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Will the traffic police unblock the tax invoice without a court?

Stopping the registration of tax invoices is one of the real problems of Ukrainian business. The following speaks of the massiveness and significance of this phenomenon:

  • the business ombudsman in his quarterly reports calls the blocking of tax invoices "the most common problem of entrepreneurs" with which they turn;
  • The Supreme Court has devoted a separate review of case law to disputes over the registration of tax invoices.

However, due to the heavy workload of the courts, cases of unblocking can take years. Therefore, it is worth paying attention to the extrajudicial unblocking of tax invoices. 

We will talk about the peculiarities of extrajudicial unblocking and steps on the way to a positive result in this article.

Currently, the procedure for stopping the registration of tax invoices has been settled  By Resolution of the CMU dated December 11, 2019 No. 1165 (Resolution) and Order of the Ministry of Finance of December 12, 2019 No. 520 (Order), and schematically it looks like this:

Enterprises encounter the most problems on the way to registering tax invoices at the second stage, when the VAT payer meets at least one of the eight risk criteria, approved by the Resolution. 

The first seven of them are quite clearly formulated and related to the activities of "fictitious" companies. However, the latter criteria were formulated so "successfully" for the supervisory authorities that in 14 months of the new order, 1,400 decisions were made only in the courts of first instance:

«8. The controlling bodies have tax information that became known in the course of current activities during the performance of tasks and functions assigned to the controlling bodies, which determines the risk of carrying out a business transaction specified in the tax invoice / adjustment calculation submitted for registration. "

The problem lies in the wording "tax information that has become known", because in this term the DPS includes absolutely any suspicions or claims against the taxpayer.

The taxpayer learns about the suspension of registration of the tax invoice from the corresponding receipt, which is sent automatically within 1 day. The procedure provides that the controlling body must indicate in such a receipt:

  • the risk criterion of the taxpayer on the basis of which the registration of the tax invoice in the Register is suspended;
  • a proposal to provide the taxpayer with explanations and copies of documents necessary for consideration of the issue of the controlling body's decision on registration of the tax invoice in the Register.

Unfortunately, the State Tax Service in such cases does not even try to indicate exactly what tax information became known to it, what explanations need to be submitted or what documents need to be submitted in order for the tax invoice to be registered.

In this regard, the taxpayer must act in accordance with the Procedure, guided only by his idea of the probable claims of the tax authorities.

So, what to do in cases when you received a receipt for suspension of registration, in which only the general phrases quoted the Procedure?

The answer to this question can be found in the Order, which provides for the right of the taxpayer to submit explanations and documents necessary to unlock the registration of the tax invoice, as well as an indicative list of such documents.

Please note that the deadline for submitting such explanations is 365 days from the date of tax liabilities specified in the tax invoice.

If the list of documents given in paragraph 5 of the Order is not clear, you should use the method proposed by the tax authorities themselves "from where, who, where, to whom":

  • where the goods (service), raw materials are obtained (i.e. relations with suppliers);

What documents to attach: contract, documents confirming the authority of the signatories; payment orders, expense documents and other accompanying documents for the goods that you resell or used during the provision of services;

  • who is directly involved in economic activity (i.e. availability of labor resources and contractors);

What documents to attach: staff list, employment contract, employment order, contracts with contractors.

  • where economic activity is carried out (ie availability of production resources, equipment, premises);

What documents to attach: lease, purchase or other documents confirming the right to use a property or premises.

  • to whom the product / service was sold (i.e. relations with buyers).

What documents to attach: the contract, the documents confirming powers of signatories; payment orders, expense documents and other accompanying documents for the goods that you resell or used during the provision of services.

THowever, the whole point of explanations and providing documents is to convince the DPS that the transactions for the supply of goods or services really took place.

In what form are explanations provided

Explanations are submitted in electronic form through the electronic cabinet in CML format according to the code of the form J (F) 13149.

Decisions based on the results of consideration of explanations and their appeal.

The explanation is considered by the commission of the regional level within 5 working days and makes a decision on registration or refusal in registration of the tax invoice according to the form given in the Order. Moreover, the form of the decision stipulates that the controlling body must indicate the grounds for refusal. The most common reason is "failure of the taxpayer to provide copies of documents." In most cases, the tax authorities do not explain which documents were not provided or what information these documents could confirm.

Decisions of the regional level commission are appealed in administrative or judicial proceedings.

If you decide to go to court immediately, the statute of limitations in such cases is 6 months from the date of receipt of the decision.

Administratively, the deadline for filing a complaint is 10 working days from the date of receipt of the decision.

The complaint is submitted to the commission of the central level according to the sample given in appendix 1 to the Procedure. However, the complaint may be accompanied by explanations and copies of documents confirming the information provided in the tax invoice.

Please note that if the essence of the explanation was to convince the commission of the legality of the payer's actions and the reality of the transaction, the main purpose of the complaint is to prove the illegality of the actions of the lower level traffic police. Therefore, in the complaint, in addition to the description of business transactions, there should be a section which describes the violations committed during the decision of the commission at the regional level. 

Decisions on the results of the complaint are made within 10 days of receipt. If within this period the decision is not sent to the complainant, the complaint is considered fully satisfied in favor of the taxpayer.

However, decisions to satisfy the complaint are not popular with the tax authorities. On the other hand, given that such an appeal is not long-lasting and does not require excessive costs, we recommend that you take this opportunity.

Business ombudsman

At the stage of an administrative appeal, you have the opportunity to involve the Business Ombudsman Council. The Rules of Procedure of the Council provide for the procedure of additional appeal against the illegality of the actions of the controlling body with the obligatory provision of recommendations for making a lawful decision.

But we recommend that you first send a complaint to the Council, and then send it to the tax authorities. If they are sent at the same time, the tax authorities will make a decision sooner, and the business ombudsman will not join the consideration.

If you are not satisfied with the results of the consideration of the decision of the central commission, then all that remains is to go to court. Moreover, the statute of limitations in this case is 3, not 6 months. 

Although most decisions of the DPS are not made in favor of business, this does not mean that you need to go to court right away. Additional arguments "in favor" of an administrative appeal are the quick review of the complaint and the absence of a fee for its submission. At the same time, if you write a detailed and clear explanation and submit all the necessary documents, a tax invoice it will be possible to register without going to court. This is confirmed by the reports of the business ombudsman, which describe cases with a positive result for business.  


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