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SFS unreasonably refuses to acknowledge company’s damages

15.07.2019

Subject of complaint: The Main Department of the State Fiscal Service in Odesa Oblast (Odesa SFS)

Complaint in brief: A Transservice 2008 port elevator company serving the port terminal approached the Council. The Complainant disagreed with the SFS tax audit conclusions.
According to the findings of the report, the company lowered the tax liability on income tax. The Complainant stated instead it incurred losses amounting to UAh 2.6 mn, as a result of interest accrual under a credit contract with a non-resident company. The credit contract was  registered with the NBU, in accordance with the established procedure. Odesa SFS did not challenge the grounds for and correctness of interest calculation. The Complainant violated interest accrual terms. Subsequently, it accrued the corresponding amounts and submitted updated income tax returns. However the SFS did not accept tax returns. As it turned out later, the reason for their rejection were errors in filling out bank details.
 
The Tax Code stipulates taxpayers shall report if their tax return is not accepted. Moreover, a supervisory authority shall specify the reasons for rejection. However, Odesa SFS did not indicate any specific errors in completing the declaration.
 
Actions taken: The Council’s investigator examined the circumstances of the case and found that in this case the supervisory authority did not follow good administration principle that resulted in an ungrounded decision. The Council upheld the Complainant's position, added its own arguments and asked the SFS to objectively and impartially consider the company’s complaint.
 
The investigator also supported the company during the consideration of the case at the SFS and articulated the Council’s arguments in favor of the Complainant. The investigator emphasized the tax authority violated the reporting acceptance procedure and made an unmotivated decision .
 
Result achieved: However, the SFS neither accepted the Council’s arguments nor dropped  the additional payment for the company. Taking into account the above said, in the Council’s view, the SFS position is unsubstantiated. However, the decision of the SFS of Ukraine is final and can be appealed only in court. As the case follow-up is outside the competence of the Council, the case was closed. This case is a vivid example of how negative consequences of errors made by government agencies are left to private entities.