cabinet — regardless of which electronic document management system was used to submit the initial explanations. In other words, the initial explanations are submitted via the ‘OK’ document management system, where the taxpayer awaits a response from the tax authorities, whilst notifications regarding the need to provide additional explanations or documents are sent exclusively to the Electronic Cabinet, which VAT payers hardly ever use due to its inconvenience. The consequence is that the deadline for submitting the requested information is missed, and failure to provide the requested information, or providing it incompletely, constitutes grounds for a decision to refuse registration of the tax invoice. At present, this inconvenience/discrepancy remains unresolved; consequently, those encountering the blocking of tax invoices for the first time are unaware of this particular issue and receive a decision refusing registration on the grounds of failure to provide additional explanations and documents.

In 2023, amendments were made to the Procedure for Suspending the Registration of a Tax Invoice/Adjustment Calculation in the Unified Register of Tax Invoices, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1165 of 11 December 2019 (hereinafter referred to as the ‘Procedure for Suspension’). In particular, in January 2023, the issues concerning a taxpayer’s compliance with risk criteria and the content of the decision on such compliance were clarified. From now on, the abstract concept of ‘risk’ has taken on more specific characteristics. In particular, a decision on risk must contain the information that formed the basis for recognising the taxpayer as high-risk (a list of such information is published on the State Tax Service of Ukraine’s website in the form of the ‘Reference Guide to Tax Information Codes’ that served as the basis for considering whether a taxpayer meets the risk criteria). The Reference Guide contains 18 codes: ranging from the purchase and supply of goods whose origin cannot be traced along the supply chain, to dealings with high-risk counterparties (covering both purchases and supplies). The Decision also includes information on the type of transaction (purchase/supply), the period in which it took place, the code under the Ukrainian Classification of Goods for Foreign Economic Activity (UKTZED) or the Ukrainian Classification of Products and Services (DKPP) for the goods or services, the tax number of the taxpayer involved in the high-risk transaction, and so on.

Read the full article on the “Yurydychna Gazeta” website here.