The sole rock salt producer in Ukraine faced the issue of being included in the list of risky taxpayers. In March 2024, the Main Department of the State Tax Service in Zakarpattia region classified the company as a risky taxpayer. The company promptly submitted explanations and necessary documents to cancel its risky status.
However, despite the provided explanations and documents, the tax authority repeatedly changed the grounds for their decision and kept the company on the list of risky taxpayers. This led to new decisions in April and May 2024, effectively blocking the company’s operations.
Facing such pressure, in May 2024, the company appealed to the Business Ombudsman Council (BOC). The Council concluded that the company had provided convincing explanations to address the tax authority’s doubts about “risky” operations.
The Council, taking on the case, organized a meeting with representatives of the State Tax Service of Ukraine within the framework of the Expert Group. At the meeting, tax officials finally voiced a full list of remarks on the taxpayer’s activities. They concerned discrepancies in rent payments and accumulation of inventory. As it turned out, the tax authorities’ main doubts were related to the inventory for which the VAT tax credit was formed. Therefore, the local tax office tried in every way to verify whether the taxpayer actually had inventory in the declared volumes.
BOC, for its part, noted that the circumstances that the tax authorities are trying to clarify may be subject to a tax audit and cannot be established within the framework of considering explanations about non-compliance with risk criteria. The same doubts that were previously mentioned in the decisions on the company’s risky status had been successfully refuted.
Finally, in July 2024, after the company submitted additional explanations and documents, the tax authority removed the company from the list of risky taxpayers. The local tax office still decided to conduct an unscheduled audit of the taxpayer.
The Council always advocates for a civilized dialogue between business and government and once again emphasizes that the procedure for recognizing a taxpayer as risky should not substitute a tax audit. If the tax authority indeed has reasonable doubts about the taxpayer’s activities, the legislation provides an opportunity to clarify all necessary circumstances in the format of an audit, which does not lead to a complete blocking of the company’s operations.
