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Ukraine adapts registration of VAT vouchers to tackle fraud

Ukraine Kiev 320 x 215

A new mechanism of monitoring the registration of VAT vouchers has been launched in Ukraine to counteract VAT fraud by suspending the registration of risky VAT vouchers.

According to the information of the Ministry of Finance, about 0.4 % of VAT vouchers submitted for the registration, including both fake VAT vouchers and an insignificant number of VAT vouchers of business entities of the real sector of the economy, have been suspended daily since the new mechanism launched on July 1 2017.

How it works

The mechanism assesses the degree of risk a VAT voucher poses by applying a two-level criteria.

The application of the first level of the criteria identifies whether the taxpayer’s VAT vouchers are the subject to monitoring or not. Thus, the VAT vouchers are not subject to control if at least one of the following criteria is met:

  • If the amount of taxes (employment-related taxes including the unified social contributions, taxes on immovable property, corporate profit tax, etc. except for import VAT) paid by the taxpayer-supplier in 2016 exceeds UAH 5 million ($195,000). This criterion is effective until January 1 2018;

  • If the volume of supply within the current month specified in the VAT vouchers (considering the volume of supply in the VAT voucher submitted for the registration) is less than UAH 500,000 and the director of such a taxpayer is a person who occupies a similar position no more than in three active taxpayers;

  • If the amount of taxes paid for the past 12 months constitute 5% and more of taxable supplies during the 12-month period and, simultaneously, the total amount of VAT specified in VAT vouchers that are registered in the current month (considering the VAT voucher submitted for the registration) does not exceed the largest amount of monthly VAT registered during the past 12 months of 30%; and

  • The VAT voucher is not to be provided to the recipient (buyer) and/or is issued under a transaction exempted from taxation.

If the second level of criteria must be applied, then the registration of the VAT voucher may be suspended, provided that the following criteria are met:

  • The volume of the supply of goods/services exceeds 1.5 times the balance (residual) between: respective goods/services purchased and or imported (excluding volume purchased without VAT or at a zero rate) and supplied during the period starting from January 1 2017 PROVIDED that more than 75% of the residual of goods are included in the special list approved by the National Tax Office and such goods/services have not been specified by the taxpayer as goods/services that are regularly supplied (manufactured) by the taxpayer and the amount of VAT specified in such VAT vouchers (which correspond to the previous conditions in this para) are registered in the current month (considering the VAT voucher submitted for the registration) does not exceed the average amount of taxes paid during the past 12 months; and

  • The absence (cancellation, suspension) of licenses certifying the right of a business entity to manufacture, export, import, wholesale and retail trade by excisable goods (products) in respect of the goods indicated by the taxpayer in the VAT voucher filed for registration.

It should be noted that pursuant to the information of the Ministry of Finance  the list of criteria for assessing the degree of risk will not be constant. They are subject to monitoring, improving, broadening and/or adjusting in view of the schemes of VAT fraud that might arise in practice in the future.

If the registration of VAT voucher is suspended, the taxpayer-supplier has the right to submit to the tax authorities written explanations and documents confirming the reality of the business transaction within the 365 calendar days following the date of the VAT liabilities arising. A special committee of the National Tax Office has to consider such documents within five working days following the day of their submission by the taxpayer and decide whether to register the VAT vouchers or deny their registration. The taxpayer-supplier may contest the negative decision to the National Tax Office or to the court.

It should be noted that, unfortunately, the introduction of this mechanism has caused certain difficulties to the business entities of the real sector of the economy due to the incapability of the hardware of the tax authorities to process the huge volume of electronic information daily submitted by the taxpayers, absence of clear-cut explanations on the subject matter, overloading the special committee of the National Tax Office and, as the result, inability to decide on VAT voucher registration within the established time limits. The Ministry of Finance and National Tax Office have undertaken urgent measures to solve the problems that have appeared during the first months the new mechanism has been in operation.

This article was written by Inna Taptunova, Senior of Counsel at WTS Consulting LLC/ KM Partners in Ukraine. WTS Consulting LLC/KM Partners is member of WTS Global.

Inna Taptunova_WTS Ukraine
Inna Taptunova; E: I.Taptunova@wts.ua
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