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Partner, Head of Tax practice, Attorney at Law, GOLAW
New Code of Administrative Legal Proceedings of Ukraine, Its Impact on Tax Disputes
Ayear has passed since the new procedural codes in Ukraine, including the Code of Administrative Legal Proceedings of Ukraine (hereafter — CALP of Ukraine) into law. Therefore, it is already possible to draw conclusions on the impact that the introduced changes have had on administrative disputes resolved by courts, particularly tax disputes.
I will say that the changes are quite positive and really do contribute to a more complete and objective consideration of cases by courts. So, let’s see exactly what can be singled out regarding the consideration of tax disputes.
Evidence and Proof
The major changes introduced by adopting the new CALP of Ukraine relate to evidence and proof during judicial proceedings. The changes are presented below:
Burden of Proof
It was precisely after the adoption of the new version of CALP of Ukraine that courts began to accept the provision according to which each party has to prove its position with sufficient evidence differently. Today, when considering tax disputes, for
example, with regard to appealing decisions of tax authorities, establishing and evaluating all the circumstances of a case, the courts pay special attention to the grounds on which the tax authorities relied when making the contested decision and what arguments the tax authority is using to prove its position.
The Supreme Court (hereinafter — the SC) has repeatedly stated that: “Court practice in the resolving of tax disputes derives from the presumption of a conscientious taxpayer, which provides for the economic justification of the taxpayer’s actions with the consequence of obtaining a tax benefit, and the reliability of the taxpayer’s accounting and tax reporting (in particular, the Rulings of the Supreme Court of 19 June 2018 in case No.804/15389/15, of 4 September 2018 in case No. 826/12671/15).
At the same time, the provisions of the new CALP of Ukraine established that in administrative cases on the unlawfulness of decisions, actions or lack of action of the subject of authority, the subject of authority cannot rely on evidence, which was not the basis of the contested decision.
As a practical matter, inspectors of the tax authority who carried out the inspection and represent the interests of the tax authority in court, are quite different people. Therefore, it is not unusual for the tax authority to try and find new arguments in court to prove the legality of the decision taken based on the results of the audit.
With the introduction of changes to the CALP of Ukraine, the majority of courts began to treat such cases quite critically. The Supreme Court, in its Ruling of 6 November 2018 in case No. 822/551/18, directly emphasized that, according to Part 2 of Article 77 of the CALP of Ukraine, the court is deprived of the opportunity to accept arguments of the tax authority, considering that the subject of authority cannot rely on evidence that was not the basis of the contested decision.
It is worth noting that, despite the fact that the said norms of the CALP of Ukraine do have a positive impact on the consideration of tax disputes and have somewhat simplified the plaintiff’s procedure to prove his position in court, they have not deprived the plaintiff of the need to prove his position in court.
Evidence and its Sufficiency
One of the useful novelties introduced by the CALP of Ukraine was the extension of the range of evidence that can be filed by the plaintiff when appealing decisions of the tax authority. The new CALP of Ukraine has consolidated the concept of electronic evidence, which is quite logical, given that more taxpayers are gradually moving away from paperwork and implementing electronic document circulation and correspondence.
In addition, in the new CALP of Ukraine, not only is a wider range of types of evidence stated, but more requirements are set for assessing such evidence. This evidence must not only be valid and permissible, but also reliable and sufficient. Thus, in its aggregate, it should be possible to conclude that the circumstances of the case, which are part of the subject of proof, are present or absent.
In particular, in the event that the plaintiff provides the court with appropriate primary and other documents to confirm the illegality of the decision of the tax authority, the court assesses the sufficiency of the evidence provided by the taxpayer in the basis of the decision. And in practice, when the reality of business transactions is questioned, it often happens that the arguments of the tax authority are insufficient. For example:
— “… the unrealistic nature of economic transactions with the purchase by the taxpayer of goods/services must be supported by appropriate, admissible and sufficient evidence and cannot be based on assumptions justified solely by a reference to the buyer’s counterparty lack of labor resources” (Ruling of the SC of 29 October 2018 in case No. 808/1396/17);
— “… the presence or absence of separate documents itself, as well as the shortcomings in their preparation, cannot be the basis for the conclusion that there are no business transactions and the refusal to create a tax credit, if based on other data, changes are seen in the structure of assets and liabilities, the taxpayer’s equity in connection with its economic activities (Ruling of the SC of 30 January 2018 in case No. 2а-865/12/2170).
