Tax Practice


Born in 1969 in Boyarka, Kyiv Region.Education: International Relations Institute at Taras Shevchenko National University, diploma in international law; John Marshall Law School (Chicago, USA), LLM degree. He focuses on international law and heads the team in foreign investment, M&A, corporate tax, real estate, energy and infrastructure. His professional experience includes supporting clients during cross-border transactions on business restructuring and optimization of corporate structure, while industry expertise covers agribusiness, alternative energy, banking & finance. Recognition: featured in Legal 500, Best Lawyers and Corporate International for corporate law and M&A, real estate, agribusiness and energy.

Invitation to Investment

“Tax reform continues to enhance Ukraine's attractiveness for foreign investment”, says convinced Sergiy Oberkovych, Senior Partner at Gvozdiy & Oberkovych Law Firm

— Is tax reform having any positive impact on business?

— The vanishing presence of Soviet legacy in tax legislation is still causing a certain negative perception for Ukraine within business circles. Previous attempts to get rid of outdated legislation made by Governments in the first decades of independence were not entirely efficient, and investors were forced to cope with a degree of uncertainty and lack of consistency in tax laws, as well as with the arbitrariness of tax authorities in exchange for a high return in business and future positive investment prospects for the Ukrainian economy.

However, in recent years the situation has changed significantly, and all forecasts made by analysts show it is continues to change steadily for the better. According to the results of the latest tax reform, the Tax Code has been thoroughly revised and modernized, archaic provisions have been abolished, including the distinction between book-keeping and tax accounting, and the tax administration process has been simplified. By signing the Association Agreement with the European Union, Ukraine undertook even more ambitious commitments to approximate its tax laws to European standards, especially in the field of good governance and protection of taxpayers’ rights.

Positive trends and precedents now dominate in court practice for the protection of taxpayers in legal disputes with tax authorities. Thus, while in 2006 the chances of an effective appeal being brought against tax penalties in court were just 38%; today the probability of a decision in favour of the taxpayer has increased by more than double. When issuing a ruling in such cases, Ukrainian courts began to consider generally-accepted principles of tax law, such as “individual liability of a taxpayer”, “business purpose” and refer to well-known made by the European Court of Human Rights as well as international doctrines.

As a result, tax reform has become one of the factors that have significantly raised the investment attractiveness of Ukraine in just two short years. Starting from 2013 to 2015 and thanks to effective reform of the tax system, Ukraine has climbed the Ease of Doing Business rank by 42 upward steps. In a separate tax ranking Ukraine rose by 49 steps alone over the last 12 months.

In addition to tax reforms, the investment attractiveness of Ukraine in the scope of tax law is also predetermined by the availability of numerous international treaties for the avoidance of double taxation. According to the Ukrainian Justice Ministry, as of 2015 Ukraine had signed treaties for the avoidance of double taxation with more than 80 countries. With a wide network of agreements and being a party to the Convention on Mutual Administrative Assistance in Tax Matters, Ukraine is a recognised “white” tax jurisdiction, a fact which automatically guarantees a high degree of confidence on the part of tax authorities in foreign countries. The advantage for investors is also that the tax legislation of Ukraine is still in its infancy, which provides an opportunity for lobbying provisions that are most effective for both business and state tax policy.

The active process of reforming the tax system is also supported by reforms in the administrative area, intensive development and implementation of anti-corruption laws and strong social support for the reform process in society itself.


—Improvement in the tax audit procedure was named among the most consistent changes in tax laws in the last fiscal year. Is it really an improvement?

— Interaction between a taxpayer and a tax authority in the course of a tax audit in Ukraine has always been tense because of the “punitive” shade of unscheduled audits and their generally adverse consequences. That is why tax audits are still perceived by taxpayers solely as a pretext to impose penalties, so dialogue between the taxpayer and the tax authority usually fails.

The recent amendments to the Tax Code of Ukraine intended to somehow limit the powers of tax authorities and return to tax audits their true control function.

Thus, audits of legal entities and individual entrepreneurs with an income of up to 20 million Hryvnias in 2015 and 2016 for the previous calendar year may be conducted only with the permission of the Cabinet of Ministers of Ukraine, in response to the request of the business entity itself or on the basis of a court decision or requirements of criminal procedural laws of Ukraine.

