Tax inquiries – how to respond and the possibility of avoiding an inspection
With the repeal of the moratorium on documentary audits, the attention of tax authorities to taxpayers has become increasingly intensive. The receipt of a request for information from the tax authority is a clear indication that such attention has now been directed at a particular taxpayer. This raises the question of whether it is possible in such circumstances to avoid a tax audit, and how to prevent misunderstandings with the tax authorities.
In such situations, we inform our clients of the following general recommendations:
Do not ignore tax requests. Some taxpayers mistakenly believe that, for example, if they refuse to collect correspondence from the post office sent by the tax authority, the respective tax request will have no consequences in the absence of confirmation of its receipt. This is not entirely correct, since Article 78 of the Tax Code of Ukraine provides a number of grounds on which the controlling authority may appoint and conduct a documentary audit in the absence of a response to a tax request. In other words, if a tax request is ignored, the audit will proceed in any event.
On the other hand, it should be borne in mind that providing, in response to a tax request, the requested information and (especially!) primary documents may lead to the tax authorities, on the basis of those primary documents, “identifying” violations in the taxpayer’s accounting practices and assessing additional tax liabilities and penalties. Therefore, before responding to a tax request with the requested information and documentary evidence, it is essential to carefully analyse the request for compliance with the legal grounds for its issuance and the statutory requirements regarding its form and content.
Article 73 of the Tax Code of Ukraine sets out specific requirements for the content of a tax request and an exhaustive list of grounds for its issuance. Accordingly, if an analysis of the tax request reveals that it was issued without proper and sufficient legal grounds or lacks the mandatory information required by law, we recommend stating these facts in a written response to the tax request, substantiating thereby the impossibility of providing the requested information and documents. This way, from a formal standpoint, the tax request will not remain unanswered, while at the same time the tax authorities will not obtain information and documents that could enable them to “identify violations.” As our professional experience demonstrates, adherence to this approach has in most cases allowed taxpayers to avoid tax audits.
We trust that the above information will be useful to you. Please note that the information provided herein is of a preliminary nature and does not address all potential aspects and risks, which may be analysed and set out in a separate detailed consultation. We also encourage you to contact us without hesitation should you have any questions, require further information, or need assistance from our side.
Author: Vasyl Klym, Attorney-at-Law and Partner at ArtesLex
10.12.2024
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