An IT company approached the Council after the tax authority conducted a scheduled audit. Following the audit, the tax authority additionally assessed personal income tax and the military levy on amounts the company paid to individual entrepreneurs (sole proprietors, “FOPs”) for services provided in 2022–2024. Penalties were also imposed. The total amount of additional assessments came to almost UAH 1.5 million.
The tax authority justified its conclusions by stating that the FOPs to whom the company made payments have their tax address in temporarily occupied territories (TOT). In the tax authority’s view, in such a case it was the IT company that was required to withhold and pay taxes from the amounts paid.
The Council thoroughly analyzed the applicable legislation and the circumstances of the complaint and concluded that the provisions of the Tax Code of Ukraine requiring tax withholding when paying income to FOPs registered in TOT do not apply to territories recognized as occupied during martial law.
To clarify the matter, the Council sent a request to the State Tax Service of Ukraine (STS) asking how many FOPs fall under this rule. Having received a response, the Council confirmed the correctness of its conclusions.
Subsequently, the Council sent a letter to the STS of Ukraine supporting the IT company’s position. In the document, the Council presented arguments based on the publicly stated positions of the STS itself and the reply received to the Council’s request. The Council also emphasized that the complainant had provided convincing evidence that none of the FOPs to whom it made payments were in fact located in TOT, even though their registered place of residence was there. In addition, all of them timely and in full declared the income received and paid taxes on it.
During in-person participation in the consideration of the complaint, the Council’s investigator and the IT company’s representatives also stressed the importance of consistent interpretation of tax legislation by the STS of Ukraine.
As a result, the IT company’s complaint was upheld, and the tax notices-decisions were cancelled.
The Council welcomes the consistent and balanced approach taken by the STS of Ukraine in reviewing this complaint.
