CONFIRMATION OF POSSIBILITY OR IMPOSSIBILITY TO FULFIL TAXPAYER’S OBLIGATIONS

Stanislav KARPOV, сounsel, Co-head of Tax Disputes Practice

After the war began the Transitional Provisions of the Tax Code of Ukraine were added with par. 69.1, according whereto the conditions of exemption of taxpayers from liability were determined (in particular, related to adherence to deadlines for reporting and payment of tax obligations). Such conditions of exemption from liability for breaches of tax law, inter alia, depend on actual possibility for taxpayer to fulfil his tax obligations.

The procedure of confirmation of possibility or impossibility to fulfil the taxpayer’s obligations was to be adopted by the Ministry of Finance of Ukraine. However, the Ministry wasn’t in a hurry, and the respective Regulation was adopted only on 29 July 2022 (the Proctdure on confirmation of possibility or impossibility to fulfil the taxpayer’s obligations, listed by the par. 69.1 of par. 69 of Subsection 10 of Section XX “Transitional Provisions” of the Tax Code of Ukraine, and the List of documents for the purpose of confirmation, approved by the Regulation of the Ministry of Finance of Ukraine as of 29 July 2022 No. 225). The Regulation was officially published and entered into force respectively on 6 September 2022.

As it appears from the title of the above-mentioned enactment, the List of documents for the purpose of confirmation was also approved.

The Regulation differs the grounds for impossibility to fulfil tax obligations by natural persons and by legal entities.

Thus, for legal entities such grounds can be, for example, as follows:

• Loss / unavailability to use or to evacuate accounting documents, computers or other devices due to military actions, terrorist actions, destructions or violence caused by military aggression of Russian Federation (including if such use or evacuation is hazardous for life or is not possible due to legislative restrictions during the war time);
• Leak of data regarding the volumes and places of storage of fuel or ethyl alcohol and data deleting due to drawing up / registration / submitting of excise tax records;
• Absence of the taxpayer’s officials entitled to assess, calculate and pay taxes, and to make bookkeeping and accounting, and to submit tax and financial reporting;
• Location of the legal entity (i.e., tax address or real seat or location of facilities, etc.) within the populated locality, which is blocked or temporarily occupied by military units of Russian Federation, or is a place of military actions; and
• Other circumstances of force majeure, confirmed by respective documents.

I may be affirmed, that the list of grounds is not exhaustive since any circumstances officially recognized as force majeure can be considered as a ground for impossibility to fulfil tax obligations.

As to the grounds for taxpayers-natural persons, they include some grounds determined for legal entities and, in addition, there are grounds as follows:

• Hospital stay in health care facilities, including foreign ones, in connection with wound, concussion or severe injury as a result of military duty fulfilment or as a result of military actions and related accidents;
• Call to military duty during the full mobilization or participation in local defense units;
• Fulfilment of duties as employee of law-enforcement bodies, as military person or employee of other state authorities directly involved in ensuring national security and defense, pushback and deterrence against military aggression of Russian Federation.

In the event, there are respective grounds, the taxpayer has a right to apply to the tax body for confirmation of impossibility to fulfil his tax obligations. The application is to be drawn up in free format and to contain obligatory data, defined by the abovementioned Regulation. Evidences (documents) are to be attached to the application based on the List of documents for the purpose of confirmation and on the specific circumstances (grounds).

The terms for filing applications are as follows:

• If the taxpayer is able to submit a respective application as of the date the Regulation entered into force, the deadline for the application is 30 September 2022;
• If the taxpayer is not able to submit a respective application as of the date the Regulation entered into force, the application is to be submitted when the fulfilment of one of the tax obligations becomes to be possible, but not later than 60 calendar days from the first day of the month next to the month of renewal of such possibility for the taxpayer; or
• If the taxpayer becomes unable to fulfil his tax obligations after the date the Regulation entered into force, the application is to be submitted within 60 calendar days from the first day of the month next to the month of renewal of such possibility for the taxpayer to file respective application.

The application is to be considered by the tax authority within 20 calendar days, but this term can be extended if the tax body takes preliminary decision due to the fact that submitted documents are not enough for final decision.

Should it be the case, the preliminary decision of tax body is to be sent to the taxpayer within 20 calendar days and is to include a suggestion to additionally submit specific documents needed to make final decision. The taxpayer is entitled to file additional documents and statements within 10 calendar days from the day next to the day of receiving the preliminary decision. Such additional documents and statements are to be considered by the tax body within 20 calendar days. If the taxpayer fails to submit additional evidences, the final decision is to be made based on initial taxpayer’s application.

To decide on the taxpayer’s applications the tax body is entitled to apply to the other authorities to confirm circumstances indicated in the taxpayer’s application. The tax body is obliged to prove the possibility or impossibility for the taxpayer to fulfil his tax obligations.

It is notable, that the Procedure authorizes the tax body to establish the cause-effect connection between the force majeure circumstances arisen out of the military aggression of Russian Federation and specific influence of such circumstances on the taxpayer / possibility to fulfil tax obligation as of the date which is a deadline for fulfilment of respective tax obligation. As is well-known, the right to recognize circumstances to be force majeure is granted to the Chambers of commerce and industry. Nevertheless, this time the tax bodies obtain much freedom with respect to force majeure issue. Having been aware of though fiscal approach of tax bodies, it can be anticipated that confirmation of force majeure circumstances before tax bodies will be much more difficult than before Chambers of commerce and industry.

Fortunately, the tax body’s decision on the possibility or impossibility to fulfill the tax obligation by the taxpayer may be appealed both under administrative procedure or to the court. Therefore, it can be reliably concluded that the new type of tax disputes is to arise in the nearest future.