Alexander Minin and Yuliia Kryvomaz delivered reports in the XI Tax Forum of the Ukrainian Bar Association
On October 26-27, Ukrainian Bar Association held the XI Tax Forum.
The forum was dedicated to the following issues: tax challenges during the war, problematic issues of VAT, international taxation, transfer pricing, international standards of tax transparency and currency control through the eyes of banks, the investment attractiveness of Ukraine after the war and many other current issues.
Within the first session of the forum “Tax challenges during the war”, Senior Partner of Alexander Minin and Senior Of Counsel Yuliia Kryvomaz spoke on the topic “VAT problem which manifests itself now in Ukraine (or why VAT in Ukraine does NOT correspond to the VAT system in the EU)”.
Alexander and Yuliia started the report with VAT refund and related tax audits as a specific problem, and possible approaches to its solution.
After that, the speakers proceeded with a more general vision of the problem – the significant non-compliance of legislation and practice in Ukraine with the general EU VAT system regarding such a component as ensuring the fiscal neutrality of this tax for business. That is, the business shall act only as a “tax agent” and must not bear the economic burden of this tax. This is ensured by the right to immediate deduction of input VAT as soon as the supplier is liable for it, which is a fundamental right and cannot be limited.
In Ukraine, blocking the registration of tax invoices is an obvious example of such non-compliance. As a result, the supplier formally has VAT obligations, and the buyer is deprived of the right to a tax credit due to the absence of a registered tax invoice.
Non-recognition of a tax credit with reference to the “sins” of other suppliers in the chain is a sanction, an improper application of overly strict liability. The right to a tax credit can be revoked only if the taxpayer is recognized as an accomplice in VAT fraud “in the supply chain”.
The principle of fiscal neutrality presupposes the existence of a real right to a timely refund of the negative value of VAT, if it is accumulated in significant volumes.
Clear instructions regarding the stated above are provided in the practice of the European Court of Justice (CJEU), which are mandatory for the correct application of EU legislation.
Accordingly, it is proposed to bring our VAT legislation into compliance with EU standards, which is actually required in view of Ukraine’s orientation towards the EU.
At the end of the report, it was also pointed out that a certain interpretation of the relevant provisions of the Tax Code of Ukraine, even now, opens opportunities to take a position different from the current negative practice regarding the mentioned issues, with a change in favor of taxpayers and closer to EU regulations and practice. There are reasons to fight for this, and, with perseverance, such practice can be established at the level of judicial practice.
Presentation of Alexander and Yuliia is available by the link.
The Judgement of the Court of Justice of the EU regarding the national practice of tax authorities on refusal of the right to deduct VAT in the event of improper conduct on the part of the issuer of the invoice