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Сompromise reached: enterprise recognised as unrisky VAT taxpayer

11.12.2020

Complainee: The Main Department of the STS in Kyiv City (MD STS)

Complaint in brief: The Council received a complaint from an enterprise located in Kyiv city which has over 20 years of experience in the market of conveyor belts and their derivatives and provides services for conveyor equipment. The company complained about its inclusion in the risky taxpayers’ list, that it had learnt from its e-office. The reason for such a decision, stated therein, was the formation by the complainant of a VAT tax credit under operations with a risky contractor.

In order to avoid undesirable consequences, the enterprise submitted to the tax authority additional documents with information about the company and its activities. In particular, the enterprise gave explanations on business transactions with the alleged risky supplier, and also decided not to include such a tax credit in the VAT return for the relevant tax period.

However, unfortunately for the complainant, the provided explanations and documents did not help the company to refute its "riskiness" from the tax authority’s perspective. Furthermore, in the revised decision about the company's compliance with the taxpayers’ risk criteria, there was a statement about another risky supplier, under operations with whom the complainant formed its VAT tax credit, and this time such a credit had been duly reflected in its VAT return. Therefore, the company turned to the Business Ombudsman Council for help.

Actions taken: Having examined the case file, the Council’s investigator recognised  the complaint as largely substantiated. Following the complaint’s discussion within the expert group, the MD STS suggested that the complainant waivered the share of its VATcredit amounting to nearly UAH 180k, which had been formed as the result of alleged business transactions with  risky contractors, and pay the respective amount of VAT to the budget. The complainant decided to make a compromise with the tax authority, though expressed a desire to further discuss the mechanism for waivering such a tax credit with tax officials, taking into account peculiarities of its current activities under quarantine period. Therefore, the Council further aimed to enhance communication between the company and the tax authority in order to settle the situation.

In accordance with the Rules of Procedure of the Business Ombudsman Council, where appropriate and relevant, and subject to cooperation of the relevant parties, the Business Ombudsman shall make an effort to assist such parties in reaching an amicable settlement regarding the subject matter of their dispute.

Thus, with the Council’s facilitation, the tax authority provided the complainant with comprehensive advice on how to properly waiver the disputed tax credit by drawing up tax invoices for conditional sale and reflecting them in the adjustment calculations of VAT liabilities for the previous periods. Having complied with the received recommendations, the company repeatedly submitted a notice  of its non-compliance with the risk criteria.

In turn, the Council recommended the MD STS to provide a proper assessment of the complainant's actions aimed at confirming its non-compliance with the taxpayers’ risk criteria, and depending on the result:

  • in case it is established that the complainant no longer meets the taxpayer's risk criteria - to decide on the non-compliance of the complainant with such criteria and to exclude it from the risky taxpayers’ list;
  • otherwise – to provide comprehensive explanations regarding additional actions to be taken by the complainant in order to be excluded from the risky taxpayers’ list.


Result achieved: The MD STS upheld the Council’s recommendations and excluded the company from the risky taxpayers’ list. The case was successfully closed.