No-risk espresso: coffee retailer is no more a VAT risky taxpayer

Complainee: Main Department of STS in Kyiv City (MD STS)
Complaint in brief: The Council received a complaint from a coffee retailer from Kyiv. The company complained that it was included in the VAT risky taxpayers’ list. The experience of the Business Ombudsman Council shows that the tax authority often does not give proper explanation on the real reasons why the enterprise is recognized as a risky taxpayer. Nevertheless, in the case of the сomplainant, the MD STS clearly defined key reasons for the decision taken.
Hence, the tax authority ascertained that while trading in coffee, the company carried a markup on coffee roasted beans and sold a greater quantity of coffee than it had purchased. According to the position of the MD STS, this became possible due to formation of a significant amount of the VAT tax credit by the сomplainant as a result of importing fixed assets, i.e. motor vehicles and seating furniture. It should be noted that as per the Tax Code of Ukraine, when goods are imported to the customs territory of Ukraine, the enterprise gets the right to the VAT tax credit after completing a relevant customs declaration that confirms the fact of VAT payment to the budget. However, the MD STS was concerned that by importing vehicles and office chairs, the enterprise formed the VAT tax credit and accordingly minimised the amount of the VAT to be monthly paid to the budget when selling coffee.
In order to refute the decision on compliance with the taxpayers’ risk criteria, the Complainant on his own appealed to the MD STS and provided the regional Commission with additional documents and explanations, though it did not help to settle the issue. Then the company appealed to the Council for help.  
 
Actions taken: The investigator initiated immediate consideration of the сomplainant’s case. The Council supported the company’s position and asked the MD STS to objectively, comprehensively and thoroughly consider the information and documents that can speak for non-compliance of the enterprise with the taxpayers’ risk criteria. Later the STS suggested that the сomplainant should submit the documents necessary for repeated consideration of the company’s arguments by the regional Commission.
Results achieved: Due to effective communication of the Council with the controlling authorities and active interaction on the part of the сomplainant, the MD STS excluded the enterprise from the risky taxpayers’ list. The case was closed a month and a half after the investigation began.