Tax issues continue to be very pressing for business

07/ 03/ 2023

A full-scale war has been going on in the country for more than a year now, and transparent business has been holding the line, not only filling the state budget with taxes but also helping and supporting the army, doctors, and the population in need. At the same time, a huge number of entrepreneurs have suffered direct losses from the hostilities (about 40% of the community members, according to the survey), not to mention indirect losses. Surely, business understands how difficult the situation is for the country, how serious the losses are and how much money is needed to finance the war. Therefore, business is ready to continue supporting the country, because the goal is the same - Victory. However, there must be at least basic working conditions that the country is able to provide even during the war (especially if we are talking about the importance of attracting new investments): service, honesty and transparency of government agencies. Unfortunately, however, some areas of work still require significant improvement in these aspects, namely, the tax area. Thus, since the Tax Invoice Register resumed its functioning in the country (on May 27, 2022), the issue of their registration and, in general, VAT refunds has been a constant problem. From time to time, the Tax Service has ideas for changes, and from time to time the problem becomes more acute (as in October 2022). However, as of now, the problem has not been resolved, and businesses continue to suffer from blocking and difficulties with refunds. Most of the tax invoices that were blocked in October 2022, unfortunately, could not be appealed administratively, and companies will be forced to go to court, where, unfortunately, the proceedings may take years - and the working capital of companies will be blocked until then. The promised automatic unblocking based on tables of information does not work in practice. The registration system and the algorithm for unblocking invoices are designed so that at each stage manual intervention can interfere with the automatic operation of the system and create conditions for double taxation to fill the countrys budget. At the same time, throughout the entire period of martial law, companies report receiving requests from regional divisions of the State Tax Service of Ukraine to provide explanations for the companys declared losses. And the phrase memorized by the tax authorities that war is not a reason to declare losses... sounds especially defiant. Companies are denied acceptance of their annual reports if they declare their right to benefits for four types of taxes (land, rent for state and municipal land, environmental, and property) in the territories that have been occupied or where active hostilities have been conducted. For unknown reasons, the tax authorities also deny transparent companies the right to use the current provisions of the Tax Code regarding the impossibility of filing reports or the absence of primary documents due to the loss of such documents as a result of active hostilities or occupation. At the same time, there are also unfortunate cases related to the mobilization of key personnel. For example, when a small business mobilizes its director and one of its two employees, and it is during this period that the Tax Service begins to block tax invoices for an insufficient number of employees. Unfortunately, the explanations from the business are not taken into account, and the recommendation is to go to court, knowing that this is a very time-consuming and expensive procedure for proving justice. At the same time, the requirements for on-site or off-site inspections are becoming increasingly stringent - in the absence of full-fledged working conditions for businesses in some regions (lack of electricity, internet and safe living conditions), the tax authorities ask for huge volumes of documents, including primary documents, within a short time frame (e.g., 1 business day). Transparent Business believes that the constant increase of pressure on white businesses by regulatory authorities during the war is absolutely inappropriate! Therefore, the community asks to reconsider such approaches to working with transparent business and appeals to the Cabinet of Ministers of Ukraine and the Presidential Office to assist in protecting the legitimate rights and interests of business representatives. At the same time, the European Business Association calls for the immediate approval of the list of occupied territories and territories where active hostilities are being/were conducted for the purposes of applying tax benefits to businesses (the list approved by the Ministry of Reintegration, according to the official position of the Ministry of Finance and the Tax Service, determines the territories for providing purely social benefits to the population). In addition, the EBA asks to stop blocking tax invoices for the period of wartime, as the situation when a company wants to register its tax liabilities and pay taxes, while the tax system blocks this activity looks extremely strange. We hope that this time the voice of transparent business will be heard!

Surely, business understands how difficult the situation is for the country, how serious the losses are and how much money is needed to finance the war. Therefore, business is ready to continue supporting the country, because the goal is the same – Victory. However, there must be at least basic working conditions that the country is able to provide even during the war (especially if we are talking about the importance of attracting new investments): service, honesty and transparency of government agencies.

Unfortunately, however, some areas of work still require significant improvement in these aspects, namely, the tax area. Thus, since the Tax Invoice Register resumed its functioning in the country (on May 27, 2022), the issue of their registration and, in general, VAT refunds has been a constant problem. From time to time, the Tax Service has ideas for changes, and from time to time the problem becomes more acute (as in October 2022). However, as of now, the problem has not been resolved, and businesses continue to suffer from blocking and difficulties with refunds. Most of the tax invoices that were blocked in October 2022, unfortunately, could not be appealed administratively, and companies will be forced to go to court, where, unfortunately, the proceedings may take years – and the working capital of companies will be blocked until then. The promised automatic unblocking based on tables of information does not work in practice. The registration system and the algorithm for unblocking invoices are designed so that at each stage manual intervention can interfere with the automatic operation of the system and create conditions for double taxation to fill the country’s budget.

At the same time, throughout the entire period of martial law, companies report receiving requests from regional divisions of the State Tax Service of Ukraine to provide explanations for the company’s declared losses. And the phrase memorized by the tax authorities that “war is not a reason to declare losses…” sounds especially defiant.

Companies are denied acceptance of their annual reports if they declare their right to benefits for four types of taxes (land, rent for state and municipal land, environmental, and property) in the territories that have been occupied or where active hostilities have been conducted.

For unknown reasons, the tax authorities also deny transparent companies the right to use the current provisions of the Tax Code regarding the impossibility of filing reports or the absence of primary documents due to the loss of such documents as a result of active hostilities or occupation.

At the same time, there are also unfortunate cases related to the mobilization of key personnel. For example, when a small business mobilizes its director and one of its two employees, and it is during this period that the Tax Service begins to block tax invoices for an insufficient number of employees. Unfortunately, the explanations from the business are not taken into account, and the recommendation is to go to court, knowing that this is a very time-consuming and expensive procedure for proving justice.

At the same time, the requirements for on-site or off-site inspections are becoming increasingly stringent – in the absence of full-fledged working conditions for businesses in some regions (lack of electricity, internet and safe living conditions), the tax authorities ask for huge volumes of documents, including primary documents, within a short time frame (e.g., 1 business day).

Transparent Business believes that the constant increase of pressure on white businesses by regulatory authorities during the war is absolutely inappropriate! Therefore, the community asks to reconsider such approaches to working with transparent business and appeals to the Cabinet of Ministers of Ukraine and the Presidential Office to assist in protecting the legitimate rights and interests of business representatives.

At the same time, the European Business Association calls for the immediate approval of the list of occupied territories and territories where active hostilities are being/were conducted for the purposes of applying tax benefits to businesses (the list approved by the Ministry of Reintegration, according to the official position of the Ministry of Finance and the Tax Service, determines the territories for providing purely social benefits to the population). In addition, the EBA asks to stop blocking tax invoices for the period of wartime, as the situation when a company wants to register its tax liabilities and pay taxes, while the tax system blocks this activity looks extremely strange.

We hope that this time the voice of transparent business will be heard!