A tax audit for a business is always a stressful and not very pleasant procedure.

However, it is quite possible to avoid mistakes during audits and already today have a complete picture of effective ways to manage tax risks by regularly conducting tax audits and appealing tax assessments.

Mistake № 1 “Uncontrolled chaos”

In practice, the burden of responsibility for communication with auditors falls on the shoulders of the accountant or head of the enterprise. The most common mistake is that responsible persons do not take the initiative to organize and control the process of providing documents and information to tax authorities. As a result, daily business processes are actually “frozen”, and the accountant chaotically provides this or that document at each request of the auditor. Under such conditions, the enterprise loses the opportunity to record which documents were provided, and what is worst of all – to pre-check the content of a particular document.

Suggest that auditors prepare a request for each visit to the enterprise with a list of documents that the enterprise must provide. In addition, documents for older periods may be in the archive, so the proposal to start the audit from the most “recent” period will be more than appropriate. This will allow the accountant to prepare documents strictly for the relevant request, check such documents, and in addition, record their provision to auditors. Such simple advice will not only significantly facilitate the audit, but also make it impossible to state in the audit report that the company did not provide certain documents.

Auditors cannot refuse such documentation of the audit, because this right is enshrined in clause 1.3 of Order No. 395 of March 14, 2013. The exercise of such a right is carried out at the request of the taxpayer, so tax officials are not obliged to offer such an option for passing a tax audit.

Mistake № 2 “Lack of documents confirming the movement of goods and materials”

It is necessary to remember that the most important documents confirming the reality of economic transactions are freight and transport invoices or cargo and customs declarations or bills of lading, or waybills. In an enterprise that, for example, sells grain or other products, there is a single case when such documents may not be available. In the case when there is a warehouse certificate. In all other cases, the documentation of the supply of products requires the mandatory presence of the above-mentioned documents.

A typical business mistake is to believe that when the transportation of goods is provided by the buyer, the seller may not have a freight and transport invoice. This is absolutely not true. According to Section 1 of the Rules for the Transportation of Goods by Road in Ukraine, Order of the Ministry of Transport of Ukraine No. 363 dated October 14, 1997, the consignment note is a single legal document for all participants in the transport process, intended for writing off goods and material values, accounting for their movement, posting, warehouse, operational and accounting, as well as for settlements for the transportation of goods and accounting for the work performed. The consignment note is drawn up in as many copies as there are parties to the transaction. Clause 11.4 of the Rules No. 363 stipulates that the customer must issue a consignment note for the transportation of goods by road in no less than four copies. The customer certifies all copies of the consignment note with a signature and, if necessary, a seal or stamp.

Next, in addition to the availability of documents confirming the movement of goods and material values, it is necessary to ensure that such documents are free from defects. Auditors pay special attention to the physical capabilities of a particular vehicle to transport the appropriate tonnage of cargo. Agree, no one will believe that a passenger car transported 10 tons of grain from Ternopil to Odessa.

Thus, each business transaction must be properly executed and there must be documents confirming the reality of such a transaction.

Mistake № 3 “Passivity in the administrative procedure for appealing the results of a tax audit”

In the vast majority of cases, the result of a tax audit is an act with the conclusions of tax officials about the enterprise’s violations. Almost all taxpayers file objections to such an act. After all, in accordance with paragraph 2 of clause 44.7 of the Tax Code of Ukraine (hereinafter referred to as the TCU) within five business days from the day following the day of receipt of the inspection report, the taxpayer has the right to submit to the supervisory authority that conducted the inspection objections and/or additional documents confirming the indicators reflected by such taxpayer in the tax reporting.

Of course, action should be taken if the taxpayer’s legal position is strong enough. In the event that the administrative appeal procedure is used to delay the date of payment of fines, then this advice is not relevant and may even harm the business.

Mistake № 4 “They agreed on a tax “new debt”

In the event that the administrative appeal did not yield the desired results, the last hope is to take the case to court. Many enterprises, due to ignorance of the procedural nuances, create additional problems for themselves.

There is a conflict of legal norms in the TCU. On the one hand, the taxpayer’s right to file a lawsuit in court is preserved for him for 1095 days. On the other hand, in paragraph 56.19 of the TCU it is stipulated that if an administrative appeal procedure was carried out before the filing of the claim, the taxpayer has the right to appeal in court a tax notice-decision or other decision of the supervisory authority on the assessment of a monetary obligation within the month following the date of completion of the administrative appeal procedure. Of course, the court will open proceedings on the case even if you file a lawsuit after a year. But the State Tax Service will send a tax claim to the enterprise a month after the end of the administrative appeal and the taxpayer’s card will contain information about the tax debt until there is a court ruling to open proceedings on the case. It seems like nothing to worry about, but if the enterprise is on a simplified taxation system, then the presence of a tax debt results in its transition to the general system, where all taxes will have to be paid without any benefits. In particular, for a single tax payer of the third group, this means paying 18% personal income tax and 1.5% military levy from income. Instead of 5% or 3% of income (if it is a VAT payer). For agricultural enterprises that apply the single tax of the fourth group, the consequences are even more burdensome. You will have to pay both profit tax, land tax, real estate tax, and rent for special water use. This significantly increases the tax burden, especially in conditions where uncontrolled income and expenses occurred.

