Client’s rights upheld: unlawful tax decision amounting to 340,000 UAH has been overturned.

Our client is a sole trader engaged in the retail sale of food, drink and tobacco products.

Following an on-site inspection, the client was accused of breaching Part 1 of Article 151-1 of the Code of Administrative Offences (failure to submit a Z-report and absence of a MAP barcode) and was fined nearly 340,000 UAH.

Reason: Failure to comply with the procedure for conducting transactions via a cash register, specifically – failure to submit a Z-report and the absence of the mandatory digital barcode for the excise duty stamp.

Tax dispute lawyers at YURIS FERRUM LLP have challenged, before the Odesa District Administrative Court, an order issued by the tax authority to conduct an audit and the tax assessment notice issued following the results of that audit.

The dispute arose in connection with the ordering of an audit without proper legal justification and the subsequent assessment of additional tax liabilities. We based our legal argument not only on the substance of the audit findings, but also on procedural irregularities in the ordering and conduct of the audit, as compliance with procedure is a key safeguard for the taxpayer.

Our arguments:

In the statement of claim, we have provided evidence that:

• the order to carry out the audit did not set out a clear and specific ground as provided for in the Tax Code of Ukraine;
• the audit covered an excessively long period without proper justification for the need for such a scope of audit;
• Z-звіти подавалися своєчасно та в повному обсязі, що спростовувало твердження податкового органу про порушення;
• The purpose of the audit, as set out in the order, did not in fact correspond to the grounds on which it was ordered, which indicated a purely formal approach and an overstepping of the supervisory body’s powers.

In this case, the emphasis was placed on the principles of legal certainty, due administrative process and the duty of the tax authority to act solely within the limits and in the manner prescribed by law.

The Main Directorate of the State Tax Service in the Odesa region has appealed against the decision of the court of first instance to the Fifth Administrative Court of Appeal in Odesa.

During the appeal proceedings, we demonstrated that:

• the order to conduct the audit did not contain the proper and specific grounds provided for in the Tax Code of Ukraine, and the supervisory authority’s formal references cannot be regarded as sufficient justification;
• the actual scope of the audit was unreasonably expanded compared with that specified in the order, indicating that the tax authority had exceeded its defined powers;
• the tax authority’s position regarding the grounds for the audit was internally contradictory: the arguments set out in the appeal were inconsistent with both the content of the order itself and the audit materials.

The Fifth Administrative Court of Appeal upheld the decision of the court of first instance.