When the audit is endless: how the State Tax Service is testing a new tool of pressure on business

The State Tax Service (STS) of Ukraine has launched a new scheme of pressure on business that has already caused outrage among entrepreneurs. It is based on attempts to re-check the periods of 2020-2021, which have previously been the subject of audits and even litigation. This raises serious doubts about compliance with the law and the targeted nature of such actions, UNN writes.

According to UNN, the tax authorities have scheduled repeated inspections for about 40 enterprises in Dnipro. Most of them relate to the period 2020-2021.

Scheme of actions of the tax authorities

The new mechanism from the tax authorities is as follows:

The tax office sends a request for documents for the period that was previously audited. In such cases, there are usually already tax audit reports and tax notices issued.

The taxpayer, having received such a request, refuses to comply with it, referring to the fact that repeated verification of the same period is contrary to the law.

After that , based on the refusal, the tax office appoints a new audit, stating that the taxpayer has not provided documents.

Such actions of the tax authorities drive companies into a dead end, from which there are two ways out: either to allow the tax authorities to conduct a clearly biased audit with a high probability of new additional charges and fines, or to refuse access, which may lead to the seizure of assets.

Why do the actions of the State Tax Service violate the law

The actions of the tax service look especially cynical when you consider that such periods have already been checked before. Moreover, in many cases, enterprises won the courts, which confirmed the illegality of previous additional charges. However, according to the logic of the state tax service, if the court decision canceled the additional charge, this allegedly means that there was no check at all.

This logic is not only illegal, but also directly contradicts the norms of legislation, in particular the law of Ukraine "on enforcement proceedings", which obliges state bodies to comply with court decisions. However, it seems that the Tax Service believes that this law does not apply to it.

"If the audit has already taken place and the acts based on its results have been drawn up, the tax authority cannot unreasonably conduct a repeated audit of the same period. Conducting repeated audits of a period that has already been audited without proper grounds may violate the principle of legal certainty and stability in relations between business and regulatory authorities," said Dmytro Kasyanenko, attorney at law at Kasyanenko & Partners , in an exclusive commentary to UNN.

The lawyer noted that repeated audits are usually allowed only in cases specified in paragraph 78.1 of the Tax Code of Ukraine, for example, if new circumstances are discovered that were not investigated during the first audit or on the basis of a court decision. At the same time, Article 78 of the Tax Code sets out clear grounds for unscheduled tax audits, including: receipt of new documents indicating violations of tax laws, discrepancies in tax returns or reports, lack of response to requests from tax authorities or incomplete information provided. However, pursuant to Article 77 of the TCU, the frequency of audits is limited by the established limitation period, which is 1095 days from the date of submission of the relevant declaration in accordance with Article 102 of the TCU.

"If the state tax service tries to initiate such checks without referring to new circumstances or violations, this can be regarded as abuse of authority. Unfortunately, re-checks can be used as a tool to put pressure on businesses. During periods of financial difficulties, the state tries to close budget holes, sometimes at the expense of additional penalties from enterprises. This causes reasonable concern in the business environment," Kasyanenko said.

Business implications

According to experts, such actions pose huge risks to businesses. First, it is an additional burden on businesses that are forced to spend resources on legal struggles. Second, it undermines trust in the tax system and regulators in general.

"This is the first time I've heard of this and I don't see any logic in this action... This is, once again, beyond common sense," said Serhiy Dorotych, head of the #SaveFOP movement, in an exclusive commentary to UNN .

According to him, the repeated tax audit could still be explained by the existence of criminal cases against companies, but even in this case, law enforcement officers would first of all have questions to the tax officers who signed the first audit report.

According to Dorotych, such actions by the tax authorities are pressure on business.

"It seems to me that now checking entrepreneurs in Dnipro, a city that, as we hear, is under a great threat of a massive Muscovite offensive... I can't call it anything other than sabotage. That is, now, when the business is already surviving and is very much concerned about its very existence, another blow is being struck... You know, when you wake up every day and think that maybe today will be without any trouble. But no," Dorotych emphasized.

It should be noted that the actions of the state tax service will affect dozens of Dnipro enterprises that already have experience in legal disputes with the tax service for verified periods. Businesses in such conditions will have to spend significant resources to protect themselves from actions that contradict the current legislation.

Why is this important?

The tax authorities' attempts to re-inspect the 2020-2021 periods demonstrate a new reality for business, where the rules of the game change at any time. Such actions create prerequisites for abuse and corruption, undermine the reputation of the tax service and jeopardize the country's economic stability.

It is especially dangerous that the tax authorities use these schemes in wartime, when every hryvnia in the state budget is critical. Instead of promoting business development and creating favorable conditions for entrepreneurs, we see increased pressure and non-transparent practices.

"We have no responsibility of officials for the damage caused by their actions. Moreover, since our civil service in general has transformed from personal responsibility to depersonalized chaos over the years of independence, we have actually come to the beginning of a full-scale war with a situation where most decisions are made collectively. Under the current legislation, it is impossible to hold a collegial body accountable at all. This was done so that it would be possible to conduct any transactions with absolute peace of mind and not be held accountable for anything. This example is a vivid confirmation of that," believes Yuriy Havrylechko.

The actions of the State Tax Service with repeated audits look like another step towards destroying trust in the tax system. Businesses that have won court disputes have the right to operate in peace without the constant risk of unlawful inspections. If such practices are not stopped, it may lead to significant losses for the Ukrainian economy and further shadowing of business.

The State Tax Service and other regulatory authorities must immediately stop this illegal practice and return to the rule of law. Otherwise, instead of supporting economic growth, we will witness an even greater decline in the business climate in Ukraine.