"One can have a dispute with the tax agency and it is even necessary, since there might be no other mechanism to improve a situation globally and to protect a business in particular." VADIM MEDVEDEV, COUNSEL AT AVELLUM LAW FIRM, BELIEVES
— Ukrainian tax legislation has significantly changed for the last few years. Did this cause a shift of emphasis in tax disputes? What issues do customers apply with more often at present?
— In actual fact, changes in legislation and the constantly changing practice of the tax authorities is causing a shift of emphasis in tax disputes. Interestingly, disputes over value added tax refunds have practically disappeared over the last year. This is due to the introduction and change in operating procedure of the value added tax refund register. While there were hundreds of such cases in the past, we faced only one dispute in this area last year.
We observe the legislator trying to limit room for technical abuses by the tax authorities. As a result, there was a trend towards reducing the total number of technical disputes regarding abuses, and the not completely correct behavior of representatives of the tax agencies.
Tax disputes are becoming more complicated, requiring a deeper understanding of the fundamentals of tax legislation, basic concepts, as set out in the Tax Code, and a higher level of expert knowledge for participation in them.
— Can you name the faults of taxpayers that result in disputes with the tax authorities?
— There are two most common groups of mistakes connected with subsequent additional charges. Taxpayers very often rely on the fact that the tax authority does not study any transaction, aspects or nuances of those transactions that have been conducted. And this might be one of the most common and most calamitous mistakes. Information tends to appear absolutely unexpectedly in the modern world, since its exchange both within the country and between states amplifies every year. Thus, you should not even rely on the fact that the tax authority is failing to learn about a particular contract or transaction.
The second category of disputes is connected somewhat with the fact that the taxpayer underestimates the level of expertise of the tax authorities. Sometimes, we hear from our clients that the risks, which we identify and draw their attention to, are too difficult and phantom-like for the tax authorities. Nevertheless, the quality of the tax authority's expertise is increasing very quickly both at the level of head office and at the level of office of large taxpayers, in spite of the fact that the questions raised by tax specialists of the taxpayer sometimes lag behind the leading practices in private business. I repeat: you should not underestimate the tax authorities, since such an erroneous position is also the cause of tax disputes.
— How often are the decisions of tax authorities appealed against in the administrative (not judicial) procedure after adoption of the corresponding legislative changes? How effective is this mechanism for protecting the interests of taxpayers?
— This part of reform of tax legislation requires substantial work in order to improve it. Nevertheless, there are some changes for the better. While an administrative appeal was a way of saving time to prepare for judicial proceedings three years ago, today we can see that the central tax authority periodically revises decisions and independently reverses them. Yes, this is not always so, and one should have a very strong position so as to attain a positive ruling. In addition, tax consultation received by taxpayers, as well as the participation of the Ministry of Finance of Ukraine and the Business Ombudsman in the process are of help in many situations. It is a tribute to these bodies — their position is more liberal towards taxpayers in many cases, and the tax agency does listen to it.
Independent arbitration is now the most topical issue in the world community. We failed to get a positive response from our state as to implementation of this institution, but we hope that this option will be considered in the near future. I note that a similar arbitration court has proved itself to be a faster and more effective way of settling disputes. It would be appreciated if our taxpayers had the option of arbitration considering tax disputes.
— Tax dispute sometimes develop into a criminal prosecution. What tactics of legal protection would it make sense to observe in similar, connected proceedings?
— There is no universal recipe. There was the hope about a year ago that the practice of criminal prosecution for unproven tax assessment notices would be terminated due to changes in legislation. Moreover, after the liquidation of the Tax Police, it appeared that this part of administrative pressure on business would disappear. But really we can see that this is not true. Tax crimes are still investigated along with other categories of cases, such as, for example, sham businesses. This problem still exists, though its scale has shrunk.
In such cases, it is very important to follow all the procedural requirements and establish all procedural questions, especially regarding the investigative jurisdiction. The Supreme Specialized Court of Ukraine on Civil and Criminal Cases sent out a letter last year in which it recognized that violation of the investigative jurisdiction rules results in inadmissibility of the evidence gathered during the pre-trial investigation. Therefore, it is important that the taxpayer monitors compliance by law -enforcement agencies of the provisions of criminal procedure legislation in such situations.
The next measure, though a rather precautionary one and not for protection, is a firm checking its own counterparties. We believe that the tax agency requirement on checking a chain of counterparties for delivery of goods is still illegal, but the "first" counterparty, which the taxpayer works directly with, should be checked.
— What are the latest trends in the practice of administrative courts in tax disputes? Is it worth wasting time and effort on disputes with the fiscal authorities, that is, with the state?
— It is still impossible to protect oneself from tax disputes in our state. Periodically, clients ask questions, which would not have arisen at all in normal, civilized administrative practice on the part of the tax authority. Sometimes, there are charges in a situation, when clients pay much more in taxes than the average level in their industry. It makes no sense in such a situation to say that it is possible to prevent tax disputes.
At the same time, one can have a dispute with a tax agency and it is even necessary, since there might be no other mechanism to improve a situation globally and to protect a business in particular. Experience shows that protection of the rights is primarily associated not with legislative changes, but with active protection of rights by entities in business relations entities in the course of a judicial proceeding.
It should be noted that the Supreme Administrative Court of Ukraine in general, when resolving tax disputes, approaches very carefully the consideration of complex legal issues and adopts (especially recently) well-thought-out and reasoned decisions under the cassation procedure, protecting the rights and legitimate interests of taxpayers.
We always tell our clients: when the taxpayer is right, he should be ready to protect his interests in a judicial proceeding, otherwise there will always be a problem. The current situation might be the very case, when "you cannot do good without using your fists", and disputes with the tax agency are a normal phenomenon, for which all should be ready.