TAX INSPECTIONS IN WAR-TIME: PERMITTED OR NOT?

Tax inspections shall not be initiated, and initiated inspections shall be suspended during war-time. But still…

The state doesn’t leave taxpayers without a supervision over taxation. Thus, it is permitted to conduct the following tax inspections during the war-time:

• Desktop inspections of tax declarations or of adjusting calculations thereto conditioned that the taxpayer had filed an application for VAT budget refund;
• Desktop inspections of tax declarations or of adjusting calculations thereto submitted by IV group single-tax payers (i.e. by agricultural companies); and
• On-site inspections.

All documentary inspections are prohibited!

UPD: Some amendments to the Tax Code of Ukraine had been made as of the date of publishing this article. Thus, the Parliament of Ukraine permitted to conduct some types of documentary inspections, in particular, inspections related to reorganization of a company, to VAT budget refund and to compliance with foreign currencies regulations.

Before the war, tax inspections of companies and individual entrepreneurs were not prohibited. The restrictions were introduced afterwards.

It is remarkable, that, as a general rule, there are no specific provisions as to the possible end of above-mentioned restrictions (e.g., as of the moment of termination of martial law status). Therefore, renewal of all types of tax inspections will require additional amendments to the law.

What restrictions are significant for taxpayers?

There are three types of tax inspections, in particular:

• Desktop inspections, i.e. tax reviews, which are conducted at the tax authority’s office based on tax declarations and tax databases administered by the tax authorities;
• Documentary inspections, i.e. tax reviews aimed to verify timeliness, accuracy and fullness of calculations and payments of all taxes (fees) as well as taxpayer’s adherence to law requirements. Such inspections might be carried out at the taxpayer’s office, tax body’s office or at the location of taxable items.
• On-site inspections, i.e. inspections conducted by visiting the places of taxpayer’s commercial activity, places of location of household buildings, etc. in order to verify taxpayer’s adherence to regulations as to cash turnover, cash transactions, availability of licenses and certificates, as well as compliance with requirements as to conclusion of labor agreements and formalizing employment relations.

It is important to note, that there are no restrictions regarding in-site inspections, desktop inspections are limited by only one subject, and documentary inspections are prohibited.

According to the State Tax Service of Ukraine up to 22 and 36.5 thousand of documentary inspections were conducted in 2021 and 2020 respectively. Obviously, in 2022 the number of tax inspections is predictably to grow down.

Regardless of the current regulations and restrictions with respect to tax inspections, the following is worth remembering:

• There are no general rules as to activities of tax authorities in war-time. The specific requirements and restrictions are set forth ad hoc based on reasonability of state intrusion into commercial activity;
• Documentary inspections are prohibited, but desktop and in-site inspections are permitted; and
• The approach to tax inspections might be fast and essentially changed. Hence, it is important to continually monitor the amendment to the tax law.