The Procedure for Submitting Evidence
With the adoption of the new version of the CALP of Ukraine, it seems that the most difficult thing for the parties in the beginning was the observance of the proper procedure for submitting evidence. Namely, the new CALP of Ukraine (Article 79) has established:
— new terms for submitting evidence: the plaintiff must submit evidence together with the filing of the statement of claim (in practice, evidence may also be filed when submitting a response to the motion to disallow a claim); the defendant — with the filing of the motion to disallow claim (in practice — when submitting objections also). In turn, the consequence of non-compliance with these deadlines is that the court may not accept such evidence. The only exceptions are cases when the person submitting the evidence has substantiated the impossibility of submitting it within the specified deadline for reasons that were not dependent on him/her.
It should be noted that for the plaintiff in tax disputes this provision has somewhat complicated the filing of the claim. After all, taking into account that the plaintiff is obliged to file all the primary and other documents in support of his position in court, from now on, at the time of filing a statement of claim, the plaintiff must provide them in advance and take care of the adequacy of his submitted documents, which requires a lot of experience and discretion when addressing a court. But in many cases it is also a fairly large number of documents that the plaintiff must form not only for the court but also for the defendant.
— copies of evidence (other than material evidence) submitted to the court must be forwarded or submitted in advance by the person who submits them to other parties to the case. The Court does not take into account the relevant evidence in the absence of confirmation of the dispatch (provision) of copies thereof to other participants of the case, except if such evidence is available to the relevant party to the case, or the amount of evidence is excessive, or it has been submitted to the court in an electronic form or is publicly available.
In practice, in most cases, courts do not accept evidence unless it has been sent or given to the other party in the case. This, in its turn, can have a decisive influence on the outcome of the case hearing by the court. For example, if this evidence was important to prove the position of the party concerned.
As an example, the Court of Appeal failed to comply with the aforementioned provisions: the Court of Appeals accepted the evidence submitted by the tax authority only to the Court of Appeal without proof of its being sent to the plaintiff, which served as grounds for the annulment of the decision of the Court of Appeal by the Supreme Court accompanied by transfer of the case for fresh consideration (Ruling of 11 December 2018 in case No. 826/1277/18).
The provisions of the CALP of Ukraine, which give the courts the right to consider cases in simplified proceedings, have a rather two-sided influence on the consideration of tax disputes.
Thus, according to Art. 257 of the CALP of Ukraine, any case assigned to the jurisdiction of the administrative court can be considered under the rules of simplified proceedings, with the exception of certain cases, for example, with respect to the appeal of a subject of authority decision, on the basis of which it cannot submit a claim for collection of funds in the amount that exceeds five hundred subsistence minimums for able-bodied persons (this sum is now more than UAH 960,500).
On the one hand, the possibility of reviewing cases in the form of a simplified proceeding allows the courts to be unloaded and considerably speed up consideration of the case: the possibility of obtaining a decision within a period not later than 60 days from the date of opening of the proceedings.
On the other hand, the judge decides on the consideration of a case in simplified or general proceedings when opening a case without examining the merits of the case itself. In a simplified proceeding a court may consider a case without summoning the parties to a court hearing. And in practice, sometimes such decisions are made by the court only in view of the small price of the claim or the non-property nature of the dispute, although in fact the case does not belong to cases of insignificant complexity. Consequently, the consideration of a certain category of cases without summoning parties to the court session may sometimes have a negative impact on the taxpayer, since he’s the one in fact deprived of the opportunity to provide his explanations in the case.
In conclusion we believe that the new version of the CALP of Ukraine contains a rather large range of innovations that clearly gives a positive flow to resolving tax disputes.