Challenging the results of tax audits

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Knowing about the process of tax audits is important for every entrepreneur. Someone has already gone through this, someone is just getting ready, but in any case it’s an unpleasant experience, and attorney’s tips will be handy. We will briefly outline the main facts that are good to know before an audit, and tell you how we can help you with that.

How often is auditing done?

According to the law, an audit is a scheduled event that is conducted according to a special plan (Article 77 of the Ukrainian Tax Code). The frequency of audits depends on the tax avoidance risk group that an enterprise belongs to:

  • Low – audits are carried out no more than once every three calendar years.
  • Average – no more than once in two years.
  • High – no more than once a year. 

In other words, tax authority is not allowed to conduct an audit more often than once a year. An exception is the reorganization or liquidation of an enterprise.

An important detail – we are talking about a calendar year, which starts on January 1 and ends on December 31. That is, if you had an audit in December 2016, then the next audit can be scheduled for January 2017, and this will not be a violation. But then, the next check after that should be carried out not earlier than January 2018.

Can I refuse the tax office?

It is possible if audit documents contain errors. Based on the audit order, a company receives a notice and a copy of the order. The notice must be signed by the head of the inspection body or their deputy. If you see a facsimile on the notice, it is invalid. A notice must arrive no later than 10 days before the audit begins.

Also, an entrepreneur receives an audit referral document that must contain the following information:

  • date of issue;
  • name of the state tax service;
  • requisites of the order for conducting an audit;
  • name and details of the audited enterprise (surname, name of the audited individual – taxpayer);
  • purpose of the audit;
  • type of the audit (scheduled), reasons for conducting the audit;
  • the start date and duration of the audit;
  • the position and surname of the official conducting the audit.

If there is insufficient information in the referral document or it contains errors, an entrepreneur has the right to refuse the tax office to conduct an audit

How long does it take to check documentation?

Legislation does not set any deadlines for documentation audit, but one can refer to the set time limit for keeping records which is three years or 1,095 days. After this time the documents can be destroyed, and then the audit becomes meaningless.

Legal assistance

The extended economic crisis, undeclared war and decline in business activity led to a sharp decrease in tax revenues to the budget. This made the tax authorities more active. Audits became more frequent, and the behavior of the inspectors became more aggressive. This fact is confirmed by the studies of The EY Middle Market survey and our personal observations.

At the same time, despite the declared fight against corruption, the inspectors are still receiving an unjustified reward for turning a blind eye to some far-fetched violations. The amount of «gratitude» payments can reach hundreds of thousands of hryvnias. If an entrepreneur refuses to show «gratitude», tax officers start using pressure methods like blackmailing or even launching a criminal case.

That is why we recommend that you invite an attorney for each audit. In our presence, the inspector will not be able to pressure you – for example, in order to withdraw documents without an appropriate act or to refer to the rule of law, which has nothing to do with the matter.

At the end of the audit, we will issue a reasonable disagreement with its results, prepare a legal basis for applying to higher authorities, and challenge the tax notice-decision. If the pre-trial proceedings do not help, we will prepare the documents and apply to court.

We understand that the state needs to find ways of increasing its budget. But we believe that it is necessary to do it legally, without compromising the rights of honest taxpayers. If an audit is waiting around the corner, please contact us – let’s fight for your rights together.

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