SFS and MinFin changed formula for VAT refund calculations based on BOC recommendations

Tax issues: Problems with the electronic VAT administration Kharkiv region

Subject of Complaint: State Fiscal Service (SFS)
Complaint in brief: Starting ion  July 2016, the BOC has investigated three similar complaints about the incorrect presentation of tax audits results in the electronic administration of VAT system (SEA).
After companies submitted VAT refunds declarations for VAT refunds to local tax authorities, the SFS conducted inspections, and found reasons not to completely refund the tax. Yet, in the column “Refund Sum,” the SEA automatically showed the original amount claimed and not amount the actually refunded. As a result, the column “Tax Invoice Sum,” against which the payer has the right to register additional tax invoices, showed the amount of eligible, but not actually refunded, funds.
In one case, the Complainant filed a declaration of VAT refund worth UAH 10 million. After its inspection, the SFS completely refused to reimburse the VAT, but the company’s “Tax Invoices Sum” was reduced by UAH 10 mln. In order to continue business operation, the Complainant had to replenish the VAT account at his own expense.
Actions taken: After several rounds of negotiations with the SFS, BOC investigators discovered that the situation was simply the result of the SEA’s incorrect algorithm. According to the tax office position, the SFS was unable to increase the “Tax Invoices Sum,” even if it was reduced to a smaller amount than required. For the tax office to record the amount actually refunded in this column, the BOC recommended that the SFS and MinFin to make changes to Para. 200 of the Tax Code in one of two ways:
• Reduce the “Tax Invoices Sum” by the amount actually reimbursed, based on results of inspections, or
• Allow for the SEA to automatically display the verification results for the declared sum where “Tax Invoice Sum” is automatically reduced: if the declared amount is greater the amount reimbursed, the SEA should increase the previously reduced “Tax Invoices Sum” automatically, without any additional requests from taxpayers.
Result achieved: After a year of regularly monitoring how its recommendations were being implemented, meeting with the SFS and making dozens of telephone calls, the problem was solved on a systemic level. MinFin prepared a technical amendment to the Tax Code. After approval of the law by the Verkhovna Rada, the SFS adjusted the software and documented the correct algorithm for displaying the results of tax audits in the SEA. The BOC recommendations were successfully implemented.

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