Master GR stroke
"GR strategy is an individually developed set of actions and measures aimed at ensuring that the State Fiscal Service considers and takes a reasoned and lawful decision on a complaint from a taxpayer".IRYNA KALNYTSKA, PARTNER, HEAD OF THE TAX LAW PRACTICE AT GOLAW LF, EXPLAINS
— A tax audit is what the director and chief accountant of an enterprise fear most of all. How relevant is this risk for business today?
— For business, the issue of tax audits is still as relevant today as it has always been. The website of the State Fiscal Service of Ukraine (SFS) provides an updated routine tax audit schedule almost every month. And if a company is not listed at the beginning of the year, this does not mean that it will not be included in this schedule, for example, next month. It is also worth noting that the number of unscheduled inspections has significantly increased; even an untimely or incomplete, according to the SFS, response to the relevant request by the tax authority may be the basis for carrying out a tax audit.
Unfortunately, the realities are such that most audits lead to additional tax liabilities and penalties and, as experience has shown, the greater the turnover of a taxpayer, the greater the sum of additional charges.
Such a situation may lead to more serious consequences. For example, the head and chief accountant of an enterprise can be charged with a criminal offense for tax evasion. It can also entail reputation risks for the company, which are often more significant for a business than the sum of additional charges.
— What should an enterprise do if a tax audit is inevitable?
— It is extremely important to start preparing for it immediately, especially if the company is already included in the tax audit schedule. The main actions may be as follows: approval of internal rules and regulations for the enterprise as a whole, including with respect to accounting and tax policies; audit of existing policies; training for employees; audit of the main business transactions documentation, especially with regard to transactions with non-residents and those related to rendering services and performing works. At this stage, we would recommend that the company enlist qualified legal advisors to conduct such a tax audit, since it is a high-quality preventive measures that will help to avoid enormous sanctions in the future.
— If, following the results of the audit, additional tax liabilities and penalties are imposed, what actions should the company take?
— The majority of companies are of the opinion that it makes sense to immediately challenge in court tax assessment notices received following the results of an audit, skipping the administrative appeal stage. Based on our positive practice, we, as tax advisors, can safely assume that the administrative procedure for filing an appeal should not be excluded from the list of efficient ways to protect your rights. This is confirmed by the official statistics of the SFS, according to which the fourth part of tax assessment notices was canceled in full or in part precisely as a result of consideration of administrative complaints.
The judicial appeal process can be extremely expensive for an enterprise, especially if the sum of the tax assessment notice is large, since the legal fee for legal entities today is 1.5 % of the value of the claim. In addition, legal proceedings may be delayed for years if the Supreme Court remands the case for a new trial.
An appeal against a tax decision through administrative proceedings by filing a complaint with the SFS will enable the saving of time and money, since the fee for filing a complaint is not provided for. Moreover, in the course of such an appeal, a positive image of the company that is open to dialog can be formed and in the event of an unsatisfactory decision by the SFS, the company will still have the possibility of a judicial appeal. At the same time, in order for this way to be efficient, it is crucial to ensure professional support for the case, including the use of a GR strategy.
— What is the essence of such a strategy?
— A GR strategy is a series of activities related to requesting assistance from public authorities and other structures that may, exclusively within the framework of the legal environment, influence the legal decision rendered by the fiscal authorities and assist in canceling the illegal results of tax audit as part of the administrative appeal against its results. In other words, the GR strategy is a package of actions and measures individually developed for a taxpayer and aimed at ensuring that the SFS does not give the taxpayer's complaint the runaround, but that the SFS considers it and adopts a reasoned and legal decision.
In order to draw attention to the illegal actions of the SFS and encourage it to adopt a lawful and well-considered decision, you can go, for example, to the Business Ombudsman Council, the European Business Association, the American Chamber of Commerce in Ukraine, the Cabinet of Ministers of Ukraine, the President of Ukraine, Members of Parliament of Ukraine with a request to submit an inquiries from a member of parliament. In the case of an international company, you should contact the National Investment Council, the Investment Support Office, and the head of the SFS directly.
The GR strategy is always individual. That is, it is developed on the basis of specificity and area of activities of a particular company and may depend on many factors; it always includes formation by lawyers of a legal position and further support for an administrative appeal: preparation of complaints, representation of interests during their consideration, communication with the state authorities involved. It may also include a controlled PR campaign in the media and contacting the embassy of the foreign investor’s country in order to draw attention to illegal actions taken by the Ukrainian fiscal authorities regarding foreign investors.
But such appeals should also be reasoned and well-considered so as not to have the opposite effect. Therefore, for a successful appeal and efficient GR strategy, it is important that the taxpayer consults qualified tax advisors who will help to protect his/her interests before receiving the tax assessment notice and not on the last day of the possibility to administratively appeal against such a notice.
— Do you often use such methods to protect the interests of clients in your practice? How successful is the appeal process with the use of a GR strategy?
— We have an individual approach to each of our clients: we try to offer a solution that will maximize protection of the client's interests at minimum cost. If there is such an opportunity, we do not go immediately to court (which seems to many the most obvious and simple way of protecting a client's interests), but we use other efficient means.
In our practice, tax assessment notices are often canceled in full or in part at the administrative appeal stage itself. Not so long ago, in an administrative procedure with the use of a GR strategy and the involvement of the Business Ombudsman Council, while protecting the interests of a foreign investor, we were able to cancel 90 % of all tax assessment notices to the sum of more than UAH 75 million.