The pre-war and wartime years cannot be considered equivalent for comparing and determining which businesses are subject to tax audits, – ЕВА

06/ 11/ 2023

The European Business Association understands the expectations of our partners regarding the improvement of the economic situation in the country, as this aspect is crucial for the stable operation and growth of businesses. Furthermore, the EBA fully supports the importance of compliance with the countrys legal norms, particularly in the context of tax audits. At the same time, some provisions of the recently registered draft law No. 10016-d, which abolishes the moratorium on tax audits, still raise concerns within the community. The draft law establishes specific criteria for determining which taxpayers will be subject to audits. These criteria include the average level of profit tax payment, the average salary level (if it is below the industry average), and similar factors. The reference year for comparison is 2021, which is the pre-war year. However, according to the business community, the pre-war period cannot be considered a benchmark for comparing the level of tax payments in 2022-2023 and in all subsequent wartime and post-war periods. Some businesses may have experienced a significant drop in income and, consequently, paid lower corporate taxes. Moreover, the process and logic of determining the average value are of interest. This appears to be a rather subjective criterion that heavily depends on the industry, geographical location, and other factors related to the business. However, according to the draft law, the determination and monitoring of the average value will be the responsibility of the State Tax Service. Therefore, the question arises about the logic of having the same entity both define and monitor these criteria. Taking the above into consideration, the community suggests that, for comparison, only the indicators of the previous quarter of the current (war) year should be used. Furthermore, even in wartime conditions, it is essential to provide businesses with a degree of planning (to the extent possible within the country). Therefore, changes to tax legislation should be implemented about the time required for planning audits and the notification period for taxpayers. As a result, the EBA proposes to postpone the resumption of documentary audits until 2024. Additionally, the European Business Association requests specific attention to the situation concerning a significant number of relocated businesses that, following the onset of martial law, changed their tax registration location but were unable to move all accounting documents due to threats to the individuals responsible for their storage. These companies should not be included in the audit schedule, or at the very least, should not be subjected to fiscal pressure, as is sometimes the case with demands for various primary documentation and the imposition of penalties in its absence. This should also apply to businesses operating in territories listed in the approved list of areas where military actions have occurred or are temporarily occupied by the russian federation. Therefore, the European Business Association appeals to the Chairperson of the Verkhovna Rada of Ukraine Committee on Finance, Taxation and Customs Policy, Danylo Hetmantsev, and the heads of parliamentary factions to consider these proposals in their further work on draft law No. 10016-d. The focus of supervisory and law enforcement agencies must remain on illegal businesses that conceal their income and engage in misconduct. We sincerely hope that there will be no fiscal pressure on transparent businesses that already faithfully pay their taxes and all necessary contributions every month.

Furthermore, the EBA fully supports the importance of compliance with the country’s legal norms, particularly in the context of tax audits.

At the same time, some provisions of the recently registered draft law No. 10016-d, which abolishes the moratorium on tax audits, still raise concerns within the community. The draft law establishes specific criteria for determining which taxpayers will be subject to audits. These criteria include the average level of profit tax payment, the average salary level (if it is below the industry average), and similar factors. The reference year for comparison is 2021, which is the pre-war year.

However, according to the business community, the pre-war period cannot be considered a benchmark for comparing the level of tax payments in 2022-2023 and in all subsequent wartime and post-war periods. Some businesses may have experienced a significant drop in income and, consequently, paid lower corporate taxes. Moreover, the process and logic of determining the average value are of interest. This appears to be a rather subjective criterion that heavily depends on the industry, geographical location, and other factors related to the business. However, according to the draft law, the determination and monitoring of the average value will be the responsibility of the State Tax Service. Therefore, the question arises about the logic of having the same entity both define and monitor these criteria.

Taking the above into consideration, the community suggests that, for comparison, only the indicators of the previous quarter of the current (war) year should be used. Furthermore, even in wartime conditions, it is essential to provide businesses with a degree of planning (to the extent possible within the country). Therefore, changes to tax legislation should be implemented about the time required for planning audits and the notification period for taxpayers. As a result, the EBA proposes to postpone the resumption of documentary audits until 2024.

Additionally, the European Business Association requests specific attention to the situation concerning a significant number of relocated businesses that, following the onset of martial law, changed their tax registration location but were unable to move all accounting documents due to threats to the individuals responsible for their storage. These companies should not be included in the audit schedule, or at the very least, should not be subjected to fiscal pressure, as is sometimes the case with demands for various primary documentation and the imposition of penalties in its absence. This should also apply to businesses operating in territories listed in the approved list of areas where military actions have occurred or are temporarily occupied by the russian federation.

Therefore, the European Business Association appeals to the Chairperson of the Verkhovna Rada of Ukraine Committee on Finance, Taxation and Customs Policy, Danylo Hetmantsev, and the heads of parliamentary factions to consider these proposals in their further work on draft law No. 10016-d. The focus of supervisory and law enforcement agencies must remain on illegal businesses that conceal their income and engage in misconduct. We sincerely hope that there will be no fiscal pressure on transparent businesses that already faithfully pay their taxes and all necessary contributions every month.