{"id":16542,"date":"2020-04-21T17:11:39","date_gmt":"2020-04-21T15:11:39","guid":{"rendered":"https:\/\/kmp.ua\/?p=16542"},"modified":"2022-02-23T15:05:03","modified_gmt":"2022-02-23T13:05:03","slug":"delaying-vat-refund-by-tax-audits-is-this-lawful","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/exclusive\/delaying-vat-refund-by-tax-audits-is-this-lawful\/","title":{"rendered":"Delaying VAT refund by tax audits: is this lawful?"},"content":{"rendered":"

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

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.<\/p>\n

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 \u201cfor refund\u201d.<\/p>\n

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).<\/p>\n

Currently, the only \u201cgap\u201d for conduction of documentary tax audits for the period till May 31, 2020, is unscheduled documentary tax audits on the grounds specified in subpara. 78.1.8 of para. 78.1 of Article 78 of the Tax Code of Ukraine ( \u201cthe Tax Code\u201d).<\/p>\n

And even before, the corresponding tax audits have been conducted with reference to subpara. 78.1.8 of para. 78.1 of Article 78 of the Tax Code.<\/p>\n

The question is, how far this can be resisted and how \u201clegitimate\u201d, at least on the formal side, such actions of tax service should be considered?<\/p>\n

<\/p>\n

In our newsletter \u201cDoes (not) the moratorium apply to audits aiming at confirmation of VAT refund?\u201d<\/a> we have already paid attention that the conduction of tax audits on VAT refund with reference simply to subpara. 78.1.8 of para. 78.1 of Article 78 of the Tax Code is unlawful. Recently it has been confirmed by the Supreme Court Resolution of 19.03.2020 in case No. 460\/2939\/183<\/a><\/sup>, which we analyzed in the above-mentioned newsletter, that the tax audits concerning VAT amounts claimed for refund are possible on this ground only in the presence of special circumstances, which are specified in Section V of the Code.<\/u><\/p>\n

These restrictions are general. This means that despite the formal lifting of the moratorium on audits under subpara. 78.1.8 of para. 78.1 of Article 78 of the Tax Code, restrictions under general order (in the circumstances under section V of the Code) still apply during the moratorium till May 31, 2020.<\/p>\n

And the existence of these special circumstances under section V is more about the features of past regulation that are not relevant to the vast majority of current cases (more details about these circumstances in the newsletter \u201cDoes (not) the moratorium apply to audits aiming at confirmation of VAT refund?\u201d<\/a>). So really, conduction of any documentary tax audit on VAT refund during the moratorium, including conduction of documentary tax audit on VAT refund based on subpara. 78.1.8 of para. 78.1 of Article 78 of the Tax Code (both now and after the moratorium is over) is unlawful.<\/p>\n

It is also necessary to pay attention to the consequences of tax audits\u2019 unlawfulness.<\/p>\n

If earlier procedural violations were taken into account during the trial only in case of non-admission of inspectors to start the audit, to which many of the taxpayers had not previously dared in a view of the possible concomitant negative consequences (a tax pledge and accounts arrest measures), for now the opinion is already different. Thus, in the Supreme Court Resolution of 21.02.2020 in case No. 826\/17123\/184<\/a><\/sup> (to which we have already paid attention in the publication \u201cReview of the Supreme Court practice on important (problematic) issues related to taxation for 2020\u201d<\/a>) the Supreme Court stated that violations of the appointment and conduction procedure of tax audit should be subjected to priority analysis:<\/p>\n

\u201c\u2026the Chamber for consideration of cases regarding taxes, fees and other obligatory payments of the Administrative Court of Cassation within the Supreme Court formulates a legal conclusion according to which irrespective of the taxpayer’s decision on the admission (non-admission) of officials to the tax audit, challenging in further the consequences of the conducted audit by the controlling authority in the form of tax decision notices and other decisions, the taxpayer shall not be deprived of the possibility to refer to the breaches of the requirements of the legislation regarding the conduction of such audit by the controlling authority, if considers that they cause unlawfulness of such tax decision notices<\/strong>. At the same time, the courts first of all should give a legal assessment for such<\/u><\/strong> grounds of claim,<\/u><\/strong> if they exist, and<\/u> if they are not found by the court as those which cause unlawfulness of decisions taken following the results of such audit, the courts should proceed to review the grounds of the claim regarding the presence of violations of tax and\/or other legislation<\/u>\u201d.<\/div>\n

This means that if there are violations during appointment and conduction of tax audit, such circumstances indicate unlawfulness of tax accruals without assessment of such accruals in essence.<\/p>\n

Therefore, as an available protection mechanism it is recommended to inform tax authorities separately that conduction of any tax audits on VAT budget refund (in the absence of grounds) is unlawful, and results of such audits shall be automatically invalidated.<\/p>\n

Such notice can be used to strengthen the position in the dispute within administrative and judicial appeals, as well as for the possible preventing of unlawful restrictions on VAT budget refund by tax authorities.<\/p>\n

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.<\/em><\/strong><\/p>\n

Footnotes:<\/em><\/p>\n

1<\/a><\/sup>See, for example, by the link.<\/a><\/em><\/p>\n

2<\/a><\/sup>Information of the State Tax Service of Ukraine about the amount of VAT budget refund in 2020<\/a><\/em><\/p>\n

3<\/a><\/sup>See the Supreme Court Resolution of 19.03.2020 in case No. 460\/2939\/18 by the link.<\/a><\/em><\/p>\n

4<\/a><\/sup>See the Supreme Court Resolution of 21.02.2020 in case No. 826\/17123\/18 by the link.<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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