Kyiv Post - - Business Focus -

It is cur­rently a time of grad­ual sim­pli­fi­ca­tion of tax ac­count­ing in Ukraine. The con­ver­gence of cor­po­rate profit tax with ac­count­ing, the sim­pli­fi­ca­tion of the cal­cu­la­tion of pay­roll taxes and the pos­i­tive prac­tice of VAT re­fund­ing have alr eady re­duced the time that com­pa­nies need to pay taxes. In ad­di­tion to t he above, there is als o a cer­tain lib­er­al­iza­tion of the prac­tices of the fis­cal author­i­ties, or more­over there are un­ex­pect­edly re­laxed in­ter­pre­ta­tions of t ax leg­is­la­tion. At f irst glance, one might even get the im­pres­sion that the fis­cal ser­vice’s ac­tiv­i­ties are di­rected at im­prov­ing the in­vest­ment cli­mate in Ukraine. How­ever s uch a t rend of lib er­al­iza­tion c ould eas­ily mis­lead tax­pay­ers and give them a f alse sense of se­cu­rity. An anal­y­sis of tax dis­putes with the fis­cal author­i­ties shows us that they have ex­panded the range of is­sues that are of in ter­est dur­ing t ax au­dits, and shows a deeper com­pre­hen­sion of such is sues. The myth that the fis­cal author­i­ties do not un­der­stand the specifics of acc ount­ing should been for­got­ten. To­day we are see­ing a clear trend of an in­crease in the num­ber of com­pa­nies re­quest­ing tax ad­vi­sory ser­vices and tax re­views. Nev­er­the­less, for most tax­pay­ers, such ser­vices are still lit­tle-known and of­ten con­fused with those in­volved in a clas­si­cal fi­nan­cial au­dit. We will try to show that a tax re­view is rel­e­vant not only for large com­pa­nies, but for all tax­pay­ers, in­clud­ing in­di­vid­u­als. And we will pro­vide more de­tailed cases in which you may need a tax re­view.


Most of­ten the rea­son com­pa­nies ap­ply for tax re­view ser­vices is that there is a change in their man­age­ment (fi­nan­cial di­rec­tor, chief ac­coun­tant, etc.). Tax re­views make it pos­si­ble to iden­tify po­ten­tially risky ar­eas and pro­vides a com­fort zone for the new man­age­ment. Some­times it may even iden­tify cases of fraud and abuse by re­spon­si­ble per­sons. An ad­di­tional bonus of such a re­view is that it can be an as­sess­ment of the em­ployee’s com­pe­tence. In our prac­tice, there were cases in which af­ter a tax re­view, there were changes made in the fi­nan­cial team, with some em­ploy­ees be­ing pro­moted, and some even dis­missed.


In sec­ond place among clients is pre-in­vest­ment due dili­gence. Of­ten tar­get in­vestee com­pa­nies are lo­cal Ukrainian busi­ness that have never been au­dited. Ob­vi­ously, no­body wants to in­vest in a com­pany if it leads to ad­di­tional taxes and penal­ties be­ing ac­crued. Tax risks in par­tic­u­lar are the most com­mon rea­son for ad­just­ing the value of a deal, or even aban­don­ing it. Along with this, one of the rea­sons the fis­cal author­i­ties carry out un­planned tax au­dits is be­cause the pro­ce­dure of re­or­ga­ni­za­tion or liq­ui­da­tion of a le­gal en­tity has been started. Usu­ally, in such cases, tax­pay­ers them­selves in­sist on a tax au­dit and run into dif­fi­cul­ties be­cause the in­spec­tion is post­poned by the fis­cal author­i­ties. Pri­mar­ily, com­pa­nies that have not been au­dited by the fis­cal author­i­ties should con­sider un­der­go­ing a tax re­view.


Ukraine’s tax leg­is­la­tion is con­trantly chang­ing. Its ap­pli­ca­tion of­ten re­quires ad­di­tional in­ter­pre­ta­tions and rec­om­men­da­tions from the fis­cal and other of­fi­cial author­i­ties. The lat­est rad­i­cal changes in the cor­po­rate profit tax laws brought tax and ac­count­ing record­ing in Ukraine closer, which, as a re­sult, sub­stan­tially sim­pli­fied ac­count­ing and tax pay­ments for busi­ness. How­ever, as prac­tice shows, many com­pa­nies may face prob­lems with the com­pe­tence of the ac­count­ing staff and the con­sis­tent ap­pli­ca­tion of ac­count­ing poli­cies and stan­dards in daily trans­ac­tions. There are also reg­u­lar cases of in­con­sis­tent in­ter­pre­ta­tion and ap­pli­ca­tion of leg­is­la­tion by the tax author­i­ties. Tax con­sul­tants have a wide ex­pe­ri­ence of chal­leng­ing what are some­times rather cre­ative in­ter­pre­ta­tions of the fis­cal ser­vice.


As it is known, from 2017 the fis­cal author­i­ties must pub­lish an an­nual sched­ule of planned tax in­spec­tions on their of­fi­cial web­site. We hope that the ap­pear­ance of your com­pany in the list may not be the cause of un­nec­es­sary worry, but we rec­om­mend pre­par­ing in ad­vance for a planned visit from the fis­cal author­i­ties.


The prac­tice of con­duct­ing tax re­views shows that even in large com­pa­nies, the spe­cial­ists re­spon­si­ble for ac­count­ing and taxes are of­ten in an “in­for­ma­tional vac­uum” due to the lack of time and the high vol­ume of work. Of­ten, a client’s tax team re­lies on their pre­vi­ous ex­pe­ri­ence, on the re­sults of pre­lim­i­nary au­dits, or ad­vice from their col­leagues when as­sess­ing tax risks, with­out tak­ing into ac­count changes in leg­is­la­tion or re­cent tax prac­tices. In this case, this be­comes a kind of vi­cious cir­cle, which is best bro­ken by in­volv­ing a third party – a tax ad­vi­sor. Par­tic­u­lar at­ten­tion to this should be paid by the small com­pa­nies that can­not af­ford high costs for em­ployee ed­u­ca­tion. Given the specifics of ac­tiv­i­ties and the vol­ume of trans­ac­tions, con­duct­ing ex­ter­nal tax re­views for them is even more rel­e­vant, al­though with a lower fre­quency (for ex­am­ple, once every 2-3 years) Tax au­dits by the fis­cals are not the most pleas­ant ex­pe­ri­ences in a com­pany's life, re­gard­less of who ini­ti­ates them. But, one should un­der­stand that there is a way to be ready for them, and to avoid penal­ties. The con­duct­ing of a tax re­view in a timely man­ner can be a prof­itable in­vest­ment that gen­er­ates a re­turn im­me­di­ately af­ter it is car­ried out.

Ie­gor Synyt­syn Se­nior tax ad­viser at EBS

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