Over UAH 140 mn of additional payment dropped for boilers manufacturer

Tax issues: Inspections by state tax and fiscal agencies Odesa region

Complainee: The Main Department of the State Fiscal Service in Odesa Oblast (SFS)
Complaint in brief: A French subsidiary company, a leading boilers and heaters manufacturer in Ukraine, turned to the Council. The company disagreed with the SFS tax audit conclusions, according to which it had to pay extra UAH 140 mn.
The tax authority questioned the Complainant’s transactions with a number of counterparties. Therefore, the SFS concluded the company had no right to a VAT refund.
Apart form it, the tax authority noted the company offered much lower prices for products in their authorized stores than average ones on the Internet, so it decided to penalize the company for that.
Another “million-dollar” alleged violation related to costs for foreign employees in Ukraine. The SFS insisted on the need to pay a single social contribution (SSC) from the amount spent on expats house rent as well as the refund of transport costs to employees who used their own cars.
Disagreeing with the tax authority findings, the company turned to the Council for help.
Actions taken: The investigator examined case materials and supported the company’s position. The Council addressed the SFS in writing and asked to comprehensively and impartially consider the Complainant’s objections. The Council, in particular, insisted it was necessary to apply the principle of personal responsibility of each party to economic transactions when assessing reality of such relationships between the Complainant and its counterparties.
The Council also stressed that when calculating the company’s market value of goods, it was necessary to use the Complainant’s official databases, rather than information from the Internet.
With regard to expenditures for expats, the Council proved the company acted correctly and in accordance with the Labor Code. According to current legislation, such expenses are required and they are exempted from SSC.
The Council’s investigator also participated in the company’s case review at the SFS. The next day the Complainant submitted additional explanations and documented evidence to the tax authority.
Result achieved: Taking into account supporting documents, the SFS arranged an unscheduled inspection of the company. Following audit conclusions, the tax authority dropped previously charged additional payments worth over UAH 140 mn. The case was closed successfully. 

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