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Decision on “riskiness” of mini-markets from Kharkiv region cancelled

28.10.2020

Complainee: State Tax Service (STS), Main Department of the STS in Kharkiv region (MD STS)

Complaint in brief: In summer 2020, a company - a small chain of mini-markets operating in Kharkiv region, turned to the Council.  The complaint concerned systematic suspension of tax invoices by the MD STS in connection with the established taxpayer's risk criteria.

During the preliminary analysis, the Council found that in autumn 2019, within a criminal proceeding, an investigative judge arrested the registration limit in the SEA VAT of companies that allegedly fictitiously purchased goods from one supplier. Among such companies was the Council's complainant, who had to appeal against this arrest. 

Having confirmed his belonging to the real sector of economy, the complainant succeeded in lifting the arrest, but almost at the same time the MD STS began blocking his tax invoices. Following submission of additional documents, the complainant's tax invoices were eventually registered, but this process objectively created issues for the company and damaged business relations with contractors due to the delay in registration. 
 
With the entry of Procedure No. 1165 (the CMU Resolution dated 11.12.2019 into force, the MD STS decided that the complainant met the riskiness criteria, indicating the grounds – clause 8 of the Taxpayer’s Riskiness Criteria - "established relationships with counterparties with signs of riskiness" without any concretization.  The complainant was submitting explanations and documents to the tax office to refute his riskiness, but it did not bring any result. Thus, the company decided to seek the Council’s help.
 
Actions taken: The Council acknowledged the complaint as substantiated. The BOC investigators’ team referred the complaint’s subject to processing of the expert group with the participation of the MD STS under the Memorandum of Partnership and Cooperation between the State Tax Service of Ukraine and the Council. The Council asked the tax authority  to give a comprehensive explanation on the reasons why  the complainant was included in the risky taxpayers’ list. It turned out later that the complainant appeared in the “risky” list  due to transactions with its supplier, which had actually been involved in the criminal proceeding and because of which the registration limit in the  SEA VAT was arrested last year. 

The Council’s investigators together with the company examined the issue of materials and explanations that were necessary to submit to prove the complainant’s non-compliance with the risky taxpayers’ criteria.

Result achieved: After the complainant submitted a new package of documents, the MD STS excluded the company from the risky taxpayers’ list. The case was successfully closed.