Vallue added tax budget reimbursement: events are moving on

22/ 03/ 2019

Bohdan DUTKOVSKY

Counsel at OSTIN Law Firm, Insolvency Manager, Attorney

Value added tax (VAT) has always been and perhaps will remain interesting both for the state in terms of generating public revenues, as well as for tax payers, who, by virtue of legal requirements, are simply obliged in some cases to be registered as VAT payers and to deal with it. Such obligation for tax payers is stipulated in paragraph 181.1 of article 181 of the Tax Code of Ukraine – aggregate surplus of total sum in the amount of 1 (one) million  UAH (excluding VAT) from the operation  of supplying goods/services subject to taxation under Section  V of the Tax Code of Ukraine, including usage of local or global computer network, that is charged (payed) for such entity (person) during the last 12 (twelve) calendar months.

Of course, since the majority of business entities exceed such a turnover during the year and, upon conditions that they cannot afford to be subject to simplified tax system without VAT payment, they are just obliged to play by the rules of Section V of the Tax Code of Ukraine.

By playing these rules and approaching the moment of VAT payment, such a business entity should be guided by the provisions of article 200 of the Tax Code of Ukraine, which stipulates that  the tax amount to be paid to the state budget of Ukraine or  that is subject to budget reimbursement is calculated as difference between the  amount of tax liability in the reporting (tax) period and the amount of tax credit in such (same) reporting (tax) period.

In this legislative provision the tax payer’s behavior model has been already fixed and it consists either in paying a tax to the state budget or in the budget reimbursement. When the difference between the amount of tax liability and the amount of tax credit is positive, it has to be paid to the state budget. If the difference is negative, a tax payer has the right to ask the state to return it on his current bank account that is called budget reimbursement of VAT.

The budget reimbursement VAT procedure, which is regulated by the par. 200.7 – 200.23 of article 200 of the Tax Code of Ukraine and came into force on 01 January 2017, was established by the Law of Ukraine «On amendments to the Tax Code of Ukraine for improving of investment climate in Ukraine» dated 21 December 2016 No. 1797-VIII. Briefly speaking on its essence, it can be resumed that it consists in automatic introduction of the relevant claim of VAT payer by the tax authority into the Register of claims on returning the budget reimbursement during the business day when the respective tax return is received by the tax authority. Further, in case of adjustment by the tax authority the amount of budget reimbursement, specified in the application, should be transferred to the taxpayer’s current bank account by treasurer’s office within 5 (five) business days from the date of such adjustment.

However, as mentioned above, the described procedure applies as from 01 January 2017 but prior to that date it was entirely different and did not provide the rule for submission by the tax authority to the Register of claims on returning the budget reimbursement of the relevant claim of VAT payer. It consisted in sending by the local tax authority its conclusion on VAT reimbursement amount to the treasurer’s office, simultaneously, the Central Body of the State Tax Service had to send to such treasurer’s office generalized information on volumes of VAT budget reimbursement. Only after receiving these two components of information from tax authorities of local and central levels, the State Treasury Department implemented VAT budget reimbursement.

However, not always the tax authorities accomplished their duties in a proper manner,and therefore either conclusion of the local tax authority or summarized information of the central tax authority could simply not reach the treasurer’s office … and didn’t reach quite often.

On this base taxpayers applied to the courts with   claims to oblige the tax authorities to fulfil their obligations on sending conclusions and/or generalized information to the state treasurer’s office and they  even received  positive court decisions   in their favor, which fixed the relevant obligations of the controlling bodies and imposed on the latter obligations to send conclusions and/or generalized information to the treasurer’s office. However, starting from 2017 the VAT reimbursement procedure  has changed and the  taxpayer’s court decisions, which satisfied their claims to the controlling bodies for the submission of conclusions and / or generalized information remained unfulfilled.

In particular, such an example could be found in the court decision of the Cassation Administrative Court of Supreme Court dated 25 May 2018 in court case No. 826/13238/16, where the omission to act by the central tax authority  by virtue of failing to provide generalized information to the treasurer’s office was recognized as unlawful and such tax authority was obliged to take appropriate action. However, despite of obtaining the positive court decision the taxpayer, was not able to enforce it.

Nevertheless, it doesn’t mean that a tax payer has hopelessly lost the right to obtain honestly declared and confirmed by the court VAT budget reimbursement. The impetus  for such conclusion is, among others, the decision of the Grand Chamber of the Supreme Court dated 12 February 2019 in court case No.826/7380/15, which confirmed the decision of the court of appeal, which not only recognized   the unlawful actions of the tax authority  regarding failure to provide the appropriate conclusion   to the   treasurer’s office, but also obliged to recover from the state budget through treasury service  in favor of a taxpayer the VAT reimbursement amount and furthermore late payment fees! By the way,  the ground of referring this case to hearing by the Grand Chamber of the Supreme Court was the motion provided by a taxpayer, who correctly pointed out the  inefficiency of the method of protection of his violated right by simply recognizing as unlawful the omission of act by the controlling body   regarding the failure to provide  an appropriate conclusion  to the treasurer’s office.

The aforementioned decision of the Grand Chamber of the Supreme Court has a certain importance in view of the fact that it has confirmed a lawfulness of collecting a VAT budget reimbursement from the State Treasury Department under the relationships that had appeared prior to the introduction of the current VAT reimbursement procedure, which is in force starting from 01 January 2017. Essentially the Supreme Court confirmed lawfulness of judicially levying the budget reimbursement of VAT? which had been declared by «old rules», and now taxpayers who are holding such unfulfilled judicial decisions that came into force have an open area to move forward the protection of their right on obtaining such a long-awaited VAT reimbursement. The only thing left is to find a way to implement these desicions, however, this appears to be rather a technical issue.

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