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Delaying VAT refund by tax audits: is this lawful?

authors: Alexander Minin, Mariia Kozlenko, Artem Shcherbyna

21 April, 2020 Exclusive

Recently the issue of VAT refund gets even hotter for business as indicated by a number of publications on the media and social networks1. According to the statistics of the State Tax Service, as of April 1, 20202, the amount of VAT claimed for refund is over UAH 60 billion, of which UAH 19.8 billion has not been reimbursed.

Particularly recently, we see in practice the efforts of tax authorities to delay refund of the VAT amount, or at least a part of it, including through the conduction of documentary tax audits, which allegedly establish the overstatement of the VAT amounts for refund.

In such cases, the amount cannot be returned within the period of administrative and judicial appeal, which usually takes 1.5-2 years, given the current workload of the courts; corresponding VAT refund is in dispute and only after this the VAT amount shall be returned again to the status “for refund”.

It seems that the balancing of the State budget is not least ensured by transferring the VAT claimed for refund to the category of disputed. By the way, according to the statistics of the State Tax Service, only for March the quantity of declined amounts claimed for refund increased up to UAH 258 million (general quantity of declined amounts is UAH 1,071 billion as of April 01, 2020).

Currently, the only “gap” for conduction of documentary tax audits for the period till May 31, 2020, is unscheduled documentary tax audits on the grounds specified in sub-para. 78.1.8 of para. 78.1 of Article 78 of the Tax Code of Ukraine ( “the TCU”).

And even before, the corresponding tax audits have been conducted with reference to sub-para. 78.1.8 of para. 78.1 of Article 78 of the TCU.

The question is, how far this can be resisted and how “legitimate”, at least on the formal side, such actions of tax service should be considered? ...


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