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An associate from ARIO Law Firm successfully had nearly 6 million UAH in tax notices and decisions canceled for a client

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Tax Law

17 May 2024

The Eighth Administrative Court of Appeal upheld the decision of the lower court to cancel tax notices amounting to nearly 6 million UAH for a client. The client's interests in courts were represented by Natalia Oleksiv, an attorney from Ario Law Firm.

Following the client's cessation of activities as a sole proprietor, the tax authority conducted an unscheduled off-site documentary inspection of his financial and business activities over the past five years.

"Disagreeing with these conclusions, we filed objections to the inspection report along with additional documents, including a letter from the counterparty confirming agreement between the parties regarding the allocation of paid funds. Following the review of such objections, the tax authority conducted a subsequent unscheduled inspection," explained Natalia Oleksiv, an attorney at Ario Law Firm.

After two tax audits, the tax authorities determined that the plaintiff had allegedly understated VAT by a total of 2.65 million UAH and, consequently, had failed to register tax invoices for this amount. As a result, the Tax Service issued tax notices-decisions regarding the reassessment of VAT and penalty sanctions, including those for the absence of tax invoice registration. The total amount of all reassessments amounted to nearly 6 million UAH.

"Our objective was to demonstrate the actual business transactions conducted by our client, their respective volumes, and the true intended purpose of the funds received. Therefore, we needed to compile a body of evidence to substantiate our stance," explained an associate Natalia Oleksiv. "Both levels of the courts considered all of our arguments and concluded that the tax authorities had failed to ascertain all the details of the client's business activities during the inspection, resulting in erroneous inspection findings."

Specifically, our attorney established that the parties involved in this case had agreed that the funds from the counterparty to our client were transferred solely for the payment of services in accordance with the work completion reports provided by the client prior to the audit. Additionally, we confirmed that discrepancies in the reference numbers of some payment documents, compared to those actually issued, were due to technical errors when filling out the "purpose of payment" field in the payment order. This information was conveyed to the Tax Service through relevant letters and reconciliation reports. As a result, upon receiving these documents, the tax authority had no grounds to disregard the payment allocation agreed upon directly by the participants in the business transactions.