Thus, a lawsuit should be filed with the court no later than one month from the date of receipt of the decision of the State Tax Service within the framework of the administrative appeal procedure.

If the enterprise appeals not all additional assessments in court, but only part of them, then one should be prepared for such an unpleasant “surprise” as the approval of the unappealed part of the fines on the day of the end of the administrative appeal procedure. The situation is further complicated by the fact that clause 5 of the Order of the Ministry of Finance No. 1204 of 12/28/2015 does not regulate cases when a taxpayer appeals a tax notice-decision (hereinafter referred to as the PPR) in part, but regulates only those cases when, as a result of an administrative or judicial appeal, the PPR was, in particular, reduced.

Thus, an enterprise can learn about its tax debt at the least convenient time. After all, tax authorities do not even have a direct obligation to accept a new PPR under such conditions. Drawing up a new PPR in the event of a reduction/increase in fines is indeed provided for in clause 5 of Order 1204. However, these provisions provide for the drawing up of a new PPR regarding decisions made based on the results of consideration of complaints in administrative and/or judicial proceedings. That is, a new PPR is drawn up in the event that a reduction/increase in fines occurs by decision of the main departments of the State Tax Service or a court. Order 1204 does not provide for the drawing up of a new PPR if the taxpayer himself has made a decision to partially recognize the PPR, and a partial appeal.

Therefore, if you do not appeal the amount of the fine under a specific PPR, then everything is simple – under this PPR you pay money, and with respect to another PPR – file a lawsuit with the court. When under one PPR you appeal the main obligation, and you recognize the fines, then you must pay the amount of the fines and be sure to clearly indicate the purpose of the payment, and with respect to the main additional assessment, file a lawsuit with the court.

Mistake № 5 “Lack of a strategy for conducting the case in court”

In December 2017, we received the Code of Administrative Procedure (hereinafter referred to as the Code of Administrative Procedure) with significant innovations. Failure to take into account procedural norms when appealing tax assessments not only complicates the legal process for the taxpayer, but can also result in losing the case in court.

Previously, plaintiffs had the right to submit evidence at any stage of the legal process. The restriction on submitting evidence applied only to the appellate instance. The plaintiff had to justify why such evidence was not submitted by him to the court of first instance. Now, evidence must be submitted together with the filing of the statement of claim (Part 2, Article 79 of the Code of Administrative Procedure). Evidence not submitted within the time period established by law or the court is not accepted for consideration by the court. The exception is cases when the person submitting such “late” evidence justifies the impossibility of submitting it within the specified period for reasons beyond his control (Part 8, Article 79 of the Code of Civil Procedure). That is, the plaintiff must prove the validity of the reasons why all the evidence was not submitted within the established time limits. Of course, there is a high probability that the court will accept as evidence documents for which the plaintiff applied in advance to the relevant state body or private institution, but received them already during the consideration of the court case.

Of course, the plaintiff must document the terms of his application and the date of receipt of a response from the administrator of the relevant information, explain the impossibility of obtaining such information from other sources. But, if the taxpayer simply forgot to submit a certain document, then there are reasonable doubts about their acceptance by the court.

In addition, the new KASU introduces such categories of cases as “simple” and “model” cases. Simple cases are, in particular, those where actions or inaction of tax authorities are challenged; where the decision on collection does not exceed 500 subsistence minimums and those cases that are recognized by the judge himself as cases of minor complexity. The taxpayer must be prepared for the fact that the consideration of the case will last no more than 60 days.

Thus, already at the stage of filing a claim, there should be a clear strategy and a formed evidentiary base that the taxpayer plans to use to argue his legal position in court.

Model disputes are cases accepted for consideration by the Supreme Court for a model decision. Before filing a lawsuit with the court, you need to check whether there is such a model decision. You also need to be prepared that the judge who will consider your case in the court of first instance may apply to the Supreme Court for such a model decision.

We will also debunk some myths. Part four of Article 159 of the Code of Civil Procedure stipulates that the failure of a subject of public authority to submit a response to a claim without good reason may be qualified by the court as an admission of the claim. However, do not rush to rejoice. In practice, the court, by its decision, declares a break in the case and sets a new deadline for the submission of such a response by the representative of the State Tax Service. The court’s reasoning is quite simple and boils down to the need to observe the principle of equality of parties in the judicial process.

Passing and appealing tax audits is not an easy task. In addition to the above tips, the likelihood of fines can be minimized by conducting an audit of the company’s documentation with the help of external consultants or the so-called tax audit. Such third-party audits will allow not only to identify and correct shortcomings in the documentation, accounting of the company’s business processes in advance, but also to apply effective methods of minimizing the tax burden.

What benefits will you get from working with us?

– Tax analysis of individual transactions, groups of transactions that form the company’s main activity;

– Peace of mind during the entire tax audit process (post-audit, support in courts, if necessary);
– Consulting on ways to resolve the identified risks (if any);
– Affordable prices and flexible terms of cooperation, cost savings;
– Support at all levels (accounting and tax accounting, legal support).