The provision which was added to Article 78 of the Tax Code of Ukraine, and which  prohibits tax authorities from conducting unscheduled audits of a taxpayer in case the issues covered by the subject of such audit were covered by the previous audits of the taxpayer is also favourable for large business. These changes will help to effectively counteract the pressure of tax authorities on taxpayers in the form of multiple audits of the same counterparties and with respect to the same periods.

Furthermore, there is a positive effect in the change in wording of the Tax Code related to requests filed for the purpose of obtaining information and its documentary proof. Failure to reply to the said request from the tax authority shall be the grounds for an unscheduled audit of the taxpayer, which in the past led to abuse by tax authorities and filing of unreasonable requests or requests to which the taxpayer knowingly was unable to respond. As a result of these amendments, the tax authorities were deprived of the opportunity to send requests only on the basis of assumptions on “possible violations of tax laws by the taxpayer”. Now, tax authorities must clearly specify in their request the facts that are indicative of violation of tax laws by the taxpayer and disclose the sources of information on the particular violations.


— What are the opportunities available for appeal?

—It should be noted that procedural and tax laws of Ukraine allow a business entity to use a variety of procedural remedies in order to challenge the results of tax audits.

In particular, in case of issuance of an illegitimate tax audit order the most popular method of protection is to file a claim for revocation of such order. When using this remedy, taxpayers should take into account the fact that the applicable court practice in this area is variable. Thus, the Supreme Administrative Court of Ukraine indicates, in some of its decisions, that the audit order is not a document that creates rights and obligations for the taxpayer, it is only a managerial decision issued in pursuance of job duties of the head of the tax authority and cannot be appealed. At the same time, our studies suggest that some practice of successful appeals against such orders does exist, particularly in the court of appeal and cassation, and even in the Supreme Court of Ukraine. This is possible subject to proper wording of the legal position, with the emphasize put on such points as the actual creation of obligations for taxpayers in result of the order (obligation to allow tax officers to audit, the duty to provide documents for audit) and the possibility of adverse effects for the taxpayer as a result of an illegitimate audit.

Recently, the practice of appeals against orders has shown a new trend, according to which an order may be appealed against, only if the audit based on such order has not been actually conducted yet. Admission of tax authorities to carry out an audit eliminates legal consequences of possible offences committed by the tax authority in scheduling and conducting the tax audit. Such conclusions have been reached by the Supreme Court of Ukraine and they have, in fact, become mandatory for use by lower courts. If this practice is followed, then the only remedy against an illegitimate tax audit is the non-admission of tax officials to conduct the audit. At the same time, based on our practical experience we would like to note that the decision on non-admission must be carefully considered, as such action may have negative consequences for the taxpayer (e.g., seizure of property) and significantly exceed the negative consequences that would have occurred in the case of an illegitimate audit. Moreover, the Supreme Court stated a new legal position recently. In accordance with this position, the failure by a tax authority to comply with the tax audit procedure leads to invalidation of the audit and the absence of legal consequences thereof, regardless of the fact of a company’s admission of tax officers to conduct the audit. Thus, every audit should be considered individually and all risks should be assessed prior to making a decision.


— Is it possible to recognizeactions related to a tax audit based on an illegitimate order as unlawful?

— It ispossible.The success of the appeal in this case also depends on substantiation of the claim. In particular, the court should be provided with evidence of inconsistency of the reasons for the audit, as is specified in the Tax Code. For example, in case the audit is conducted on the basis of a failure to provide information upon a request, the weaknesses of the request should be demonstrated, such as failure to provide facts of violation of tax laws or sources of information about violations, procedural shortcomings of the request registration, etc. These types of claims are also advisable in case tax officers violate the procedural requirements of the Tax Code on audits: failure to provide the taxpayer with a copy of the audit order, audit assignment, etc.


And what about interim remedies in tax disputes?

The third judicial remedy is a petition for an interim remedy. We recommend this remedy in parallel with one of the two methods described above. In the petition it is possible to approach the judge with a motion to suspend the tax audit or prohibit the tax authorities from making any conclusions based on the audit in the form of acts, certificates, tax assessment notices, etc. Court practice shows that it is quite difficult to get satisfaction of such petitions, but if satisfied they guarantee to the taxpayer a high level of protection against any possible actions on the part of the tax authority.

We would like to emphasize that the result of using any of these remedies depends directly on the level of professionalism and completeness of the wording of the taxpayer’s legal position. Timely assistance from experienced legal advisers will ensure the success of a taxpayer’s rights protection and the setting of fair relations with tax authorities.