The Temporary Investigative Commission of the Verkhovna Rada on Economic Security examined possible tax authority abuses regarding the registration and “blocking” of tax invoices during a meeting held on February 9, 2022.
Representatives of the Parliamentary Tax Committee and the Ministry of Finance’s working group projected changes to regulations to make the unblocking of “high-risk” businesses less dependent on human factors. Currently, decisions to unblock tax invoices are made by the tax commission based on documents submitted by business entities, the list of which is not always predictable, and decisions about whether the provided documents are sufficient can block VAT amounts for extended periods, leading to financial and reputational losses. Sens experts joined the TIC meeting at the invitation of Yuriy Butusov.
Proposals were also developed to improve legislation in the field of tax invoice administration to prevent commission abuse and eliminate the application of “presumption of guilt” that effectively operates now, as confirmed by numerous court decisions.
The Supreme Court has repeatedly emphasized that taxpayers’ ability to provide an exhaustive list of documents confirming the legitimacy of tax invoice formation and submission directly depends on the controlling authority’s clear definition of specific risk assessment criteria, as well as the inclusion of a clear list of documents in the tax invoice registration suspension receipt, which in most cases is not done.
Based on our analysis of court practice, in cases where there are signs that invoices will be subject to blocking, taxpayers should receive a warning with specific requirements for providing evidence of the legitimacy of business operations within a defined period.
After reviewing the evidence provided by taxpayers, tax authorities issue decisions on whether the information received is sufficient or if certain deficiencies need to be addressed.
If the deficiencies are not addressed within the specified period, the consequences for the taxpayer may include, for example:
(i) a sanction in the form of blocking tax invoices until the deficiencies are addressed and the tax authorities issue a corresponding decision;
(ii) a decision to conduct a documentary (unscheduled, desk) audit of VAT tax legislation compliance during specific transactions.
The Supreme Court has indicated that monitoring should not substitute for tax audits as a means of implementing the controlling authority’s administrative functions. The tax authority frequently abuses this distinction.
Instead, the requirement to make a decision about conducting an audit serves as a bureaucratic safeguard preventing the tax authority from being tempted to mass-apply automatic tools similar to the current ones.
The absence of clear and predictable criteria and an exhaustive list of documents grossly violates the principle of legal certainty and the rule of law in general.
Recall that since October 2022, Ukraine has experienced mass blocking of tax invoice registrations. Businesses emphasized that the State Tax Service was implementing arbitrary practices that are harmful to the economy and create corruption risks.
Sens specialists handle many cases related to tax invoice blocking and have extensive experience in this field. For consultation, you can contact Sens experts via this link.