Tax audits are back: things to know

On Nov 9, 2023, the Verkhovna Rada of Ukraine adopted the Law "On amendments to the Tax Code of Ukraine and other laws of Ukraine regarding the cancellation of the moratorium on tax audits" (draft law No. 10016-d of 16 October 2023) (hereinafter – the Law). The Law provided for the resumption of tax audits by the tax authorities (with certain peculiarities) since Dec 1, 2023.

Since President Zelensky signed the Law only on December 6, the actual resumption of inspections began on December 8 when the Law entered into force.

Who can be the subject of the scheduled documentary inspections?

The Law establishes that since December 8, 2023 to December 31, 2024 inclusive, the schedule of documentary inspections for 2023 and 2024 shall include exclusively:

a) taxpayers who carry out/have carried out activities in the area of production and/or sale of excisable goods

b) taxpayers who carry out / have carried out activities in the area of organization and conduct of gambling in Ukraine (gambling business)

c) taxpayers who provide/provided financial, payment services

d) non-residents who carry out/have carried out activities in Ukraine through separate subdivisions, including permanent establishments and/or separate subdivisions, including permanent establishments of a non-resident, of a high-risk degree

e) other taxpayers who, based on the indicators formed at the end of the 2021 calendar year, meet at least one of the following criteria:

• had an income tax payment amount of less than 50% in the industry (not applicable to payers of the single tax);
• had a VAT payment amount of less than 50% in the industry (not applicable to taxpayers whose operations for the export of goods outside the customs territory of Ukraine account for 25% or more of the total supply and at the same time the income tax payment amount is at least 50% of the income tax payment amount in the relevant industry);
• had twice as much receivables as payables;
• according to the tax return on property and income: (1) annual income from entrepreneurial activity is UAH 10 million or more; and (2) total expenses amount to 75% or more of annual income;
• accrual and/or payment by a tax agent – a legal entity of income in the form of wages less than the average wage in the relevant industry in the relevant region (at the main place of registration with the territorial body of the central executive body that implements state tax policy).

The indicators provided for in this clause shall be published on the official website of the State Tax Service of Ukraine within 10 calendar days from the date of entry into force of this Law.

Who remains the subject to the moratorium?

The Law provides that from Dec 8, 2023, the moratorium on tax audits will continue to apply to:

• documentary inspections of single taxpayers of groups 1 and 2 (except for inspections related to the termination of business activities of an individual entrepreneur and/or those conducted at the request of the taxpayer) – until Dec 1, 2024.
• documentary inspections of taxpayers whose tax address as of the date of the beginning of the temporary occupation / hostilities / possible hostilities is in the relevant territories – until the last day of the month in which the temporary occupation / hostilities / possibility of hostilities are terminated, and in case of change of the location to another territory of Ukraine – until the date of state registration of the relevant change.
  
  At the same time, each type of territory provides for cases where the moratorium is not imposed. Herewith, the exception does not apply to all types of territories in case of a taxpayer's self-request and in case of violation by the taxpayer of the requirements of currency legislation in terms of compliance with the deadlines for the receipt of goods under import operations and/or foreign exchange earnings under export operations.
• actual audits at the location of taxable objects or tax-related objects that, as of the date of the beginning of the temporary occupation / active hostilities / possible hostilities, were located in the respective territories – until the date of the end of the temporary occupation / hostilities / possible hostilities.
  
  However, the tax audit moratorium in terms of the location of the relevant facilities in the territories of possible hostilities will not apply to taxpayers engaged in the production/sale of excisable goods, gambling, purchase/sale of foreign currency, and conducting business activities without state registration as a business entity.

Notably, the list of territories that fall under “temporarily occupied/ hostilities/possible hostilities” category was approved by the order of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine, dated 22.12.2022 № 309.

What about inspections on the payment of the Unified Social Tax?

The Law resumes documentary audits of the correctness of the accrual, calculation, and payment of the unified social contribution from Dec 8, 2023. However, until the termination or abolition of martial law such audits should be carried out considering the specifics set forth in the Transitional Provisions of the Tax Code.