State Tax Service drops fines and additional tax accruals worth almost UAH 10 mn. for IT company
Subject of complaint: The Main Department of the State Tax Service in Kharkiv Oblast (STS)
Complaint in brief: An IT company with foreign investments approached the Council. The company disagreed with the tax audit findings, according to which it had to additionally pay almost UAH 10 mn in taxes and fines.
The company purchased software worth UAH 20 mn from British counterparties to tweak it and then sell to its parent company in the US dealing with communication technologies. However, the STS concluded the company did not really buy anything. According to the tax authority, those were fictitious operations carried out to reduce tax liabilities. Therefore, the STS additionally charged the company with income taxes and corresponding penalties.
Disagreeing with these conclusions, the company challenged them in the STS, and also asked the Council for assistance.
Actions taken: Having examined the case file, the Council upheld the company’s position. The Council’s investigator stressed financial statements of the British counterparties were made publicly available on the official website of the United Kingdom.
A thorough analysis of financial statement items confirmed the possibility of performing transactions which the tax authority considered to be fictitious, and also refuted the version that the British counterparties did not do their business in sufficient volumes in respective periods.
The Complainant also provided sufficient supporting documents for relevant transactions to be assigned to costs related to the software product development.
The investigator asked the STS in writing to independently and objectively consider the company’s complaint taking the BOC proposals into account and supported the Complainant’s position during complaint consideration at the STS.
Result achieved: The STS decided in favor of the company within ten days and dropped fines and additional tax accruals in full. The case was closed successfully.