Struggle for survival: how Ukrainian business suffers from tax authorities' actions

The European Business Association, which regularly evaluates the Tax Index, notes that the number of complaints from Ukrainian businesses about unreasonable information requests and artificial blocking of tax invoices has increased significantly over the past year. Other business associations and the Business Ombudsman's Office have also recorded similar trends. UNN has collected several examples of businesses facing pressure from tax authorities.

Recently, the problem of blocking tax invoices was brought to the public eye by entrepreneurs from Chernihiv region. Since the second half of 2023, Chernihiv region has been rapidly becoming a leader in the number of blocked tax invoices. At the same time, according to the results of 9 months of 2023, the positive balance of VAT payment in Chernihiv region is more than UAH 350 million. According to entrepreneurs, a characteristic feature of blocking is far-fetched formal reasons that do not meet the established standards.

"Our company is an animal feed producer and exporter. The tax office does not accept our producer table, so the company is on the risky list. The explanation reads: "The prices for the company's products depend on the fatness, age and type of animals...". Today, 57 cases are pending in court, 30 of which have passed the second instance, but there is no response. To continue our business, we are forced to open a new company in another region of Ukraine," said Andriy Kostyrko, CEO of Eco Soya Product LLC.

Entrepreneurs claim that they are being forced to resolve issues with the tax authorities "through some incomprehensible negotiations.

"When working capital is withdrawn from an enterprise for no reason, for far-fetched reasons, and the company is encouraged to solve the problem through some unclear negotiations, then we are talking about corruption risks! We will definitely not work like this!" - says Valeriy Kulich, Chairman of the Supervisory Board of Forsazh LLC.

But Chernihiv entrepreneurs are not the only ones facing fiscal pressure. The Unified Register of Court Cases shows that administrative courts are overwhelmed with cases of tax invoice appeals. Some court documents refer to the blocking of several dozen tax invoices of one company, and this is the case all over Ukraine.

Another problem faced by businesses is the non-refund of VAT. This was recently announced by Centravis, a Nikopol-based manufacturer of seamless stainless pipes.

"The state's debt to the company is over €10 million. We have never seen anything like this in our 30 years of operation. We won the courts, but a court decision cannot pay salaries and buy raw materials. I hope this issue will be resolved soon, because it is difficult for us to operate under the double pressure of the war and VAT arrears," said Yuriy Atanasov, Chief Executive Officer of Centravis.

A single, but no less egregious fact reported to UNN off the record by entrepreneurs is the forgery of electronic keys to access the taxpayer's electronic office in the State Tax Service system. According to business representatives, the tax authorities may also be behind these facts.

But even without this unequivocal criminal offense, there are enough questions about the actions of the tax authorities. After all, during the war, many businesses were already on the brink of survival, and some were even forced to close. And now those who work, pay salaries and taxes, are forced to defend their legal rights in courts or look for workarounds. And as practicing accountant Olena Sinyuk told in a commentary to UNN, it is the real working companies that receive income and pay taxes that face problems most often. 

"The tax authorities see that such companies can be "milked" or, excuse me, "plucked like geese," as well-known politicians say (a reference to Hetmantsev's statement: "What is proper taxation? It is the art of plucking a goose so that it does not scream" - ed.) Manufacturers and importers also suffer because they do not have the so-called "input" VAT from "non-risky" suppliers," explains Sinyuk.

And instead of continuing to operate in an already difficult environment, entrepreneurs are forced to spend time, energy and money on explanations to the tax authorities and litigation. According to statistics provided by the Business Ombudsman Council, tax authorities mostly lose in the latter case. But then entrepreneurs have to wait a long time for the tax authorities to comply with the court decision and unblock invoices or remove the risky status of the company, refund VAT...

Many representatives of the business community are convinced that such actions by the State Tax Service and its regional offices are due to manual control by the head of the Verkhovna Rada Tax Committee, MP Danylo Hetmantsev. In particular, Dmytro Oleksiyenko, a member of the Taxpayers Association Board, emphasizes that no important decision is made at the State Tax Service without his knowledge.