SFS reduces fertilizer distributor’s tax liabilities by UAH 5mn

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

Subject of complaint: Odesa Oblast Main Department of the SFS (Odesa Oblast SFS)
Complaint in brief: On August 23, 2017, a distributor of mineral fertilizers turned to the BOC with a complaint concerning actions of Odesa Oblast SFS. The company was challenging the results of a tax inspection that added taxes and penalties worth UAH 12mn to the company’s bill.
The additional VAT and profit tax were related to three episodes in the Complainant’s activity:
1.The distributor took a bank loan and paid interest on it. Before the loan had been fully repaid, the company gave an interest-free loan to an employee. Due to what it considered a “commercially unjustified action,” the SFS refused to classify the company’s interest payments as expenses and to reduce the company’s profits by that amount.
2.The Odesa Oblast SFS deemed several of the company’s operations with counterparties “unrealistic.” Specifically, the tax office was of the opinion that the contractors involved lacked the resources to actually carry out the tasks set out in contracts. As a result, the SFS did not allow the company to treat those payments to costs and claim a tax credit for them.
3.There was a mistake in the Complainant’s tax invoices, where, instead of the supplier’s tax ID, the tax office tax ID had been written in. The SFS rejected the company’s claim to a tax credit for this transaction.
Disagreeing with the SFS assessments in the three situations the Complainant filed a challenge with the Odesa Oblast SFS, but the challenge, too, was rejected. After this, the Complainant submitted a complaint to the national SFS office.
Actions taken: After examining the circumstances of the case, the BOC investigator sent an official letter to the SFS, in which he presented his position regarding the complainant’s operations:
1.Since the Complainant’s expenses for loans were real, the enterprise’s profit could be reduced by that amount. The SFS judgment as to their relevance was an unwarranted interference in the Complainant’s business.
2.The Complainant’s documents, confirming the actuality of the transactions with contractors should be taken seriously.
3.Since the Complainant’s technical errors did not lead to any losses to the budget, it was unreasonable to treat the firm as though it had not paid the tax.
In addition, the investigator participated in the SFS hearings of the Complainant’s case.
Result achieved: The SFS partly considered the BOC recommendations, which allowed the company to save UAH 5mn. The distributor plans to appeal the remaining controversial issues in the court.

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