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Ways and perspectives of appealing against an act of tax audit in Ukraine

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Tax audit reports formalization without further issuance of tax violation notification letters is quite a common practice. At the same time such reports often include information that is of great significance for taxpayers (for example recognition of a bargain as insignificant). Besides information included in such report can serve as a ground for initiation of criminal proceeding regarding head of an enterprise.

At the same time there are almost no opportunities for appeal against tax audit reports since due to the Order of the State Tax Administration of Ukraine number 984 dated 22.12.2010 (previously it was the Order number 327 dated 10.08.2005) the report is an official document that confirms the fact of audit conduction and is a source of evidence information when violations are detected. Based on this the majority of courts of higher instances (resolution of the Supreme Court of Ukraine number 08/262 dated 07.05.2008 , decision of the Supreme Court of Ukraine number К-1185/07 dated 22.07.2009 , resolution of the High Administrative Court of Ukraine number К-16536/07 dated 28.10.2010) come to the conclusion that since the audit report only includes the very fact of violation it is not considered to be a decision. Therefore it causes no legal consequences. For this reason it cannot be subject to consideration in administrative courts.

Of course such practice is wrong. This is due to the fact that administrative courts upon consideration of such claims close the proceedings in cases based on the ground according to which such cases are not subject to hearing in administrative courts. But in contradiction with Section 2 of Article 157 of the Code of Administrative Procedure they do not specify which courts can hear these cases. By doing so they violate Article 55 (right to protection by court) and Section 2 of Article 124 (all legal relations fall under the jurisdiction of courts) of the Constitution of Ukraine.

There have been many attempts to alter this practice or to bypass it but the outcome is rarely positive for a taxpayer. One of the most unusual attempts was in the form of a lawsuit about recognition of facts provided by such report as such that are false. But satisfaction of the lawsuit in the court of first instance and court of appeal was ruined by the decision of the High Commercial Court of Ukraine number 60/38-10 dated 14.10.2010. In this decision the court ruled that in such cases a body of the State Tax Service of Ukraine fulfills one of the powers that is provided by the law and is related to obtainment of information and therefore it cannot be considered spread of unreliable information.

Much more successful and in our opinion correct method is an appeal against actions of tax authorities related to tax audit report issuance rather than against the very report or information included in it. Successful appeals against actions of tax authorities related to formalization of tax audit report can be exemplified by the resolutions of Mykolayiv District Administrative Court number 2а-1404/10/1470 dated 23.04.2010 and number 2а-5476/10/1470 dated 02.11.2010. Of course these are only resolutions of one court of first instance and they can be confronted by many other decisions in which such claims were denied (for example the resolution of the High Administrative Court of Ukraine number К-13106/07 dated 14.09.2010). But such appeal should be strived for at least in order to delay the moment of initiation of criminal proceedings against management of a company.

Besides it would be beneficial if these claims emphasized illegality of denial/ignoring remarks regarding the report rather than actions related to its formalization. Subsection 86.7 of the Tax Code of Ukraine provides that a taxpayer can file his objections against tax audit reports in case if he does not agree with the results of the audit or facts and data included in tax audit report (certificate). These remarks must be considered prior to issuance of a tax violation notification letter. So one should appeal against the fact that tax authorities did not consider evidence and reasoning of a taxpayer and by doing so violated his rights.

It is also possible to appeal against inactivity of the tax authorities related to issuance of the tax violation notification letter after formalization of tax audit report. Subsection 86.8 of the Tax Code of Ukraine provides that tax violation notification letter must be issued within 10 days since the day when a tax audit report is formalized and if there are any objections – three days after their consideration. Inactivity of tax authorities related to issuance of tax violation notification letter violates the right of a taxpayer related to appeal that is exemplified by the mentioned judicial practice. But at the same time it cause a number of negative consequences for a taxpayer. 

This material was written by lawyers of law firm “Pravova Dopomoga” within practice of Taxation.

We can help you to appeal against tax audit reports in Ukraine.

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