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Unprecedented: SFS drops fine worth UAH 2.3 bn for METRO

03.07.2019

Complainee: The Main Department of the State Fiscal Service in Mykolaiv Oblast (SFS)

Complaint in brief: The largest German investor in Ukraine – METRO Cash & Carry Ukraine (METRO), approached the Council. The Complainant disagreed with the tax audit conclusions, according to which it had to pay a fine worth UAH 2.3 bn for violating cash discipline.

The SFS concluded that Mykolaiv hypermarket violated rules for posting cash in the amount of UAH 485 mn. But what was wrong? During 2016-2018, the company entered cash receipts via payment transactions recorders (cash register). At the same time, the cash was reflected in settlement operations accounting books (KORO) based on fiscal sales receipts. Since the hypermarket did not carry out cash settlements with issuing their cash orders, METRO did not enter the above-mentioned cash amount additionally in the cash book.

According to the SFS position, the Complainant should have done both: entered cash receipts in cash registers, reflecting cash in KORO and apart from it entered cash in the cash book. Therefore, the tax authority treated that as a violation and applied a fine to the Complainant which was five times more than the amount of transactions performed – UAH 2.3 billion.

It is noteworthy, that Mykolaiv hypermarket entered cash in the same way as all other network stores. It used this entering method for a long time and its correctness had been confirmed by several tax audits. It was unclear what was wrong right then and with Mykolaiv store specifically.
 
The Complainant insisted: the situation was not quite correct and even absurd. It was important that tax inspectors themselves who conducted the inspection realized that the violation Metro had been charged with could not in any way lead to tax evasion and budget losses accordingly. At the same time, a five-time fine from the turnover was applied to the taxpayer for formal non-entering of cash. Therefore, on April 9, 2019, the company turned to the Business Ombudsman Council for help.

Actions taken: The investigator examined the circumstances of the case and made sure the law provides for several options of entering cash. The first one is to carry out cash transactions with issuing a cash receipt and record cash receipts amount in the book. The second one is making cash payments by using a cash register with accounting of cash receipts in KORO. That's exactly the way the Complaint performed its transactions.

Therefore, the Council asked the SFS to comprehensively and impartially consider the company’s complaint and provided the following arguments:

1.    According to the Council, the Complainant did not violate cash entering rules. The legislation clearly distinguishes situations when the taxpayer is obliged to enter cash in a cash book, and when in KORO. In particular, the legislator associates the obligation of maintaining a cash book with making settlements and issuing their cash orders. Using a cash register requires cash accounting in KORO. The Council stressed the Complainant did not carry out cash settlements with issuing their cash orders. Therefore, in the opinion of the Council, the SFS conclusion the Complainant was obliged to enter records both in the cash book and KORO was ungrounded.

2.     The fine applied by the SFS was disproportionately large. The tax authority agreed that the Complainant did not evade from paying taxes, since the network cash registers are directly connected to the SFS systems, which excludes the possibility of any fraud. Therefore, one cannot fine it for billion amounts.

3.    The judicial practice of the Supreme Court in a number of cases provided by the investigator also spoke for the Complainant.

During April-June, the Council’s investigator, as well as the Business Ombudsman and his Deputy met with the SFS leadership team for several times to personally communicate their arguments on the unjustified nature of the fine. At the end of May, the case was reviewed by the SFS, where the Council again upheld the company’s position.

Result achieved: On June 18, the SFS satisfied the company's complaint and completely dropped the fine.

The Council believes that a two-billion fine for a situation that in no way evidenced tax evasion or other grave violation is a dark strain on the country's investment climate. However, the fact the fine was dropped at the administrative appeal stage without lengthy court proceedings proves businesses can protect their interests legitimately and effectively. We hope that after recent changes in cash discipline, billion amount fines for similar violations will remain in history forever.