September 28, 2023
On September 21, 2023, the Ukrainian Bar Association held the XII Tax Forum.
There were invited practicing lawyers, representatives of the judiciary, people’s deputies of Ukraine, as well as representatives of state bodies (of course, first of all, the tax authorities). The Tax Forum, year after year, is an exchange of opinions, views and experience between representatives of businesses and government, aimed at considering important issues in the field of taxation and finding a constructive solution.
Alexander Minin, Senior Partner at 
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spoke during the first session “Taxes during wartime 2.0”. Alexander’s topic concerned the lifting of the moratoriums on tax audits during martial law, namely the uncertainty of the legislation regarding exemption from / bringing to responsibility.
According to Alexander, “the regulation of the issues under consideration lack coherence and give an impression of the flicker of a stroboscope. Therefore, the main feature is the lack of clarity and predictability regarding the responsibility”.
Thus, from August 1, 2023, the new provision provides for the cancellation of fines for tax liabilities, calculated as a result of documentary audits, if the actual tax liabilities are paid within 30 days after receiving the tax notification-decision. Even though it seems like a positive change, there are still questions whether this will really solve the problem. In fact, there are no guarantees as it is a well-known practice that criminal proceedings may be opened even after all tax liabilities have been paid. Hence, in the considered case of voluntary payment of tax liabilities, the requirements for exemption from criminal liability according to Part 4 of Article 212 of the Criminal Code – compensation for damage by the way of payment of sanctions, fines and penalties, – are not being fulfilled. For such a case, the legislator did not introduce special regulations to Article 212, similar to part 5 and part 6 regarding the achievement of a tax compromise and “tax amnesty” when self-declaring and paying at special rates that they are not considered tax evasion. Therefore, for the case at hand, this problem exists, at least potentially.
In general, the problem of pressure on taxpayers by initiating criminal proceedings, unfortunately, is really gaining momentum again. This problem exists for a long time. At one time almost every tax audit with large charges resulted in the opening of a criminal case. There were attempts to “extinguish” such practice through working with the involved bodies and through changes to the Methodological Recommendations on the order of interaction among the departments of the tax authorities when conducting tax audits in 2016. However, now one can see an increase in number of criminal proceedings against taxpayers.
There is one more example of “the stroboscopic flicker”: at one time the legislator introduced an exemption from fines for violations committed during the Covid quarantine period (except for sanctions for a limited list of violations). And then, after a significant part of the tax audits had been renewed, it was established that such sanctions should be applied based on the results of tax audits conducted during quarantine, regardless of the previously established exemption. That is, there was a renewal of the application of sanctions retroactively. Courts for the most part supported taxpayers in such cases, but the inconsistency of the legislator undermined the trust of taxpayers. The question arises, whether something similar might happen later with regard to voluntarily paid tax liabilities, since there is such a Chinese proverb: “in order to kill a snake, it must first be lured out of its hole”. For the sake of fairness, it should be noted that the mentioned rule on retroactive disregard of Covid exemption from sanctions was removed from the Tax Code on August 1. However, as they say, “an unpleassant aftertaste has remained.”
An equally important problem is the statute of limitations for conducting tax audits and charging fines. There are many ambiguities in the legislation, if the statute of limitations has been suspended or, in some cases, not. That is, if the tax authority beleived that it had the right to conduct tax audits, and conducted such audits with reference to the Resolution of the Cabinet of Ministers of Ukraine № 89 “On reducing the term of the restriction regarding the moratorium on certain types of audits” dated February 3, 2021, then it should be considered “stop” for this period or not?
What about fines for late registration of tax invoices? Such fines are applied based on the results of desk tax audits, and they almost have not been stopped even formally.
There are grounds for assertions in many cases that the “open” periods for tax audits, assessments, and sanctions do not actually stretch back to 2017 (that is, within three years before the Covid-19 quarantine and further “stops” during martial law), but in practice are much shorter.
Instead of a large number of disputes on this issue, shouldn’t the legislator provide clarity by defining the statute of limitations of tax audits within the usual (three years) or even shorter periods?
After all, covid, war – hard times for everyone. Is it not better to give business the opportunity to focus on the future instead of increasing the burden with the administrative pressure of tax audits for periods that are actually much longer than usual?
In practice, even without waiting for legislative “clarifications”, the tax office can make its contribution to this issue by determining the periods for covered tax audits within the normal statutes of limitations without all the complications of possible suspensions.
To download the presentation of Alexander Minin, please tap the link.
A video recording of the speech is available here.