A car sales company approached the Business Ombudsman Council regarding additional payments following a tax audit. The company managed to independently challenge part of these additional payments during a repeated audit, which the tax authority scheduled after considering the objections.
However, following the repeated audit, the tax authority still claimed that the company understated the VAT tax base when selling used cars to individuals who were not VAT payers, from whom the company had previously purchased the vehicles also from non-VAT payers. The tax authority based its conclusions on the alleged inability to confirm that the valuation services for determining the market value of the used cars acquired by the complainant had been provided. As a result, the tax authority charged over UAH 6 mn in tax liabilities (including UAH 1.2 mn in penalties), reduced the negative VAT amount by UAH 480k and imposed a UAH 2.7 mn fine for failing to register tax invoices.
The Council conducted a detailed analysis of the situation and identified significant shortcomings in the tax authority’s conclusions. Specifically, in the company’s case, the VAT tax base is the positive difference between the selling price of the used cars and their purchase price. According to tax legislation, for calculating this positive difference, the selling price of a used car should not be lower than its market value, as determined by an authorized valuation entity. However, by questioning the tax base applied by the company and assessing substantial tax liabilities, the tax authority failed to confirm that the tax base reported by the complainant was below the market value calculated by a valuation entity. The tax authority also did not provide its own calculations for the VAT tax base (the positive difference), instead focusing on the purchase price of the vehicles and the delayed reflection of valuation services in the company’s accounting records.
To protect the company’s interests, the Council prepared a letter to the State Tax Service of Ukraine (STS), analyzing the mistakes made by the tax authority and presenting arguments in favor of the company. The Council representatives actively participated in the complaint review.
With the Council’s support, the STS canceled tax notification decisions amounting to UAH 9 mn and fully satisfied the company’s complaint.
